Variable Transaction Fee Assignment for Vendor Value
Find Innovative SolutionsGenerate Solutions
Solution Overview
Problem
Current electronic payment systems for business-to-business transactions lack a flexible fee structure that can be tailored to the value provided to vendors, making them less appealing due to high fixed transaction fees and difficulties in reconciling payments within accounting systems.
Innovation Solution
A system that assigns a variable transaction fee to each vendor based on industry sensitivity, payer-centric spend and frequency scores, network spend and frequency scores, allowing for a dynamic fee structure that reflects the value provided, using a rate tier assignment application to determine the appropriate fee tier for each vendor.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Adaptability or versatility
If a fixed transaction fee structure is used, then the payment system is simple to operate, but the fee structure cannot be tailored to the value provided to different vendors
Solution Approach 1:
The patent applies parameter changes by transitioning from a fixed transaction fee to a variable fee structure based on multiple parameters including industry sensitivity scores, payer-centric spend scores, frequency scores, and network spend scores. This allows the fee structure to adapt to different vendors and transaction types while maintaining systematic control through defined scoring methodologies
Solution Approach 2:
The patent segments the vendor base into different categories based on industry sensitivity and transaction patterns. By dividing vendors into segments with different fee structures, the system achieves adaptability to various vendor needs while managing complexity through standardized segment definitions and automated classification
2Reliability
If high fixed transaction fees are charged, then the payment system can cover operational costs, but vendors find the system less appealing and adoption decreases
Solution Approach 1:
The patent applies local quality by tailoring transaction fees to specific vendor characteristics and transaction types rather than applying a uniform fee structure. Vendors in industries with lower sensitivity to payment delays receive different fee treatment than those with higher sensitivity, making the system more appealing to specific segments while maintaining overall reliability
Solution Approach 2:
The patent introduces dynamics by making transaction fees variable rather than fixed. Fees adjust based on vendor performance metrics, industry characteristics, and transaction patterns, allowing the system to maintain vendor appeal while ensuring adequate revenue to cover operational costs and provide payment guarantees
3Loss of information
If manual reconciliation processes are used, then accounting systems can track transactions, but the process is time-consuming and difficult for both payers and vendors
Solution Approach 1:
The patent implements feedback mechanisms that automatically track and report transaction information to both payers and vendors. The system provides real-time or near-real-time information about payment status, fee calculations, and reconciliation data, eliminating the need for manual tracking and significantly reducing the time required for reconciliation while maintaining accurate information records
Data Source
AI summary
A system makes payments from a payer to a vendor and assesses a variable transaction fee to the vendor. The system comprises a database which associates, for each of a community of payers, identification a rate tier assigned to each vendor to which the payer makes payment. A tier assignment application determines a tier to assign to a vendor by determining: i) an industry sensitivity score based on the type of business the vendor operates; ii) a payer centric spend score; iii) a payer centric frequency score; iv) a network spend score; and iv) a network frequency score. The tier assigned to the vendor is a function of these scores. A payment application, when making payment from the payer to the vendor, determines a transaction fee to apply to the payment by multiplying the payment amount by a transaction rate associated with the tier assigned to the vendor.