Payment Industry: Players
The payment ecosystem involves multiple entities that facilitate electronic transactions. Here's a breakdown of their roles:
Payment Gateway (Front-end Technology)
What it does:
- Acts as a bridge between businesses (merchants) and payment processors.
- Securely transmits payment details entered by customers (credit card, debit card, digital wallet) to the payment processor.
- Encrypts sensitive payment information to prevent fraud.
- Mainly used in e-commerce transactions.
Examples: Stripe, Razorpay, PayU, Adyen, Authorize.Net
Think of it as the POS (Point of Sale) terminal for online payments.
Payment Processor (Back-end Transaction Handler)
What it does:
- Processes payments on behalf of merchants by connecting with banks, payment networks, and gateways.
- Ensures funds are transferred securely from the customer's account to the merchant's account.
- Screens transactions for fraud and risk.
Examples: PayPal, Worldpay, Fiserv, Square, Adyen, Stripe (Stripe functions as both a gateway and processor)
The middleman that moves money between the merchant, issuing bank, and acquiring bank.
Payment Network (Card Network)
What it does:
- Manages the infrastructure and communication between issuing banks, acquiring banks, and payment processors.
- Defines transaction rules, fees, and security standards.
- Approves or declines transactions based on issuing bank authorization.
- Acts as a clearinghouse to settle funds.
Examples: Visa, Mastercard, American Express, Discover, RuPay, UnionPay
Think of it as the highway system where banks and payment processors communicate.
Card Scheme Network (Subset of Payment Network)
What it does:
- Operates as a brand and regulatory body for specific types of cards.
- Sets rules for transaction processing, interchange fees, chargebacks, and fraud management.
- Card issuers and acquirers must follow the scheme's rules.
Examples: Visa, Mastercard, American Express, Discover
These companies issue licenses to banks and dictate card transaction standards.
These companies issue licenses to banks and dictate card transaction standards.
The rulebook that banks and payment networks follow.
Issuing Bank (Issuer)
What it does:
- The bank or financial institution that issues credit cards or debit cards to consumers.
- Approves or declines transactions based on account balance, fraud risk, and credit limit.
- Sends authorization response back to the payment network.
Examples: Citibank, Chase, DBS, ICICI Bank, HSBC
Your personal bank that provides you with a card and decides whether you can complete a transaction.
Acquiring Bank (Acquirer)
What it does:
- The bank that provides merchant accounts for businesses to accept card payments.
- Works with payment processors to receive and settle transactions.
- Transfers funds from issuing banks to merchants after transaction settlement.
Examples: UOB, Wells Fargo, Bank of America, HDFC Bank
The merchant's bank that holds the funds before transferring them to the business.
Merchant Service Providers (MSPs)
What it does:
- MSPs are third-party companies that provide businesses (merchants) with payment processing services.
- They facilitate merchant accounts, payment gateways, fraud prevention, and payment terminals.
- MSPs typically work with acquiring banks to provide end-to-end payment solutions for businesses.
Examples: Fiserv, Global Payments, Stripe, Adyen
Think of an MSP as a one-stop shop for merchants that bundles all payment services together.
Independent Sales Organizations (ISOs)
What it does:
- ISOs partner with acquiring banks to sell merchant accounts and payment services.
- They resell payment processing services but do not process payments themselves.
- ISOs help merchants sign up for card processing and provide customer support.
Examples: TSYS, First Data (now Fiserv), EVO Payments, Elavon
Think of an ISO as a franchisee of an acquiring bank—they sell payment processing services under the bank's authorization.
Payment Facilitators (PayFacs)
What it does:
- PayFacs act as a master merchant and onboard smaller businesses as sub-merchants.
- Unlike ISOs, they handle payment processing directly, removing the need for each merchant to set up their own acquiring bank account.
- PayFacs simplify onboarding, compliance, and risk management for small merchants.
Examples: Stripe, Square, PayPal, Adyen
Think of PayFacs as "Uber for payments"—they aggregate multiple small businesses under one account, making it faster and easier for them to start accepting payments.