Understanding the payment ecosystem
Each entity and technology involved in the payment ecosystem typically plays a specific role in the payment process. Here is a quick breakdown of each one.
A bank or other financial company that issues payment cards to consumers on behalf of the card networks. These are the names that usually appear on the cards, such as Barclays, NatWest Group, Wise, or Revolut. The company issues payment to the merchant’s bank (the acquiring bank) on behalf of the consumer, meaning they assume liability for the money if the consumer cannot pay the money back.
A bank or financial company that enables merchants to accept card payments from a consumer’s card issuer within a payment network. They’re also known as merchant acquirers or acquiring banks. Acquirers primarily process credit or debit card payments on behalf of merchants and can also act as payment processor or ISO. They assume the risk and pass the transaction data to the card brand associations (card networks) and issuers to complete payment. FIS WorldPay, Valitor, Lloyds Bank Cardnet, and Global Payments are acquirers available in the UK.
Visa, Mastercard, and American Express are examples of credit card networks that facilitate transactions between consumers, merchants, processors, banks, and financial companies. They oversee the payment processing activity and monitor settlement and sales clearing while regulating and managing their card network’s compliance policies. They charge fees to the issuing and acquiring companies for each transaction. American Express operates differently than Visa and Mastercard by issuing their own credit cards and consolidating the functions normally provided by the merchant bank, issuer, and card network.
Payment processors are companies working in the background to provide payment processing services to merchants. They handle the entire payment transaction to ensure merchants get paid by connecting merchants, consumers, card networks, issuers and acquirers. They may be associated with acquiring banks, like Barclays, or independent from them, like FIS WorldPay.
They are also referred to as payment service providers (PSPs,) merchant service providers, member service providers, and independent sales organisations (ISOs.) They all perform similar functions in the payment ecosystem, with some offering more and others just the basics.
Some offer additional security and fraud protections and regulatory compliance assistance, while others specialise in different card processing formats. For example, by only processing online, card-not-present transactions or by offering both credit and debit card payment options. Visa and Mastercard are considered ISOs or member service providers as they process payments on behalf of issuers. Square, Stripe, and Elavon are ISOs available in the UK.
Payment gateways are software applications that enable merchants to accept payments made with credit and debit cards. They securely encrypt payment information and transfer the data between the merchant, the processor, and the card issuer. Gateways have robust security to protect cardholder data during the entire transmission process. They can be entirely digital as they process transactions from a website or physical through an in-store point of sale (POS) system at a bricks and mortarlive sale location.
These ISOs operate as a master merchant processing account for smaller merchants who wish to process online sales. It helps bring powerful and frictionless payment options to smaller merchants while reducing the cost of using these services. Similar to how cloud computing makes it easier for smaller companies to get access to powerful solutions, payment facilitators do the same for the payment ecosystem.
The facilitator controls the merchant’s end-to-end processing experience and settlement disbursements, while merchants enjoy lower costs and optimised functionality. One distinction is that facilitators do not hold the funds they process. The funds are routed from the consumer’s bank account to the merchant’s via any number of intermediaries.
Integrated software vendors (ISVs)
An ISV is a company that offers payment software for embedding in third-party software products such as in a mobile app or other web apps. Many ecosystem companies have ISV programs that offer secure and cost-effective integrated payment processing options for third-party vendors. ISVs can integrate the payment software through APIs, software developed kits (SDKs,) and other developer-friendly technologies, making it easy to offer more payment functionality without additional research and development costs. The ISVs make money from commissions based on transaction volumes.