The digital payment landscape in India has seen a significant transformation over the past decade. With the rise of online transactions, the ecosystem has expanded to include various players, each with distinct roles and responsibilities.
In this blog, we’ll delve into the key players in the payment processing ecosystem—merchant acquirers, payment processors, and payment gateways.
We will also provide examples of Indian companies in each category, explain how they earn, and break down the fees and responsibilities in a typical transaction.
What is a Payment Processing Ecosystem?
Imagine you're buying that new game online. You hit pay, fingers crossed, and then – poof! The order is confirmed. But wait, some unseen heroes are working behind the scenes.
It's like a high-tech relay race for your money! Your bank, the seller's bank, and some savvy payment processors all team up to securely transfer the cash. These processors are like the stick carriers, ensuring everything is legit and the money gets where it needs to go – fast and safe.
That's the magic of payment processing!
Key Players in the Payment Processing Ecosystem
The payment processing ecosystem comprises several key players:
1. Merchant Acquirers
Responsibilities:
Onboarding merchants to accept card payments
Managing transaction handling and settlement
Handling fee management and security compliance
Providing customer support to merchants
Examples in India:
HDFC Bank
ICICI Bank
Axis Bank
How They Earn: Merchant acquirers earn through transaction fees, monthly fees, and setup fees charged to merchants. They may also charge fees for additional services such as chargeback handling and fraud prevention.
2. Payment Processors
Responsibilities:
Processing transactions between merchants and acquiring banks
Ensuring secure transaction processing
Managing processing fees and supporting chargeback handling
Examples in India:
Pine Labs
PayU
Atom Technologies
How They Earn: Payment processors charge a fee for each transaction they process. This fee can be a percentage of the transaction amount or a flat fee per transaction. They may also charge for additional services like recurring billing and fraud prevention.
3. Payment Gateways
Responsibilities:
Facilitating the connection between merchants and payment processors
Providing APIs and SDKs for integration with POS systems
Ensuring secure transaction routing
Examples in India:
Razorpay
CCAvenue
Instamojo
How They Earn: Payment gateways earn through transaction fees, setup fees, and monthly maintenance fees. They may also offer premium services like enhanced security features and analytics, for which they charge additional fees.
4. Issuing Banks
Responsibilities:
Issuing credit and debit cards to consumers
Managing customer accounts and credit lines
Handling card-related disputes and fraud prevention
Examples in India:
State Bank of India (SBI)
Punjab National Bank (PNB)
Kotak Mahindra Bank
How They Earn: Issuing banks earn through annual card fees, interest on credit card balances, and interchange fees charged to merchant acquirers.
5. Card Networks
Responsibilities:
Providing infrastructure for processing card payments
Ensuring secure and reliable transaction routing
Setting and enforcing transaction standards
Examples:
Visa
MasterCard
RuPay
How They Earn: Card networks earn through interchange fees charged to merchant acquirers and annual fees from issuing banks. They also charge fees for processing transactions.
6. Digital Wallets and UPI Platforms
Responsibilities:
Facilitating online transactions and peer-to-peer payments
Providing mobile applications for easy payment processing
Ensuring transaction security and compliance
Examples in India:
Paytm
Google Pay
PhonePe
How They Earn: Digital wallets and UPI platforms earn through transaction fees, merchant service fees, and premium service charges. They may also earn interest on the balance held in user accounts.
7. Regulatory Bodies
Responsibilities:
Regulating the payment ecosystem and ensuring compliance with financial laws
Setting standards for security and transaction processing
Examples in India:
Reserve Bank of India (RBI)
National Payments Corporation of India (NPCI)
How They Earn: Regulatory bodies typically do not earn revenue as they are government entities. They are funded through government budgets and fees from regulated entities.
8. Fraud Prevention Services
Responsibilities:
Providing fraud detection and prevention services
Monitoring transactions for suspicious activity
Ensuring compliance with security standards
Examples:
Simility (acquired by PayPal)
FIS Global
How They Earn: Fraud prevention services earn through subscription fees, transaction fees, and charges for premium fraud detection features.
What are the Roles & Responsibilities of Merchant Acquirers, Payment Processors, & Payment Gateway?
Here’s a comparative table highlighting the roles and responsibilities of merchant acquirers, payment processors, and payment gateways:
Functions | Merchant Acquirers | Payment Processors | Payment Gateways |
Merchant Onboarding | Enroll merchants to accept card payments | Not directly involved | Facilitate the integration of merchants into the system |
Transaction Handling | Accept card payments on behalf of merchants | Process transactions between merchants and acquirers | Route transaction data between merchants and processors |
Settlement | Deposit funds into merchant accounts | Facilitate fund transfers between banks and acquirers | Not directly involved in fund transfers |
Fee Management | Manage transaction fees charged to merchants | Charge processing fees for transactions | Charge fees for transaction routing and security |
Security | Ensure compliance with PCI DSS and other regulations | Ensure secure transaction processing | Provide encryption and security protocols for data |
Dispute Handling | Handle chargebacks and disputes | Support chargeback processing | Not directly involved in chargebacks |
Integration with POS | Integrate with Point of Sale systems | Not directly involved | Provide API and SDK for POS integration |
Branding | Often operate under their own brand or as a white label | Typically operate under their own brand | Often provide white-label solutions |
Technology Provision | Provide technology for transaction acceptance and management | Provide infrastructure for transaction processing | Provide technology to connect merchants with processors |
Customer Support | Offer support to merchants for payment-related issues | Offer support to merchants and acquirers | Offer support to merchants for integration and technical issues |
Example Of Transaction Breakdown
Let’s take an example transaction of INR 100 and break down each player's roles, fees, and responsibilities.
Transaction Flow
Customer initiates a payment of INR 100 on an e-commerce website.
Payment Gateway (e.g., Razorpay) routes the transaction data securely to the payment processor.
Payment Processor (e.g., PayU) processes the transaction and communicates with the issuing bank and card network.
Card Network (e.g., Visa) verifies the transaction details and routes the request to the issuing bank.
Issuing Bank (e.g., SBI) approves the transaction and sends a confirmation back through the card network.
Payment Processor finalizes the transaction and settles the amount with the acquiring bank.
Merchant Acquirer (e.g., HDFC Bank) settles the funds into the merchant’s account, minus any fees.
Fees Breakdown
Entity | Role | Fees |
Merchant Acquirer | Handles transaction and settlement | Charges a fee (e.g., 1% of the transaction) = INR 1 |
Payment Processor | Processes the transaction | Charges a processing fee (e.g., 0.5% of the transaction) = INR 0.50 |
Payment Gateway | Routes transaction data | Charges a gateway fee (e.g., 0.25% of the transaction) = INR 0.25 |
Card Network | Verifies transaction | Charges an interchange fee (e.g., 0.1% of the transaction) = INR 0.10 |
Issuing Bank | Approves transaction | Earns interchange fee from card network = INR 0.10 |
Total Fees
Total fees deducted from the transaction = INR 1 + INR 0.50 + INR 0.25 + INR 0.10 = INR 1.85
After all fees are deducted, the merchant receives INR 98.15 from the INR 100 transaction.
Conclusion
Understanding the roles and responsibilities of each player in the payment processing ecosystem is crucial for businesses navigating the digital payment landscape. Merchant acquirers, payment processors, and payment gateways each play vital roles in ensuring secure and efficient transactions. By comprehending how each entity earns and its fee structures, businesses can make informed decisions to optimize their payment processes.
By leveraging the services of established players like HDFC Bank, Razorpay, and PayU, businesses can enhance their transaction efficiency and security, ultimately benefiting from a seamless payment experience.
