What happens after customers tap or swipe their cards or press “pay”?

The entire process is often overlooked. It’s only brought into focus when there’s a hitch, like when payment doesn’t go through. 

However, all transactions are tied to the entire payment ecosystem. Understanding how this system operates isn’t just for financial experts. Every business looking to prevent fraud and provide better customer experience should be familiar with the basics. 

What Is the Payment Ecosystem?

A payment ecosystem refers to the network of interconnected technologies and processes that allow for the movement of money between customers, financial institutions (banking or non-banking), and your business.

Traditionally, this ecosystem relied on cash transactions, checks, and manual bank transfers. However, technological advancements gave rise to digital payments, which are fast establishing themselves as a significant player. They’re expected to generate US$20.37tn in 2025.

To give you an overview of how the payment ecosystem works, here’s the nutshell:

When a customer pays via credit card, digital wallet, or bank transfer, it starts a sequence:

1. The payment gateway transmits the transaction details for verification.

2. The issuing bank (customer’s bank) checks for funds and fraud risks before approving or declining.

3. If approved, the payment processor moves the money from the customer’s account to the merchant’s account via the acquiring bank.

Behind the scenes, more players work to improve security, compliance, and efficiency. In the next section, we’ll get to know all of them a bit more.

Key Players in the Payment Ecosystem

It only takes seconds to complete the payment process, but there are a lot of steps involved. For every step, there's a player to click it into place and set the next one in motion. A better understanding of how they all interact can help you select the right technology and partners. 

Merchants

Merchants are businesses that accept payments from customers. 

Brick-and-mortar retailers often still rely on cash and in-person point-of-sale (POS) systems. Meanwhile, online businesses, like SaaS companies, depend entirely on digital payment infrastructure.

To lower abandoned checkouts and signups, businesses should offer a variety of payment options, including mobile-friendly solutions.

Customers

Customers (or end users) initiate transactions by purchasing a product or service. 

Payment preferences vary based on location. The majority of customers still prefer traditional methods like credit cards (39.5%) and debit cards (56.2%). 

However, younger generations, particularly Generation Z (85%) and millennials (82%, are increasingly shifting towards contactless digital wallets such as Apple Pay, Google Pay, and PayPal.

China leads the digital wallet adoption, with 84% of surveyed individuals having mobile wallets. In the US, the trend is also gaining ground—42% of shoppers opted for it when making international payments, while 59% would even use it to settle debts.

Issuing Banks

Issuing banks, or card issuers, provide credit and debit cards to customers. In the payment ecosystem, they are responsible for approving or declining transactions depending on factors like:

• available funds

• fraud checks

• risk assessments 

If everything checks out, the issuer sends an authorization code to the card network, which then relays it to the payment processor.

Since issuing banks assume fraud and non-payment risks, they charge interchange fees to the acquiring bank, which is factored into the overall processing fees merchants pay for.  

Acquiring Banks

Acquiring banks work with merchants to process payments and deposit the funds into their accounts. They spring into action upon receiving the verified transaction details from the payment processor. 

Acquiring banks must comply with Payment Card Industry Data Security Standard (PCI DSS) guidelines. Their main responsibility is to connect your business to the card network and ensure secure transfers. It’s a necessary precaution since payment fraud is a global problem—causing losses of $41 million in 2022 and anticipated to grow.

Acquiring banks also handle returns, disputes, and chargebacks. However, merchants need to avoid excessive chargebacks because acquiring banks can terminate their accounts or place their business on the MATCH (Member Alert to Control High-Risk Merchants) list, an industry database that flags high-risk merchants.

Card Networks

Card networks, or card associations, are the giant names plastered on credit cards or debit cards. Think: Mastercard, Visa, American Express.

In the payment ecosystem, they provide the communication system needed to relay transaction information from your payment processor to the issuing bank. 

 These networks come in two types:

• Open card networks: Allow third-party financial institutions to issue credit cards (e.g., Visa, Mastercard).

• Closed card networks: Act as both issuers and networks, handling the entire card issuance process (e.g., American Express).

Payment Gateways

Payment gateways act as the digital checkpoint for online transactions. They check for fraudulent activity and encrypt sensitive data using Secure Sockets Layer (SSL) and Transport Layer Security (TLS) protocols before tossing it over to the payment processor. They stop unauthorized access to payment details like CVV codes and card numbers.

Choosing the right payment gateway can reduce fraud and improve transaction success rates. Merchants need providers that adhere to the highest industry security standards.

Payment Processors

Payment processors move funds from the customer’s bank accounts to the merchant’s account. They work alongside payment gateways to validate and secure payments. Some, like PayPal, also serve as payment gateways.

Payment processors help companies accept various forms of payment, including:

• Digital payments

• Credit and debit card 

• Buy Now, Pay Later programs

• ACH transfers

• eChecks  

They also support multiple currencies. Stripe, for example, can process transactions in 135 native currencies.

Each processor has its own fee structure. Some charge a percentage of the transaction or a flat rate per transaction or month. Merchants need to evaluate what works for their business and be on the lookout for hidden fees. 

Regulatory Bodies and Compliance Organizations

Payment security and compliance go hand in hand. Regulatory bodies enforce compliance standards in the payment ecosystem to shield consumers and businesses from fraud and unfair practices.

Some key organizations include:

• PCI DSS (Payment Card Industry Data Security Standard)

• Financial Action Task Force

• CFPB (Consumer Financial Protection Bureau) 

• FTC (Federal Trade Commission)

• Financial Conduct Authority (FCA)

• European Central Bank (ECB)

• European Banking Authority (EBA)

• GDPR (General Data Protection Regulation) 

Businesses and non-compliant financial institutions face fines, legal issues, and loss of customer trust. The PCI DSS, for example, charges a maximum of $500,000 for a data breach. 

New Players in the Payments Ecosystem

The payments industry requires faster, more secure transactions to address customer expectations and meet regulatory requirements. New innovations are responding to the call, adding new players to the mix:

Card Vaults

Twenty-two percent of consumers mentioned they’d cut their purchasing journey short due to complicated checkout processes, and 30% had also done so after being asked to re-enter payment information.

A card vault can help keep these customers on track. Also known as a payment vault or a credit card vault, it securely stores payment information using encryption and tokenization. 

Tokenization is a process that replaces sensitive data with an indecipherable token that is only usable within the vault. 

Leading card vault providers:

• VGS

• Pagos

• IxoPay

Orchestra Platforms

Payment orchestration ties the key players—gateways, processors, financial institutions—together to create a harmonious, unified control center for all things payments. This includes acceptance, routing, and analytics.

In a Paypers interview, Jane Loginova also explained other aspects that make paid orchestrators desirable: “Payment orchestrators which handle payments from different channels and currencies must also help merchants navigate the increasingly stringent regulatory requirements within various geographies.”

Businesses can take advantage of the flexibility and convenience they offer while serving 77% of customers who would abandon the checkout process if their preferred payment option is unavailable. 

Leading orchestra platforms:

• Spreedly

• NMI

PayOps Solutions

PayOps, or payment operations, refers to all the operations and tools used to move money within a company. It covers end-to-end payment processing, refunds, payment reconciliation, and bookkeeping. 

Leading PayOps solutions:

• Flexibl

• Rivero

Payment Risk Management Assessment Tools 

Risk management assessment tools prevent fraud and abuse ahead of time. They analyze transaction patterns, identifying anomalies, and enhance security measures. These tools use machine learning and artificial intelligence to provide real-time threat detection and risk scoring.

Leading risk assessment tools:

• Worth AI

• Pismo

• Sift

Top Trends and Innovations in the Payment Ecosystem

Along with knowing what the new players bring to the table, merchants like you should be aware of how the industry as a whole is changing. It can help identify the most suitable solutions for your business.

Embedded payments

Embedded payments make checkout easier for customers. For example, they can skip the third-party checkout page if payments are integrated into your website. This trend also helps merchants get better control of payment-related workflows and eliminate the need for multiple providers

Real-time payments (RTP)

Instant payments, or real-time (RTP) payments, allow for payments to be made almost instantly at any time. It means you can receive payments quickly, even during holidays, weekends, or off hours. Due to this convenience, this trend is projected to grow  289% by 2030. 

Cryptocurrency and blockchain-based payments

Cryptocurrencies offer lower payment processing fees (less than 1%), making them a favorable alternative to processors that charge hefty ones. They also eliminate chargebacks because payment is irreversible. However, refunds will need to be done manually.

Meanwhile, blockchain technology also enables reliable and cost-effective international payment processing services. Payments done this way don’t expose personal data, and records are immutable and easy to trace.

Artificial Intelligence (AI) and machine learning (ML)

AI and ML have pattern recognition and prediction capabilities that make it easier to spot anomalies. These technologies help financial institutions improve risk modeling and stress testing, leading to superior accuracy in fraud prevention.

Open banking and PSD2 regulations

Open banking, or open bank data, is a protocol that lets customers facilitate instant bank transfers and share banking information using open Application Program Interfaces (APIs). 

Payment Service Directive (PSD2) is the regulatory framework that gave way to this innovation. 

A More Secure Payment Ecosystem For Customers

The payment ecosystem is made up of different key players, and innovation is introducing more to the list. Being familiar with payments trends and compliance requirements safeguards your business and your customers from risks like fraud.