Payment Ecosystem: Players, Processes & Infrastructure in 2025

In June 2025 alone, India processed Rs. 18.39 billion UPI transactions, and the IMF commented on this feat, calling India a global leader in fast, real-time payments. What helped India achieve this growth is a rapidly changing payment ecosystem and so are the players who contribute to the financial infrastructure. 

In this article, we look at what a modern payment ecosystem entails, how its stakeholders work together and what to expect in the future. 

• A payment ecosystem is the complete network of banks, fintech, gateways, and regulators, who play specific roles to help move money from customers to businesses securely. 

• Modern payment ecosystems are open, digital and API-driven. This is unlike traditional banks that are slow and usually work in closed, siloed systems. 

• The most common issues businesses face are fragmentation, compliance burdens and interoperability. Using API-first payment systems solved these challenges. 

A payment ecosystem is the entire digital infrastructure through which money moves from your customers to you. It is made up of several stakeholders, and each one of them plays a unique role. 

The payment ecosystem is a complex network comprising various technologies that facilitate the transfer of funds between payers and payees. Here are all the stakeholders of payment ecosystems: 

1. Customers and businesses 

Customers and businesses are the key players of a payment ecosystem and the ones who drive the entire process forward. Customers are the payers who initiate the transaction, while businesses are the payees who receive it. The payment ecosystem is constantly evolving to facilitate quicker and simpler the payment process for both customers and businesses. 

2. Issuing banks 

The customer's bank is called the issuing bank. It is from here that the payment instruction gets initiated. They are also responsible for verifying the customer's KYC and authorizing the transaction based on available balance, credit limit or fraud checks. 

3. Acquiring banks 

On the other side of the transaction are acquiring banks or the business's bank. They offer businesses a merchant account into which payments can be made and receive payments from the payment network for settlement. 

4. PSPs 

If money has to move from an issuing bank to an acquiring bank, there should be platforms that support this movement. These platforms are called Payment Service Providers (PSPs). In modern digital payment ecosystems, there are primarily two technologies powering transactions: 

1. Payment processors: These are platforms that route the customer's transaction data to their bank for authorization and then to the acquiring bank and finally to the payment networks. They handle the back-end technical work. 
2. Payment gateways: Gateways are front-end, customer-facing platforms through which the customer shares their payment information. From here, information is sent to the payment processor. 

Some payment processors and gateways that are widely used in both B2B and B2C transactions include Xflow, Stripe, Adyen, PayPal, and Razorpay. 

5. MSPs 

Apart from processors and gateways, to collect payments effectively, merchants need other products and services such as point-of-sale systems, risk management platforms, and data analytics capabilities. Merchant Service Providers (MSPs) meet these requirements and provide all-in-one solutions for businesses. 

6. Payment networks 

Payment networks are rails on which money travels from customers to you. They help with the communication between issuing and acquiring banks. There are many types of payment networks, depending on the payment method chosen by the payer. These include: 

• Card networks: These are networks like Visa, Mastercard, and AmEx through which payment requests travel. 

• Banking networks: These are used in direct bank-to-bank transfers. Some examples of these are SWIFT for international payments, real-time payments and UPI in India and the ACH (Automated Clearing House) for domestic transfers in the US. 

7.  Regulatory bodies

Lastly, we have regulatory bodies that make policies to ensure integrity and security within payment systems. Organizations like RBI oversee compliance with security standards, Anti-Money Laundering (AML) and Know Your Customer (KYC) protocols and various data privacy regulations. 

Moving money from a customer to you is not a single-step process. Let's take a closer look at what happens at each stage and what every player in the payment ecosystem does. 

Step 1: Payment initiation 

The payment process starts when a customer decides to purchase a product from you. They enter their payment details into your online checkout page or by interacting with your physical POS terminal. 

The payment gateway or processor captures this information and uses tokenization and encryption to protect it. The payment details are then shared with the issuing bank.

Step 2: Payment authorization 

When the encrypted payment details reach the issuing bank through the payment network,  the bank has to check if the customer has a sufficient balance, verify their identity and catch any fraud indicators. 

If everything looks good, they will send an "approved" message through the same network to the payment processor and the transaction is authorised. If not, a "declined" message will be returned, and the transaction will not go through. 

Step 3: Clearing 

After successful authorization, this transaction, along with other approved transactions, is sent to the acquiring bank for clearing. The acquiring bank requests funds from the issuing bank through the payment network. 

Step 4: Settlement

In the end, the issuing bank routes the money through the payment network and the network deposits the funds into your business's merchant account. In this process, the network may deduct a fee for facilitating this transaction. The time it takes to settle a period can vary based on the method and provider. 

A well-connected and transparent payment ecosystem can change the entire way you collect money from your customers. Here's how 

1. Speed

This is one of the most noticeable. Traditionally, settling transactions would take several days, but now settlement can take as little as a few hours. For you, this means that you get quicker access to your funds and better cash flow. 

2. Visibility

In a connected ecosystem, you will be able to integrate all the technologies and platforms, usually through API, into a single dashboard. This is usually provided by your PSP or a treasury management system. When you get a clear view of all your transactions, fees and settlements in one place, forecasting your financial positions becomes a lot easier. 

3. Efficiency

A connection ecosystem allows for real-time data flow between your payment systems and accounting software. So, instead of creating several spreadsheets and matching each transaction manually, reconciliation can be entirely automated. This makes it quick and error-free. 

With the rise of payment ecosystems, we've moved away from the traditional bank-centric model of financial services. Traditional banking systems were built on closed, proprietary systems, whereas the modern payment ecosystem is open, API-driven and interconnected. 

Here's how the two models differ: 

Payment ecosystems can be classified by which areas they service, which payment methods they are based on and finally how they deliver financial services. 

1. Based on geography 

Payment ecosystems can be differentiated based on the geographical boundaries they operate within. These boundaries define which rules and regulations they have to follow. 

Domestic ecosystems: They facilitate payments within a single country's borders. They are usually low-cost and fast as they operate through established local networks. UPI in India and ACH in the US are examples. 

Cross-border ecosystem: Cross-border systems handle transactions when you and your customer are in different countries. They have to take care of currency conversion, multiple regulations and intermediaries. Some examples would be Xflow, SWIFT, and PayPal. 

2. Based on the payment method 

Ecosystems can vary based on the type of technology or instrument that a customer uses to initiate a payment. 

Card-based: This is perhaps the most commonly used mode of payment. The transactions are routed to debit or credit card networks like Visa, Amex or Mastercard. 

Account-to-Account (A2A): In these methods, money moves between the issuing and acquiring bank directly. This is usually powered by Open Banking, which allows the sharing of transaction data with third-party providers. 

BNPL (Buy Now, Pay Later): This ecosystem allows customers to make a purchase and pay in installments through short-term credit integrated into the checkout processes. Here, the BNPL provider, like Affirm or Klarna, approves the transaction and pays the merchant the full amount, and the customer repays the BNPL provider in scheduled installments. 

Wallets: Digital wallets like Apple Pay and Google Pay store payment information and allow customers to pay without physically using a card. They use tokenization to keep payment details secure.

3. Based on the mode of delivery 

Ecosystems change based on where and how a transaction takes place. 

In-person: Here, the transaction happens face-to-face at a physical location. POS systems and NFC technology are some aspects unique to this system.

Online: Transactions are facilitated over the internet, usually through secure payment gateways. 

Embedded banking: This is a recent and emerging type of financial service system, where banking services, including the payment process, are integrated in a way that the user experience is bump-free. 

Since the goal of payment ecosystems is to make the user experience as smooth as possible, this creates much more complex systems than traditional banking channels. Complex systems come with their own challenges, like: 

1. Fragmentation 

You may use one payment provider for domestic payments and a different one for international transactions. While on the surface, you may feel like you have flexibility, you are also left with a disjointed system that can create inefficiencies. 

If the multiple platforms you use cannot interact with each other, your team will have to manually reconcile payments, which can be time-consuming and error-prone. It also makes it difficult to get a unified view of your financial standing. 

2. Compliance burden

The more complicated a payment ecosystem is, the higher your compliance burden will be. Your payment ecosystem needs to comply with regulations like Anti-Money Laundering (AML) regulations, PCI-DSS and various country-specific guidelines like the ones provided by the Reserve Bank of India (RBI). 

Since fines for non-compliance can be very high, you need to actively manage your compliance status.

3. Interoperability issues

Interoperability is the ability of different payment systems to communicate with each other. Many platforms still use legacy systems that cannot interact with each other. The industry, on the other hand, is migrating to a common messaging standard, the ISO 20022, which provides guidelines about file formats to ensure they can be read by all systems. 

Migrating from legacy formats to ISO 20022-compliant formats can lead to data loss and errors in existing files. This can be costly and disruptive to your operations. 

As a business, you should actively strive to build a payment ecosystem that is resilient and can withstand disruptions. Here are the best practices to keep in mind: 

1. API-first infrastructure

With an API-first infrastructure, you can build a modular, plug-and-play system. This means tapping into a set of independent payment services, each with its own API, powered by open banking. 

When you set up an API-based payment system, you can easily add or remove payment methods or technologies from the mix without having to rebuild the entire system. You can also easily switch PSPs or any other tools you use. 

2. Fraud control 

Payment methods are becoming more sophisticated, so are the fraudsters. Synthetic identity fraud, BNPL defaults and other financial crimes are increasingly common. This means you have to set up several fraud control mechanisms to protect your business and your customers. Some of these are: 

• Tokenization: Here, all payment details are stored as a unique token in place of the actual card or account number.
• 3D Secure: This is an authentication protocol that helps a bank verify customer data easily based on over 100 data points. 
• Biometrics: This allows customers to use a unique physical characteristic, like a fingerprint or a face scan, for authentication. 

3. Unified reporting 

A resilient payment system needs to be cohesive. You can use integrations to centralize all of your payment data into a single, comprehensive view. This way, instead of getting separate reports, you can get a real-time unified view of all your transaction data across various systems that you use. This saves you the time it takes to reconcile fragmented data manually. 

Integrating your payment ecosystem with your finance, treasury and ERP systems lets you automate your workflows and get a bird's eye view of your financial health. This process of integration is powered by APIs and works through real-time data exchange between systems. 

Every player in the payment ecosystem is bound by several rules and regulations related to how payments are collected, how customers' sensitive information is protected, and what kind of privacy measures are in place. 

1. Payment and settlement guidelines

In India, the RBI regulates payment systems. The Payment and Settlement Systems Act, 2007 (PSS Act) is what dictates how payments are received and settled in the country. The RBI also enforces the e-mandate framework, which has rules for recurring payments and processes like Additional Factor Authentication (AFA). 

Globally, the PCI-DSS standard is enforced upon all card networks that store, process or transmit cardholder data. The PCI-DSS is a set of 12 requirements that cover everything from building a secure network to regular monitoring. 

2. Security compliance requirements 

Payment ecosystems must have security measures in place that protect transactions and customer data. 3D Secure 2.0 and PSD2 SCA are two such regulations. 3D Secure is a protocol that sends 100 data points to the issuing bank to help them with risk-based authentication. 

The PSD2 (Payment Services Directive 2) is a European regulation that introduced a requirement for Strong Customer Authentication (SCA) for most electronic payments. SCA requires multi-factor authentication

RBI has also issued mandates directing stakeholders in payment ecosystems to store sensitive information only through tokenization. This can be done by integrating with a tokenization provider. 

3. Privacy requirements 

The way in which personal data can be collected, processed and stored is also regulated heavily. In India, there is the DPDP Act 2023, according to which businesses need to get "free, specific, informed, unconditional, and unambiguous" consent for collecting and using any data. 

Also, the National Payments Corporation of India (NPCI) and the RBI have regulations like data localization, which control the way in which data is stored and mandate that all payment data must be stored in India. 

Globally, there is the GDPR, which requires businesses to get explicit and informed consent from customers for data collection and processing. 

The payment ecosystem is always evolving to make payments easier for customers and businesses alike. Let's take a look at some emerging technologies and trends: 

1. Banking-as-a-Service (BaaS) 

Financial services are usually provided by traditional banks. With BaaS, any business will be able to offer banking products like loans, savings accounts and cards through APIs, without becoming banks themselves. This will also create opportunities for more embedded finance offerings. 

2. Central Bank Digital Currencies (CBDCs) 

CBDCs are digital versions of a country's currency issued by central banks. They will slowly become the norm in the future as they offer a secure and risk-free form of digital money to enable faster and cheaper payments. 

3. Tokenization at scale

Tokenization is expected to slowly scale beyond just card data and will be able to cover every part of a transaction from accounts, wallets and even BNPL agreements. This will reduce the risk of fraud by leaps and bounds. 

4. Open finance

Currently, open banking allows for the sharing of banking data via APIs. However, many financial products cannot be shared through this. Open Finance will extend shareability and interoperability across all financial services. This will create more interconnected payment ecosystems. 

Traditionally, cross-border payment ecosystems are fragmented and have high costs associated with them. Xflow gives you a unified, borderless payment solution through a single API-driven platform that handles everything from settlement to collection. 

Xflow is the operating layer of a unified global payment ecosystem, as it connects you to various global payment networks and banking partners through a single platform. We give you the tools necessary to collect payment in over 30+ currencies across 140 countries using Xflow receiving accounts. 

Here's what Xflow does for your payment ecosystem: 

• Simplifies cross-border payment collection 
• Allows customers to pay in their currency using their preferred local payment method, and you receive the payment in INR. 
• Offers transparent FX conversion fees and allows you to lock FX rates. 
• Auto-generates OECD, transfer pricing documentation and FIRA paperwork. 
• Provides unified APIs to connect with various business tools. 
• Comes with RBI authorization and guarantees compliance with all FEMA regulations.