The Finix team has had the pleasure of explaining the various pieces of the payments stack over the years—to customers, investors, and general fintech enthusiasts—so we decided to break down the pieces even further to help people, like you, better understand all of the payments players out there. When you understand who handles which pieces of the payments layer cake you’ll find it easier to choose the right payments partners for your business. 

Note: there’s a lot of payments-specific terminology in this post. To learn more, check out our payments glossary. 

A while back, Finix created a diagram called The Payments Layer Cake to help explain the structure of the payments processing industry with visuals, and it has really resonated.

Before payment facilitators came onto the scene, Independent Sales Organizations (ISOs) were the main way to access payment processing technology provided by acquiring processors and banks but it was still difficult for merchants who were not processing enough transaction volume to establish a partnership. As a result, smaller businesses operated largely off of cash transactions or used off-site checkout solutions like PayPal.

The entry of payment facilitators in the early 2000s opened up a whole new world of payments processing for merchants, by lowering the barriers to entry for companies wanting to process card payments. That was a huge change in how all the players in the payments industry fit together. But as the payments industry grows, we will see an increase in new players entering this stack and it will likely become even more difficult for companies to navigate this landscape and determine which players take care of which parts of the stack. Let us try to explain. 

Payment Facilitators

Payment Facilitators, or PayFacs, act as the point of entry for the modern payments ecosystem. They operate as mini-processors and can process transactions, underwrite sub-merchants, manage disputes, and make payouts to sub-merchants. Because of those privileges, they're required to meet industry compliance standards. This category is relatively new to the payments space, but it’s becoming increasingly important because of its influence on the customer experience, for both merchants and their sub-merchants.

Players

• Braintree: Founded in 2007 as a disruptive payments gateway that later became a payfac to serve ecommerce merchants. PayPal acquired Braintree in 2013.

• Square: Founded in 2009, they tend to focus more on the very small business brick and mortar businesses. 

Payment Gateways

Most payment facilitators offer integrated payment gateway technology as well, but there are also stand-alone payments gateways. Payment gateways exist to process payments in a PCI compliant manner. The PCI DSS, short for Payment Card Industry Data Security Standard, says one cannot transfer card data directly from a website or platform to a payment processor without meeting certain criteria for the secure handling of that sensitive data. The gateway handles the tokenization process, which hides the card information while it’s in transit; a very important piece of the data security in payments.Stand-alone payment gateways are becoming less popular. Authorize.net is owned by Visa. Braintree became a payfac. Companies like NMI and Spreedly are leaning into payments orchestration. 

Players

• Authorize.net/Cybersource: Founded in 1996 and now, through consolidation, one of the biggest payment gateways in the world. Cybersource acquired Auth.net and Visa acquired Cybersource.

• Braintree: Founded in 2007 as a disruptive payments gateway that later became a payfac to serve ecommerce merchants. PayPal acquired Braintree in 2013.

Payments Processors + Acquiring Banks

When you search for “payment processors” you get all kinds of results, because technically, all the players in the layer cake have a part in processing payments, but only a few of them are legitimately called payment processors, but they can also be called acquirer processors or merchant acquirers. They primarily process transactions but have also been empowered by acquiring banks to underwrite merchants, manage disputes, and make payouts to merchants.Before payment facilitators entered the scene, payments were processed directly through the payment processors and merchants had to have a relationship with at least one of them. This was not an easy relationship to establish, and was impractical to impossible for smaller merchants.

Players

• Worldpay from FIS: The largest merchant acquirer in the US, which came about via the acquisition of the combined assets of Cincinnati-based Vantiv and London-based Worldpay by FIS.

• Chase Merchant Services: Initially created in 1996 and then relaunched as Chase Paymentech through a joint venture between Chase Merchant Services and First Data in 1996. Today, Chase Merchant services (sans First Data) is a subsidiary of JP Morgan Chase Bank and the second largest merchant US acquirer.

• First Data is now Fiserv: One of the oldest and largest US-based merchant acquirers. In 1976, First Data was the first processor of Visa and MasterCard bank-issued credit cards and today handles 45% of all credit and debit transactions in the US. 

• Bank of America Merchant Services (BAMS): Originally founded in 2009 as a joint venture between Bank of America and First Data. In 2019, after First Data was acquired by Fiserv, Bank of America announced they would pursue an independent merchant acquirer solution by 2023. 

• Global Payments / TSYS: Over the past two decades, both Global Payments and TSYS have been growing via mergers and acquisitions. Most notably, Global and TSYS merged in 2019 to compete with larger players. In 2020, FIS (with Worldpay) and Global (combined with TSYS) were in talks to complete a $70B merger but the deal fell through. 

• Wells Fargo Merchant Services: Another merchant services joint venture with First Data and a large US retail bank. This is the last such joint venture with First Data that hasn’t been terminated. 

• Elavon: A subsidiary of U.S. Bancorp and one of the largest merchant acquirers in the US and Europe.

• Stripe: Founded in 2010 and initially focused on processing online transactions for developers.

• Finix: Founded in 2015 to serve vertically-focused software companies that want to own their payments infrastructure and experience

Card Networks

Card networks are hard to miss. They’re branded onto every credit or debit card in the country and are the connecting piece between the acquiring and issuing sides of the payments layer cake.All card payments (credit and debit) are processed on the card networks, with the exception of countries that have built internal debit networks. Branded card networks are the most reliable internationally and the US doesn’t currently have its own national debit network.

Players

• Visa: Started off as the BankAmericard program in 1958 via the infamous "Fresno Airdrop," kicking off the credit card boom in America.

• Mastercard: Formed in 1966 and went by the name “Interbank” initially. Interbank was formed by a group of regional bankcard associations in direct response to the success (and threat) of the BankAmericard program.

• American Express: Formed in 1850 and has been involved in financial services since 1857 but it wasn't until over 100 years later, in 1958, that they launched their first charge card to compete with Diners Club. They launched their first credit card in 1987

• Discover: Formed in 1985, it can trace its roots back—through a series of spinoffs—to Sears's foray into financial services in the 80s. Discover has been an independent company since 1996 and now owns Diners Club International.

Issuing Banks

An issuing bank has the privilege of giving credit and debit cards to consumers. They also take on a large portion of the risk for chargebacks and fraud, which is why they take a relatively large chunk of the transaction fees - known as interchange. Learn more about payment processing fees.

Players

• Citibank

• Capital One

• Bank of America

• Chase

• American Express

• Discover

• Wells Fargo

• PNC

Issuing Processors

Issuing processors are like acquirer processors but sit between the issuing banks and the card networks instead. These entities authorize transactions initiated by the card holder and provide a system of record so funds can be taken from a card holder’s account and settled to a merchant account. The past five years have also seen a number of mega mergers between large acquiring processors and issuing processors.

Players

• FIS: Founded in 1968, this financial technology company facilitates the movement of roughly $9 trillion annually and is one of the main connections between issuing banks and the card networks.

• Fiserv: Founded in 1984, they process 12,000 financial transactions per second across the card networks.

• TSYS: Has 40% of the US card issuing market and is now part of Global Payments, which is a top ten merchant acquirer. 

• Other Players: The last decade has seen the rise of a new breed of issuer processor. One that offers a blend of modern, API-first  issuing processor services (i.e. virtual card issuance and rule-based just-in-time funding) with card program manager capabilities (i.e. establishing pooled account(s) at banks, managing program profitability). Galileo, Marqeta, i2c, Global Processing Services (GPS), Lithic, and Deserve.com are all examples of this type of modern issuer processor/program manager. 

Finix is a payments infrastructure company that works with vertical software platforms that want to own their payments. Our suite of payments APIs integrate directly into the platforms we work with to provide a seamless, white labeled experience for both merchants and consumers. We also act as the payment facilitator and gateway for our customers and can help them become their own payment facilitators if/when they are ready for the next level of payments ownership.

Because of the modular nature of our system, software platforms can easily grow with us without having to transition to a new payments provider. In our recent blog post, Payments: Easy as Pizza, we discuss the four different models of integrated payments, which ones Finix provides, and how to choose one for your stage of growth