22nd September 2021
Before proceeding to the different types of UPI transaction flows, we'll take a small detour to understand one of its participant - Payment Service Providers or PSPs.
Let's say you (a customer) order food on Zomato (merchant) and want to pay via PhonePe wallet (payment instrument). Zomato needs to have PhonePe as a payout option → to be able to accept and process payments done from a PhonePe wallet. This acceptance mechanism (or integration) is provided by PSPs.
In short, PSPs
The following types of entities can function as a PSP:
Different types of PSPs
1) Payment Instrument Issuer
This type of PSP can only process its own instrument, and the merchant will need to have a direct integration with it. Eg: BNPL products like Flipkart Pay Later, PayTM cashback points, Wallets, Net-banking.
2) Acquiring Banks
Acquiring banks are used to by merchants to accept a variety of payment instruments like cards or UPI. These banks in turn coordinate with customer's bank (or issuing bank) to process transactions using Payment Gateways (or payment processors). Eg: Merchants need to integrate with Bank A to accept Rupay and Visa cards, along with Bank B to accept UPI.