Payment Processor

A payment processor is a company that carries out the behind-the-scenes work of a transaction: it receives payment data from a merchant, sends authorisation requests to card networks and issuing banks, and returns the result. It often also manages clearing and settlement reporting.

Why it matters

Businesses rarely connect directly to banks and networks. A processor offers that connection and typically works with an acquiring bank. The terms are used loosely: a payment gateway collects and securely transmits the payment details at checkout, while the processor handles the transaction on the back end. Many modern providers bundle gateway, processor and merchant account into one service, which is why the roles blur. Choice of processor affects supported payment methods, fees, payout timing and reporting.

Example

1. A customer enters card details on a checkout page.
2. The gateway encrypts them and forwards them to the processor.
3. The processor sends an authorisation request through the card network to the issuer.
4. The approval returns to the merchant in a second or two.
5. The processor later groups approved payments for settlement.

Common mistakes

• Using "gateway" and "processor" as exact synonyms when comparing providers.
• Comparing only headline percentage fees and ignoring fixed fees, chargeback fees and payout delays.
• Not checking which currencies and payment methods are supported.

Terms and pricing vary by provider and country; this entry is a definition only.

Related

• Payment gateway
• Merchant account
• Acquirer vs issuer
• Settlement

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