Payment Processor

A company that handles the technical infrastructure and operations required to process credit card transactions, including transmitting authorization requests, routing transaction data through card networks, and facilitating settlement between banks.

Payment processors serve as the operational link between merchants, acquiring banks, and card networks. They provide the technology platform that captures transaction data from point-of-sale systems or payment gateways, formats it according to card network specifications, transmits authorization requests, receives approval or decline responses, manages batch settlement processes, and generates merchant reporting. Processors may operate as independent entities or as divisions of acquiring banks.

The payment processing industry includes several types of entities. Traditional merchant acquirer processors like Fiserv (which acquired First Data), Global Payments, and Worldpay handle high-volume enterprise merchants and partner with acquiring banks to provide comprehensive merchant services. Front-end processors like TSYS and FIS primarily handle authorization and settlement on behalf of multiple acquiring banks. Payment facilitators like Stripe, Square, and PayPal combine payment processing with merchant aggregation, enabling rapid onboarding by enrolling merchants under the facilitator's master merchant account.

Processors charge merchants fees beyond the mandatory card network costs (interchange and assessments). These processor markups cover the cost of technology infrastructure, customer support, risk management, and profit margin. Fee structures vary by processor and may include percentage-based markups over interchange, fixed per-transaction fees, monthly account fees, and various ancillary charges for services like PCI compliance programs, chargeback management, and reporting tools.

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Related Terms

3D Secure

An authentication protocol for online card transactions that adds an additional verification layer between the cardholder and issuing bank, shifting fraud liability from merchants to card issuers when properly implemented.

ACH Payment

Automated Clearing House payment is an electronic bank-to-bank payment method that transfers funds directly between bank accounts through the ACH network, typically used for direct deposits, bill payments, and recurring transactions.

Acquirer

A financial institution that processes credit card payments on behalf of merchants, maintains merchant accounts, and facilitates the settlement of funds from card-issuing banks to merchant bank accounts.

Address Verification Service (AVS)

A fraud prevention tool that compares the numeric portions of a billing address provided during a transaction against the address registered with the card-issuing bank, returning match result codes to help merchants assess transaction risk.

Aggregator

A payment service provider that enables multiple merchants to process card transactions under a single master merchant account rather than each merchant having their own dedicated merchant account, common with services like Square, Stripe, and PayPal.