Payment processor
The company that moves a card payment between the customer's bank and yours.
A payment processor handles the technical movement of funds for a card transaction: it routes the payment from the customer's issuing bank to your acquiring bank and back, handling authorization and settlement. Many processors also act as the gateway and merchant account, so 'processor' is often used loosely to mean the whole payment stack.
How it works
Card sales all run the same loop, whatever the shop front looks like. Your terminal or checkout page hands the card details to the processor. It formats them for the card network and sends an authorization request to the issuing bank, which checks funds and fraud rules and answers in about a second or two. Approval or decline code, straight back down the same wire. Then, at the end of the day, the processor submits that batch of captured sales so the acquiring bank can settle them.
Plenty of the companies selling you card processing are not processors at all. They are resellers, independent sales organisations or payment facilitators sitting on top of a larger platform, and that is not automatically bad. It does mean the name on your contract, the name on your statement and the business actually holding your money can all be different companies. So ask which bank sponsors the account. Ask who picks up the phone when a payout is held, and read the contract for the clause that lets pricing change on written notice.
The processor is the party you sign with, so it sets your pricing model and how fast you are paid. What it cannot touch is interchange or the network assessment; no processor discounts those. Competing offers therefore differ only in the markup and in the monthly and per-transaction fees stacked around it, not in the headline rate you are being sold. That same signature also hands over the risk decisions that can hold your funds, and those will matter more to you than a few basis points ever will.
Worked example
Say a customer pays $100 on a rewards credit card. The processor authorizes it in about two seconds, batches it that night, and deposits $96.80 two business days later on a 2.9% + $0.30 flat rate. Only a slice of that $3.20 stays with the processor. Most of it is interchange, passed straight to the issuing bank, about $0.14 is the network assessment, and what is left over is the markup you were actually shopping for.
Frequently asked questions
- How much does a payment processor cost?
- Most small US businesses land somewhere between about 2% and 3.5% of card volume once every line on the statement is counted. The headline per-transaction rate is only one of those lines. Monthly account fees, gateway fees, PCI fees, statement fees and chargeback fees all land in the same total. Divide a full month of fees by that month's card volume and you have the number that actually matters.
- Can I switch payment processors without changing my business bank account?
- Almost always, yes. A processor deposits into whatever business bank account you nominate, so the bank side stays put. The work is on the exit. Check for an early termination fee and a terminal lease on its own contract, then sort out how stored card details for recurring customers will move. Most established providers will run a compliant transfer of stored cards on request, but it has to be arranged in advance.
- What is the difference between a payment processor and a payment service provider?
- A payment service provider bundles the processor, gateway and merchant account into one account you can open in minutes. A traditional processor puts you through full underwriting and gives you your own merchant account at the end of it. PSPs, also called aggregators, place you under a shared master account. That is why approval is fast, and it is also why holds and account closures can arrive without much warning.