What is a payment processor?
Payment processing is essentially the automated process that an online transaction goes through on its way from buyer to merchant. It involves payment verification, processing, approval or rejection. A payment processor is a mediator between a merchant and financial institutions, which is responsible for the entire transaction process. Every merchant who wants to seamlessly and securely accept online card payments from customers needs the services of a payment processor.
Payment processors are provided by PCI DSS compliant organisations held to standards set by credit card associations (Visa, Mastercard, etc.). They can legally provide merchants with comprehensive payment processing services, including security solutions, chargebacks management, merchant accounts, customer support, and equipment for card acceptance in brick-and-mortar stores.
What are the tasks of a payment processor?
The main payment processor’s task is to receive a customer’s credit card information from a payment gateway and send it to the financial institutions involved in the transaction. Basically, a payment processor acts as an intermediary between a customer, issuing bank, merchant, and acquiring bank.
Going into the essence, the main payment processor functions are:
- Determine the transaction status
- Check the payment card details
- Ensure the security of data transfer between transaction counterparties
- And finally, process the payment.
The payment processor works closely with a payment gateway. In payment processing, a payment gateway is responsible for collecting, encrypting and transferring the payment information to a payment processor, which then routes these data between other payment processing participants and sends the approval/rejection back to the payment gateway.
What do I need for my business: payment gateway or payment processor?
If you want to accept online card payments from your customers, you’ll definitely need both. A payment gateway is the start and finish of every online transaction, while a payment processor moves the transaction details between payment processing participants — customer, merchant, and their banks.
With the massive transition of a business to online in recent years, many payment service providers have emerged, offering various services to both start-up merchants and large online businesses. Depending on your business needs, you can select the type of payment processor: payment facilitator or aggregator.
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