Payment Processor

A payment processor is a vendor that efficiently manages the entire process of accepting credit and debit card payments. It acts as the intermediary, securely transporting card data from various points where customers input their credit card details, such as card readers, checkout webpages, or specialty hardware connected to smartphones, to the relevant financial institutions participating in the transaction.

The significance of payment processors extends to securing online payments. In addition to verifying sufficient funds in customer bank accounts or adequate credit lines on credit cards, they prioritize safeguarding customers’ sensitive financial information against unauthorized access by malicious third parties.

Here’s a breakdown of how a payment processor works in finalizing transactions when a business accepts card payments:

• The customer provides their card information to the merchant, which can occur at a store terminal, an online payment page, or through other methods. This information is submitted through the payment gateway, often bundled with payment processing services.
• The payment gateway forwards the information to the payment processor, initiating the transaction by sending the data to the card network (e.g., Mastercard or Visa) for approval.
• The card network informs the payment processor about the approval status of the payment request.
• The merchant completes the transaction with the customer.
• After the transaction is completed, the payment processor notifies the bank that issued the customer’s card (the issuing bank) to transfer funds to the merchant’s bank (the acquiring bank).
• The merchant gains access to the funds from the sale, which can happen instantly or within a few business days, depending on the payment provider and the type of account where the funds are deposited.