What is a payment processor?

Do you know the difference between a payment acquirer and a payment processor? If the answer is no, you’re not alone. Most businesses don’t make a distinction between the two. But there is a difference, and knowing it is important, especially when you’re troubleshooting problems or searching for ways to optimize your payments.

Here we answer:

• What a payment processor is
• What role payment processors play in the payments lifecycle 
• How to evaluate and manage the performance of your payment processor
• How to manage processing risk

What is a payment processor?

The definition of a payment processor is as broad as the scope of the activity. At a high level, a payment processor’s role is to transmit data between various parties in the payment chain. 

A payment processor also applies fraud rules throughout the payment flow to ensure that the transaction is legitimate.

Find out how Checkout.com help businesses optimize their payments.

How does payment processing work?

A customer will enter their payment details into the online checkout and press ‘pay’. From there, the information is sent to an acquirer via a payment gateway. The message is then sent to the issuing card scheme by the acquirer and then onto the card issuer. The card issuer then authenticates that the cardholder is legitimate and authorizes the available funds. 

Once the funds have been authorized, the card scheme will inform the acquirer. The message is then sent from the acquirer to the merchant via the payment gateway that the payment is successful.

How to manage processor performance

Despite not getting to choose what processor is used, you should still take the time to evaluate what processor your preferred acquirer uses and how it is integrated into its platform. When evaluating and comparing providers’ performance, consider the three “Rs”.

• Reliability, a measure of uptime or the degree to which a system is available to process transactions, usually expressed as a percentage
• Resilience, a measure of the degree to which a system can cope with peaks and troughs in trading, for example, Black Friday, Singles’ Day and the holiday sales 
• Redundancy, meanings there is full back-up to every component

How to manage processing risk

Working with any supplier exposes the business to third-party risk. But if that supplier uses other businesses to provide critical services, your business is also exposed to fourth-party risk. This is the case when using a payment gateway or acquirer that employs an external payment processor rather than building it in-house.

These fourth-party risks include the three “Rs” above and risks associated with integration and hand-offs between parties. There’s also a risk that using an external processor will inhibit the flexibility of your payment platform and make implementing any changes a more painful experience than necessary. 

These are important considerations when choosing a payment processor. Of course, if your acquirer, payment gateway and payment processor are one and the same, then fourth-party risks don’t exist.

Using a unified approach

Choosing an end-to-end solution that operates as an acquirer, gateway and processor all in one has multiple advantages. Transactions can be processed faster with less downtime and more accuracy. This can help businesses increase acceptance rates and drive overall growth.

Using one unified API will give you full visibility of your payments—including a breakdown of fees and chargeback details. Having the entire value chain of the transaction under the merchant’s control will allow for seamless transactions and a better experience for your customer.