paymentProcessor

A payment processor is a financial service provider that handles the technical processing of electronic payments between a merchant, card networks, and issuing banks. The processor facilitates authorization, funding, and settlement of card transactions, enabling merchants to accept payment methods such as credit and debit cards, ACH transfers, and digital wallets.

In a typical online or point-of-sale transaction, the merchant's system or payment gateway securely collects payment data and passes it to the processor. The processor routes the information through the card networks to the issuing bank for authorization. If the issuer approves, the processor returns an authorization code. Subsequently, the transaction is settled: funds move from the issuer to the acquirer and then to the merchant's bank account, usually after a batching period and minus processor fees and card network interchange.

A payment gateway is related but distinct; it provides the secure channel to transmit data, while the processor handles authorization and settlement.

Integrations can be via APIs, hosted payment pages, or point-of-sale terminals. Companies may offer value-added services such as fraud protection, tokenization, recurring billing, and multi-currency support.

Security and compliance are critical, with PCI-DSS standards, encryption, tokenization, EMV considerations, and anti-fraud tools. Regulatory frameworks such as PSD2 in Europe influence how processors operate for consumer authentication and strong customer verification.

Cost structures typically involve interchange fees plus a processor markup, potentially monthly or per-transaction fees, refunds, and chargeback handling costs.

Advantages include broader payment acceptance and faster settlement; challenges include compliance burden, fraud risk, and dependency on processor availability.