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Definition

payment processor

A payment processor is a company that facilitates communication between the bank that issued a customer’s debit or credit card and the seller’s bank. The processor’s job is to verify and authorize payment. Should the customer use a third-party payment gateway, such as PayPal, the payment processor carries out its tasks by communicating with the payment gateway and the seller’s bank.

In online transactions that do not go through a third-party payment gateway, the payment processing company relays information back and forth between the bank that issued the customer’s credit or debit card and the seller’s bank. As long as the processor determines the card is valid and the account in question has enough funds to complete the transaction, it can be finalized in seconds.

Payment processors should be vetted carefully to ensure that they can meet PCI-DSS compliance and security standards and have strong transaction-processing capabilities. In selecting a payment processor, merchants should consider what types of payments the processor accepts, what fees will be charged and on what platforms transactions can take place. Merchants should also select payment processors that can provide a good user experience; picking the wrong providers could have a negative impact on the seller's profits.

Software as a service (SaaS) payment processors typically offer an electronic portal that enables a merchant to scan checks, process single and recurring credit card payments (without the merchant storing the card data at the merchant site), process single and recurring automated clearing house (ACH) and cash transactions, process remittances and Web payments. These cloud-based features are often delivered through an integrated receivables management platform to facilitate customer experience management (CXM), help lower costs and improve time-to-market and transaction processing quality.

This was last updated in August 2018

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