How a payment processor works
On the acquiring side, the processor receives a payment from a gateway or terminal, formats the authorisation request, sends it to the card scheme and returns the issuer's answer. At the end of the day it submits the captured payments for clearing and works out what each merchant is owed.
On the issuing side, an issuer processor receives the request from the scheme, checks the card, the balance and the risk rules, and answers. Some acquirers and issuers run their own processing, and many rent it from a specialist.
How rules describe a payment processor
The EU's Interchange Fee Regulation defines processing as the actions required for the handling of a payment instruction between the acquirer and the issuer, and a processing entity as any person providing those services (Article 2). Article 7 requires card schemes and processing entities to be independent in accounting, organisation and decision-making.
The word is used loosely elsewhere. The PCI Security Standards Council's glossary defines a payment processor as an entity engaged by a merchant or other entity to handle payment card transactions on its behalf, and notes that it is sometimes referred to as a payment gateway or a payment service provider.
Why the processor matters when building a payment product
The processor sets what a payment product can technically do: which schemes, currencies, authentication methods and data fields it supports, and how fast new ones arrive. A company that becomes a PSP or a payment facilitator usually chooses a processor, or builds on an acquirer that has one.
Processor, gateway, acquirer or PSP?
- Payment gateway
- Collects the payment from the checkout or terminal and passes it on. The processor is the next hop: it talks to the card schemes.
- Acquirer
- The licensed scheme member that contracts with the merchant and settles the funds. The processor is the technical platform an acquirer uses, in house or outsourced.
- Payment service provider
- The commercial front that sells a merchant the whole service, usually with a gateway of its own and a processor and an acquirer behind it.
Where a payment processor shows up in a platform
Modules that do the work
- Card acquiringCard acceptance on the phone, in store and online, through the acquirer you choose.
- Card issuingVirtual and physical cards, wallets and controls, on the issuer processor you choose.
- CheckoutA hosted checkout for cards, wallets, bank payments and crypto, routed to the best provider.
- LedgerThe double-entry book of record behind every balance, fee and transfer.
Platforms that need it
Guides that go deeper
Where it is written
The laws and standards this page's facts come from.
- Regulation (EU) 2015/751, the Interchange Fee Regulation, Articles 2 and 7 (EUR-Lex)
- PCI SSC, Glossary: Payment Processor
General information, not legal advice: what applies to you depends on your services and your market.