Credit card payments seem simple and fast for users — just a few seconds are enough to complete a purchase. However, behind the scenes, an entire process is in place to ensure the security and smooth flow of the transaction. But who are the key players in this mechanism? What is the role of the payment processor? How does it differ from a payment gateway? And how do you choose the best processor for your business? In this article, we cover everything you need to know about the topic. Let’s take a closer look…

What is a Payment Processor?

A payment processor is a key component in transferring funds from the customer’s bank to the merchant’s bank during credit card transactions. It is a service provider that processes payments on behalf of the merchant’s bank. The processor collects and processes payment information via the card network and the issuing bank, then communicates the payment status (approved or declined) to both the merchant and the customer.

Differences Between a Payment Processor and a Payment Gateway

A payment processor is often confused with a payment gateway. While both are part of the payment architecture, their roles are distinct. A payment gateway operates at the very beginning of the process. It is a technological interface connected to the merchant’s website or payment terminal, offering buyers various payment options to facilitate transactions. Unlike a processor, which handles the technical processing of the transaction, a payment gateway simply transmits payment data between different players. When a customer enters their banking details to complete a purchase, the gateway securely transmits this information to the payment processor while ensuring data protection during transit.

The Role of an Acquirer in Payment Processing

The acquirer, or acquiring bank, is a financial institution that also plays a central role in the payment process. Once the transaction is approved, the acquirer handles the transferred funds from the customer’s bank before routing them to the merchant’s account.

How Payment Processing Works

Let's break down the payment process step by step to see when and how each component plays a role:

Payment Process Steps

Purchase Initiation by the Customer

The process begins when the buyer provides their card details on an online payment page or follows the standard checkout steps in-store.

Transmission of Payment Data to the Processor

Once the payment details are entered, they are sent to the payment processor via a payment gateway.

Bank Verification and Authorization

The payment processor forwards the information to the customer’s bank (card issuer) through the relevant card network.

Transaction Confirmation and Validation

The bank checks multiple factors (such as account balance). If everything is in order, the transaction is authorized.

Response Transmission

The authorization (or refusal) is sent back to the merchant and the customer through the same pathway, but in reverse order: Issuing bank → Card network → Payment processor → Payment gateway → Customer and merchant.

Fund Transfer

If the payment is approved, the funds are transferred from the customer’s bank account to the merchant’s bank account via the acquiring bank.

The same process applies to both standard card payments and NFC (contactless) payments. The only difference is how the customer provides their payment data at the start.

Reminder:

Contactless payment or PIN Online, often associated with NFC (Near Field Communication) technology, is a payment method that allows transactions to be completed simply by bringing a bank card or a compatible device close to a payment terminal. Unlike traditional payments that require card insertion and PIN entry, this process is faster and more seamless, making it ideal for everyday purchases.

Why a Payment Processor is Essential for Businesses

It’s simple. Credit card payments are highly popular among consumers today. According to a recent (2024) study by Cofidis, nearly 9 out of 10 Europeans (87%) typically use a bank card for in-store purchases, while 81% use it for online transactions. As a business, offering this payment option is in your best interest. You need a payment processing system; otherwise, you cannot accept card payments.

How to Choose the Right Payment Processor?

Here are a few key criteria to consider when making your choice:

Security

With the rise of cybercrime, security is one of the most critical factors when selecting a payment processor.

Choose a provider that offers robust security guarantees.

Compliance with Industry Standards

Your payment processor must comply with security standards established by the PCI Security Standards Council (PCI SSC).

A compliant processor—adhering to PCI DSS (card data protection), PCI PIN (PIN security), or PCI P2PE (payment data encryption)—provides stronger fraud prevention.

Standards like PCI 3DS enhance online payment security, while PCI SSF ensures secure payment software. Verifying compliance is essential for securing transactions and building customer trust.

Compatibility with Payment Methods

Ensure the processor supports the payment methods your customers use. Consider both current and future needs.

Transaction Fees

Payment processors use various pricing models, such as fixed-rate fees or percentage-based fees.

Transparent pricing is crucial for businesses, so choose wisely.

Beyond transaction speed and smoothness, other factors matter in your choice. User experience, quality of technical support, and integration with other tools (such as accounting software or subscription management) are essential elements. Some systems stand out by offering a comprehensive and optimized solution across these aspects.

Optimizing Your Payment Processor’s Performance

Unified solutions are key to optimizing transactions. By covering multiple stages of the payment process (typically the payment gateway, processor, and acquirer), they allow businesses to simplify management—one provider, one contract.

Transaction Monitoring

A unified solution provides greater transparency and better visibility over all transactions for the seller.

Solutions to Reduce Payment Failures

These systems enable smoother, faster payments by minimizing disruptions in the payment process. They help businesses increase their transaction acceptance rates, leading to improved customer satisfaction.

In Summary

Unlike a payment gateway, which is also part of the payment architecture, the processor handles the technical transaction processing. To select the right provider, consider key criteria such as security, compliance, and pricing transparency. Finally, opting for a unified solution that integrates multiple players in the payment process ensures simplified management and smoother transactions. By offering online payments with Market Pay’s online solution, for example, you gain access to a customizable, secure system that supports a wide range of payment methods, connects to 50 acquirers (for the pro plan), and much more.

A Solution You May Also Be Interested In

Have you heard about contactless NFC payments with Market Pay’s SoftPOS solution? This SoftPOS (Software POS) application transforms an NFC-enabled Android smartphone or tablet into a payment terminal, offering a cost-effective and flexible alternative to traditional payment terminals. You can accept all card payments with just a smartphone!