What are Payment Processors?

We have already discussed PTC, PTR, PTS, and PPC, now it's about time to open up your world to Payment Processors.

So, what exactly is a Payment Processor? A payment processor is a company (often third party) appointed by a merchant or a consumer to handle credit card transactions for merchant banks. This can also be considered an online wallet that can be use to trade, buy products and services, or send cash from one account to another.

Payment Processors are usually broken down into two types—front-end and back-end, with a gray area in between.

Front-End Processors have connections to various Card Associations and supply authorization and settlement services to the merchant Banks' Merchants. Back-End Processors accept settlements from Front-End Processors and, via The Federal Reserve Bank (FED), move the money from the issuing bank to the merchant bank. In some cases, the merchant bank gets the settlement information from Front-End Processors and in other cases, from the Back-End Processors. This is the gray area.

In an operation that will usually take less than a minute, the payment processor will both check the details received, by forwarding them to the respective card's issuing bank or card association for verification, and will also carry out a series of anti-fraud measures against the transaction.

Additional parameters, including the card's country of issue and its previous payment history, are also used to gauge the probability of the transaction being approved. Once the payment processor has received confirmation that the credit card details have been verified, the information will be relayed back via the payment gateway to the merchant, who will then complete the payment transaction. If verification is denied by the card association, the payment processor will relay the information to the merchant, who will then decline the transaction.

Payment Processors include Paypal, Alertpay, E-gold, Liberty Reserve, Moneybookers, and more.