What Is a Payment Processor?

A payment processor is a type of vendor service that enables store owners and other company owners to accept payments from clients who don't use cash or checks. A payment processor is the interface between the customer's and the merchant's banks.

What Is a Payment Processor?

A payment gateway and payment processor are two different but equally important components of a transaction, despite occasionally being mistaken for one another. A payment processor sends money, whereas a payment gateway securely transmits data. For merchants, a payment processor manages credit and debit card transactions, basically serving as the middleman.


Businesses have a variety of options for credit card processing services:

Subscription-based payment processing services: These frequently have different price tiers and monthly costs. Plans may have additional transaction costs, however, these are occasionally less expensive than those charged by other businesses. Businesses with high transaction volumes and retailers typically profit from subscription programs.

Processing costs for credit/debit card interchange can be incurred by merchants. An interchange rate, commonly referred to as a swipe fee, is one of several costs that the credit card company may impose. Transaction fees charged by payment processors are generally flat-rate or interchange-plus. The processor imposes both the regular interchange cost and an extra fee under the interchange-plus model. As an illustration, a processor could add a second percentage or cost, such as 0.3% or 7 cents, on top of the interchange fee, which amounts to 1.8% of the purchase.

Processing flat-rate payments: In flat-rate processing, fees are fixed at a rate that is often higher than the interchange rate. The interchange rate and more may be covered by a processor's percentage fee, which would be depending on the transaction.

Some processors will charge flat monthly fees for a payment gateway or merchant account that covers these essential services. Merchants may also be required to pay incidental fees for situations like a chargeback or insufficient funds. Some payment processors also bundle services, offering a payment gateway and merchant account so you can work with a single credit card processing entity to complete transactions.