What is a payment processor? And how to choose one

A payment processor is a company that manages the technical backend of processing card transactions. These credit card processors work in the background on behalf of a business’s acquiring bank to make sure payments comply with regulatory rules and standards.

More specifically, payment processor companies are responsible for:

• Receiving payment data: They receive the customer's payment information (such as cardholder details) from the payment gateway.

• Routing that data to the card network: They transmit this information directly to the card payment network, which then shares it with the customer's bank for necessary checks like verifying if there are enough funds to cover the transaction.

• Relaying the outcome: After the customer's bank decides to approve or decline the transaction, the card network passes this decision back to the payment processor.

• Finalizing the transaction: The payment processor sends the approval or decline message back to the payment gateway so the business and customer can complete the purchase. 

Payment processors are major players in the entire payment processing flow.

If you’re wondering what the difference is between a payment processor vs. payment gateway, you’re not alone. The two services are often bundled together, which means they often get treated like one process. In reality, they are two separate systems. 

You can think of a payment processor service like the “engine” that powers a payment. Payment processors make sure that payments are securely communicated, authorized, and cleared. 

However, payment processing is only possible when a customer can initiate a payment. That’s where a gateway payment processor comes in. Payment gateways are the terminal, online portal, or in-app experience that collects a customer’s payment data and forwards it to the payment processor. 

Bundling these two systems together into one infrastructure can make your operations more efficient. It can also help increase the reliability of the payment process, and help you innovate faster.

Whether you’re working with an ecommerce payment processor or providing terminals to customers in-store, payment processing only takes a few seconds. 

The speed is quite impressive, especially considering the number of steps each transaction goes through:

1. A customer initiates a payment: When a customer is ready to buy, they initiate a payment at the payment gateway. Once initiated, the business sends the customer’s payment information to the payment gateway.

2. The data gets transformed: The payment gateway transforms the information in adherence to proprietary standards and shares it with the local payment processor.

3. The data gets shared and checked: The payment processor shares the payment information with the card payment network, which shares it with the customer's bank. The customer’s bank will perform several checks — to see if there are enough funds in the account, for example — to verify the payment.

4. The transaction gets approved or declined: The customer’s bank will approve or decline the transaction based on the outcome of the checks. The bank will then give that decision back to the card network. 

5. The decision gets routed: The card network will pass the approval or denial to the payment processor. The payment processor will then communicate that decision to the payment gateway, which then displays a message for the business and the customer. 

6. Funds get transferred: Funds from the customer’s bank account will get sent to the acquiring bank, which then sends those funds to the business’s bank account. The transfer typically gets initiated before the end of the day, but the whole process might take 24-48 hours to clear.

There are multiple payment processor providers on the market, and choosing the right partner can make a big difference when it comes to your bottom line. 

There are core considerations when choosing a payment processor, including reliability, integration speed, and cost:

Reliability 

If your payment processor is unreliable, you’ll lose out on sales. As you’re evaluating partners, ask about uptime, communications, and how the credit card payment processor ensures payments can always be accepted. 

Ask for data to validate claims. An excellent metric to evaluate is the provider’s uptime on high-volume days like Black Friday or Cyber Monday. 

Additionally, consider the context in which you’ll accept payments. Airlines, for example, may need to be able to process in-flight payments while connectivity is spotty. Some hotels, restaurants, and resorts may offer things like poolside service where the wifi might be unreliable. Call centers may need to send out links that are easy to share. Think about how your team needs to use payments, then find the right terminal or payment method that matches your needs.

Integration speed and global scalability

Your payment processing provider should be able to support you in every commercial endeavor. Whether you’re launching in a new market or running a pop-up campaign, it should be simple for your team to roll out devices across thousands of stores. 

Ask your provider how easy it is to get started. Look for integration options like RESTful APIs, SDKs, pre-built plugins for popular platforms (ERP, CRM, e-commerce), and customizable  UI components, all of which make it easier for your team to build and launch. Make sure to check out their documentation to see if it is easy to use and understand. 

Additionally, think about your global operations. If you’re a large multinational, you’ll want to work with a partner that can support multiple currencies, tap into local payment methods, and handle compliance across markets. 

Performance and cost optimizations

Payments cost money to process. For large global enterprises, the fees can add up, fast. That’s why it’s important to talk with your potential provider about how they can optimize processing and help you reduce the total cost of payments. 

For example, ask questions about:

• Personalization: Can the provider adapt checkouts to shoppers before they click buy, or show the most optimal payment methods so they’re more likely to complete the transaction?

• Tokenization: Can you use tokens to speed up repeat purchases by letting customers pay without re-entering their payment details?

• Fraud detection: How does the provider recognize risky transactions?

• Authentication: How does the provider balance risk and conversion?

• Optimization: What other tools does the provider have to help you with reducing the cost of routing?

At Adyen, we use our Adyen Uplift suite to help you optimize your full payment funnel. It lets you use AI trained on trillions of transactions to help prevent fraud, cut costs, and grow your revenue at the same time. 

Strategic partnership

Your payment processing provider should think with your business, not just provide a service. Look for a partner who can help you use payments to grow your revenue, not just process transactions. 

Platforms, for example, can benefit from using embedded financial tools. If your provider offers these, you can provide financial products and services to your customers and create new revenue streams beyond your subscriptions. 

Enterprises should work with a partner who can simplify global operations, handle compliance, and trim out waste that costs millions.

Payment processors are critical parts of the entire payment processing flow. Choosing the right one can mean the difference between reliable, scalable, and affordable payments, or a huge cost center. 

At Adyen, we focus on centralization. We consolidate a payment gateway, payment processor, and an acquiring bank in one platform for both online and in-person payments. 

The benefit? It’s simplicity, stability, and security. Fragmented tech stacks require managing multiple contracts and vendors. When there are multiple vendors, there are multiple points for potential failure. When there are multiple points where the system can crumble, it becomes hard to scale. 

Our payment processing infrastructure was built entirely in-house by our team of highly skilled engineers with zero mergers or acquisitions. That means you have access to one platform that lets you manage 200+ payment methods across 150+ currencies, all over the world. Our team understands every line of code, and the system is precision-engineered specifically for enterprise needs. 

Ready to get more control over your payments?

Learn more about how Nord Security used Adyen to increase conversions by 10%, or contact our team to get started.