A processor is often also called payment gateway or payment distributor. A payment gateway authenticates payment information and sends it within a secure environment from one group and the related bank to another. A payment distributor is either provided by a bank or by a specialized payment service provider. In other words, the processor supplies the technical basis allowing online and brick and mortar merchants to accept payments.

Merchants use these to process credit card payments as well as other payments, for example bank transfers, invoices, direct debits. In e-commerce, the payment gateway offers numerous advantages for payment processing. With continuous availability 24 hours a day, card payments or alternative payment methods can be authorized at any time of the day and efficient processing can be ensured.

What does a processor do?

The processor is generally responsible for providing the required network, which it most of the time operates itself. Processors also take over the card management tasks that an issuing bank normally fulfills. This includes not only the provision of the technical basis, but also tasks such as authorization, card authentication and counterfeiting, the handling of complaints and misuse, the issuing of replacement cards and invoices. The processor reviews incoming transactions and authorizes them. In addition, the credit limits are monitored. Payment transactions, also referred to as clearing, belong to the range of services of a processor.

The dealer requires only a technical connection, but a gateway allows him to offer different payment methods to the customer. The dealer receives the payments directly from the financial institution that handles the cards or alternative payment methods. The integration of a payment service provider, which only acts as a distributor, can be an advantage to traders who offer only a few payment options or want to take over the reconciliation of the accounts and payment streams.

Dealing with fraud and abuse

Fraud losses and misuse of credit cards cause millions of dollars’ worth of damage each year. To reduce this rate, a processor develops security mechanisms for credit card payments designed to render the processing of payments more secure. Security in online payment is particularly important, as credit card data can be acquired much easier then than with offline payments.

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