Any time a consumer uses a card or other digital payment method to purchase goods or services, that transaction must travel from the merchant through the appropriate card network to the consumer’s bank and back again.
Whether the transaction originates online or in person at a brick-and-mortar location, completing it safely requires connecting to and securely sharing data among all of these entities.
Payment processors are the technology companies that sit in the middle of this process. They provide the infrastructure needed to route transactions to the consumer’s bank for authorization and communicate that authorization back to the merchant. All of this happens in a matter of seconds.
After transactions are authorized, they must be settled, which means that the funds must be moved from the consumer’s bank to the merchant’s bank. Settlement of funds between banks is a separate step that often happens in batches with other transactions. The processor manages this process as well.
Processors are sometimes also referred to as acquirers, but the terms are not interchangeable. To be able to accept payments, merchants need a provider to process their payments, but they also need an account at a bank. Banks that offer merchant accounts are called acquiring banks, or acquirers.
The terminology and the difference between the two can get confusing because one company sometimes offers multiple services. Payment processors can enable access to merchant accounts through relationships with acquiring banks. At the same time, large acquiring banks sometimes offer payment processing services.
So, a business could have a relationship with a payment processor for processing services, and it could get the merchant account through that relationship as well. Companies that fulfill both roles can be referred to simply as acquirers.
Payment facilitators must have a relationship with a payment processor to process the transactions they gather from their submerchants. Submerchants do not have direct relationships with processors – the PF gathers the transactions and sends them on to the processor on the submerchant’s behalf.