The ability to accept payments efficiently affects both how customers experience your business and how quickly you receive your money. Understanding how payment processing works helps you manage revenue, reduce risk, and plan for growth. This guide explains what a payment processor does, how it fits into the payment ecosystem, and what to consider when choosing one.
Payment processor defined
A payment processor is a company that manages the movement of funds between a customer and a merchant when a transaction takes place. When a buyer pays with a credit card, debit card, or digital wallet payment, the processor routes the payment information securely, requests authorisation from the issuing bank, and ensures the funds reach the merchant’s bank account. Without one, a business cannot reliably accept payments, whether in person or online.
Payment processing companies typically work alongside a payment gateway and a merchant account. The payment gateway securely captures and encrypts payment details at checkout. The merchant account temporarily holds approved funds before they are transferred to the business’s bank account. The processor links these parts together by handling the communication with banks and card networks so that each transaction is approved, settled, and completed.
How payment processing works
Step-by-step payment flow
- Customer checkout: The customer makes a purchase, either online or in person, and enters their payment details.
- Payment request: The payment processor receives the transaction request and checks that the payment method is valid.
- Bank verification: The processor sends the details to the customer’s bank (via the card network like Visa, Mastercard, or American Express) to confirm the card is active and has enough funds.
- Approval or decline: If approved, the transaction moves forward. If declined, the customer is notified immediately.
- Funds transfer: The acquiring bank starts moving the funds to the merchant’s account.
- Settlement: Funds usually arrive in the merchant account within a few business days, depending on the payment provider.
Key stages in processing
- Authorisation – The card is checked for validity and available balance.
- Clearing – Transaction details are shared between the bank, card network, and payment processor.
- Settlement – Funds are transferred from the customer’s bank to the merchant account.
Each stage has its own costs, including interchange fees paid to the card network.
Some global payment solutions now support near-instant settlement, reducing delays and improving cash flow. At every stage, the processor must encrypt sensitive data to maintain a secure payment environment.
The payment ecosystem
- Merchant: The business selling goods or services and holding the merchant account.
- Customer: The person or organisation making a purchase using a credit or debit card or other payment methods.
- Issuer: The bank that provides the customer’s credit or debit card and approves or declines transactions.
- Acquirer: The bank that partners with the merchant, holds the merchant account, and ensures funds are deposited after settlement.
- Card networks: Organisations like Visa, Mastercard, and American Express that connect issuing and acquiring banks and set transaction rules.
- Payment gateway: The technology that securely captures and encrypts payment details at checkout.
- Payment processor: The service that routes payment data between the gateway, banks, and card networks, and makes sure the funds move.
- Payment service provider (PSP): PSPs like Antom can combine gateway, processing, and merchant account services in one.
What payment processors do
A payment processor handles the technical and financial steps that allow a payment to move from a customer to a merchant. It connects the merchant, the customer’s bank (issuer), the merchant’s bank (acquirer), and the card networks, making sure the transaction is authorised, secured, and settled correctly. Here’s what they do:
- Facilitate transactions: The processor receives the payment details from the gateway and routes them through the card network to the issuing bank for approval.
- Request authorisation: It checks whether the customer has funds available, verifies card validity, and applies encryption or tokenisation so sensitive details aren’t exposed.
- Settle funds: Once payment is authorised, the processor coordinates the flow of money—moving it from the issuing bank to the acquiring bank, where it’s deposited into the merchant’s account.
- Ensure encryption and data protection: It protects cardholder data to meet PCI DSS and other security standards.
- Monitor for fraud: Processors help detect suspicious activity in real time and manage disputes if a chargeback occurs.
- Provide reporting and analytics: It provides data feeds and dashboards so merchants can reconcile payments, track performance, and identify trends.
- Support multi-currency and alternative payment methods: Many processors enable cross-border payments, multiple currencies, and local wallets, making them beneficial for global commerce.
Who needs payment processors?
Not just for online stores, payment processors support a wide range of business models where digital payments are essential. Here are some examples of where they come into play:
- E-commerce and online checkout: From fashion retailers to SaaS platforms, processors handle secure card-not-present transactions, making sure funds move quickly from customers to merchants.
- Subscription services: Streaming platforms, gyms, and app-based services rely on processors to automate recurring billing, reduce churn from failed payments, and manage retries.
- Marketplaces and platforms: Processors enable split payments, routing funds between multiple sellers or service providers while keeping compliance and settlement rules in check.
- In-store and omnichannel payments: Retailers and restaurants use processors for card terminals, mobile wallets, and QR payments, often linking these to the same system that supports online transactions.
- Cross-border businesses: Companies selling internationally depend on processors that can handle multiple currencies, reduce foreign exchange costs, and comply with local regulations.
Payment gateway vs. payment processor
|
Payment Gateway |
Payment Processor |
|
|
Primary function |
Captures and transmits payment data securely |
Routes transaction data between merchant, banks, and card networks |
|
User interaction |
Customer-facing during checkout |
Operates in the background |
|
Data security |
Encrypts and tokenises sensitive payment information |
Ensures secure data routing to banks |
|
Communication |
Sends data to the processor for approval |
Communicates with issuing and acquiring banks |
|
Settlement handling |
Does not move funds |
Manages the transfer of funds into merchant accounts |
|
Typical use case |
E-commerce checkout page, POS systems |
All transactions requiring bank authorisation and settlement |
When do you need them?
If you take online transactions, you usually need both a payment gateway and a payment processor. The gateway securely captures customer payment details, while the processor communicates with banks and card networks to authorise and settle the transaction. Without both, the checkout flow won’t complete.
In some cases, however, you may only need one. For example, PSPs combine the two into a single solution, so merchants don’t need to contract separately for processing. On the other hand, some in-person transactions handled directly through card terminals or POS hardware rely on processors alone, with no standalone gateway involved.
Choosing the right payment processor
Key evaluation criteria
- Transaction handling – The ability to process varying volumes reliably, with proven uptime records.
- Contingency planning – Availability of alternative routing if a primary network path fails.
- Fee transparency – Clear, predictable pricing models that match your business growth stage.
- Dispute management – A track record for resolving chargebacks and refunds quickly and effectively.
Supported payment methods and currencies
Assess whether the processor supports the range of payment options your customers expect — from major credit and debit cards to region-specific APMs and global payments. Multi-currency capability is essential for businesses selling internationally.
Settlement speed and transparency
Understand exactly when funds will reach your account and how settlement timelines vary by payment method or market. The ability to track settlements and reconcile payments in real time can make cash flow planning more accurate.
Platform reliability and support
Investigate service uptime records, dispute resolution processes, and the availability of 24/7 technical support. Consider whether you’ll have a dedicated account manager and how the provider handles urgent escalations.
Trends in payment processing
Rise of embedded finance in SaaS
By 2026, payment transactions made through embedded platforms are expected to grow more than double, enabling direct monetisation of transactions without redirecting users to external providers.
Shift to real-time, omnichannel payments
ACI Worldwide’s March 2024 report shows that real-time payment networks now operate in more than 70 countries across six continents. In 2023, they processed 226.2 billion transactions — up 42.2% from the year before.
Growing importance of local APMs and crypto adoption
Local payment methods now account for over 75% of global e-commerce transactions, with digital wallets alone representing 45% of the market. Overall, these non-card options are projected to grow at more than 11% annually through 2027, outpacing traditional card payments. Crypto payments remain a smaller segment but are expected to expand at a 17% annual rate through 2030.
Why Antom is the right partner for payment processing
Antom combines global acquiring, extensive local payment coverage, and expertise in both card and non-card methods to help businesses expand and operate more efficiently. From improving acceptance rates to reducing transaction costs, we make payment processing a strategic advantage. If you’re ready to scale with confidence, contact Antom today.
