What is a Credit Card Payment Processor?

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  • Written By: N. Madison
  • Edited By: Jenn Walker
  • Last Modified Date: 25 September 2019
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A credit card payment processor is a business that allows other businesses to accept credit cards as payment, authorize payments, and receive the money from these transactions. One type of credit card payment processor is a merchant account provider. There are also some companies that allow businesses to process credit cards without opening merchant accounts. These companies are often referred to as third party merchants. Both options require a business owner to pay fees for processing.

A merchant account is a special account that allows business owners to accept and process credit card payments. When a company with a merchant account accepts a credit card payment, a company representative may swipe the credit card or type transaction information into a computer or credit card machine. Alternatively, a customer may type his credit card information into an online form. Either way, the credit card information is sent to a merchant account provider’s computer network. The information is then transmitted from the merchant account provider to the network maintained by the organization that issued the credit card.


When a merchant account provider uses a credit card payment processor, the credit card issuer decides whether or not to approve the payment. If the transaction is approved, the credit card issuer transfers the required funds from the credit card holder’s account back to the merchant account provider. The merchant account provider deducts a fee, as stipulated in the merchant account contract. Then it transfers the remaining funds into the business owner’s bank account. This entire process typically takes about two or three days.

Sometimes online businesses prefer to use third party merchant processors who do not require them to open merchant accounts. To process payments in this manner, a business owner instructs his customers to pay by completing an online form provided by the payment processor. This sends the credit card payment information to the third party payment processor.

A third party credit card payment processor uses its own merchant account to process transactions for other companies. The third party processor receives the funds from the transaction minus the fees charged by its merchant account provider. It sends the balance of the transaction money to the business owner after subtracting the processing fees it charges, which include enough to cover the fees its merchant account provider deducts. Some third party payment processors allow business owners to obtain their funds on the same day a credit card transaction is approved while others may deposit funds into the business owner’s bank account a few days later.


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