Payment processor

A payment processor is a company or service that handles the transactions between a merchant and a customer by processing credit card, debit card, and other electronic payments. Payment processors play a critical role in the electronic payment ecosystem, ensuring that transactions are completed securely and efficiently. Key functions include:

1. Transaction authorization:
   1. Verification: Checks the validity of the payment method (e.g., credit card) and verifies if the customer has sufficient funds or credit to complete the transaction.
   2. Approval or decline: Sends a request to the issuing bank (the customer’s bank) for approval. If approved, the transaction proceeds; if declined, the transaction is stopped.
2. Transaction settlement:
   1. Funds transfer: Facilitates the transfer of funds from the customer’s account to the merchant’s account.
   2. Batch processing: Processes transactions in batches at the end of the business day to settle all completed transactions.
3. Security:
   1. Data encryption: Ensures that transaction data is encrypted during transmission to protect against fraud and data breaches.
   2. Compliance: Adheres to industry standards such as PCI DSS (Payment Card Industry Data Security Standard) to ensure the security of cardholder data.
4. Fraud prevention:
   1. Monitoring and detection: Utilizes algorithms and machine learning to detect and prevent fraudulent transactions.
   2. Verification tools: Implements tools such as AVS (Address Verification System) and CVV (Card Verification Value) checks.
5. Customer support:
   1. Assistance: Provides support to both merchants and customers for any issues related to payment processing.
   2. Dispute resolution: Assists in resolving disputes and chargebacks between merchants and customers.