What is a Payment Processor?Everything You Need to Know Before You Start Accepting Payments

August 10, 2023 | 24 min read

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What is a Payment Processor?

In a Nutshell

In this article, we’re taking a deep dive into payment processing. We’ll explore what a payment processor is, what they do, and what you should consider before choosing one over another. Plus, we’ll provide you with a comprehensive list of the highest-rated payment processors available, along with the pros and cons of each, according to merchants like you.

What is a Payment Processor? Here's Processing Explained, Plus the Top 10 Service Providers of the Year

Credit cards were used to conduct 625 billion transactions in 2022. For merchants, that’s a glaring incentive to accept credit and debit cards.

You can’t accept card payments all on your own, though. You need a payment processor to take credit card payments.

So, what does a payment processor do? And, how do they help you and your bank manage transactions? Let’s take a look.

What is a Payment Processor?

Payment Processor

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A payment processor is a company that facilitates credit card payments on behalf of a merchant by receiving, communicating, and relaying the cardholder’s information between issuing and acquiring banks.

A payment processor manages transactions between the payer and the payee’s bank in a financial transaction. This system primarily facilitates the transfer of funds from customers’ accounts to merchants’ accounts when purchases are made using debit cards, credit cards, or other electronic payment methods.

Payment processors ensure secure and efficient transaction processing. This is done by verifying the details involved in a payment, such as a cardholder’s information and the availability of funds. They facilitate and communicate transaction details between the bank, the merchant, and the customer. Thus, they act as an essential bridge in the financial ecosystem.

Payment Processors, Gateways, & Acquirers: What's the Difference?

Three parties — processors, gateways, and acquirers — are integral to the transaction process. While they often work closely together, each has  a distinct role. Let's hammer out each party’s role before we get too deep into the weeds.

The processor works on your behalf as a merchant. It confirms the validity of a transaction, checks the availability of funds, and enables the transfer from the customer's account to the merchant's account. In contrast:

Payment Gateway

Payment Gateway

A gateway is the digital equivalent of a point-of-sale terminal. The gateway encrypts sensitive information like credit card numbers to ensure that information passes securely between you, your customer, the payment processor, and the acquiring bank.

Learn more about gateways
Acquiring Bank

Acquiring Bank

An acquiring bank is a financial institution that maintains your merchant bank account. This bank receives the payment from the customer's bank. Once the transaction is authorized, the acquiring bank deposits the transaction amount into your account.

Learn more about acquirers

How Payment Processing Works

Processors work as a “middle man” to conduct payments. The transaction can be processed quickly as long as the customer has the necessary funds available for the transaction and has been verified by their issuing bank.

Here’s how payment processing works:

Step #1

The customer presents their card information via an online form or physical POS terminal to pay for goods or services.

Step #2

The information is submitted through a payment gateway once those details are entered.

Step #3

The customer’s payment credentials and transaction information are sent to the processor via the payment gateway. The processor then sends that information to the card network, who forwards it to the cardholder’s bank.

Step #4

The issuer verifies the cardholder’s account and balance, then provides an authorization response to the card network.

Step #5

The card network will notify the payment processor whether the payment request is approved or denied. This response is then transmitted to you via the payment gateway.

Step #6

The transaction is now complete. After you submit transactions for settlement (called “batching”), the payment processor requests that the corresponding issuer send the funds from the transaction to the acquirer.

Step #7

You receive the funds from the sale. Depending on the processor and type of account, the transfer could occur instantly, or within a few business days.

What is a Payment Processor Fee?

First, you want to choose the company that best suits your budget. Pricing structures for payment processors tend to vary according to your industry, sales volume, and merchant status (standard versus high-risk processing). The three most common pricing models are:

#1 Interchange-Plus Pricing

This pricing method includes the interchange rate (the fee charged by the card network), plus a markup, which can be a fixed amount, percentage-based, or both.


This method can be less costly than the others, especially for businesses that process a large number of transactions.


Interchange rates can vary from transaction to transaction, making it difficult to predict costs from month to month.

#2 Flat-Rate Pricing

This pricing method ensures a single rate for all transactions through a given method, regardless of interchange rates and fees. This would mean you’d pay a set percentage on top of your transaction rate; for example, 3% of the total plus $0.25 for every transaction.


Flat rates aren’t subject to fluctuation. You know what you’re getting into, relative to the dollar value of your sales and the number of transactions processed.


It could be more expensive than the other tiers if a company processes many transactions annually.

#3 Tiered Pricing

This pricing method combines both interchange-plus and flat-rate pricing by sorting rates into grouped categories. Let’s say that you might pay 2% plus $0.15 for debit transactions, but 3% plus $0.10 for credit card transactions. These rates and fees are variable, following a predetermined ruleset.


Tiered pricing offers predictability combined with competitive pricing.


If you are a high-risk merchant or process a large number of payments overall, the costs associated with a tiered pricing scale could be very high.

Reduce your processing costs by keeping your chargeback issuances low.REQUEST A DEMO

Additional factors to consider when determining which model is best for your needs include:

  • Quotes: Most payment processors list their pricing details on their websites. Some will require that you contact them for an individualized quote, though.
  • Vertical: Some processors offer multiple payment methods according to your product category, vertical, etc.
  • CNP Premiums: Online transactions carry higher fees due to the increased fraud risk compared to brick-and-mortar sellers.
  • Equipment: The actual POS terminal can get expensive. Some processors allow you to take payments from a tablet or other common device.

Questions to Ask Before Choosing a Payment Processor

With few exceptions, there’s simply no way you can operate a profitable business without taking credit card payments. Which service provider should you choose, and how can you tell which is best suited for your needs, though?

Beyond the pricing model, here are a few other things to consider before you choose a payment processor:

Where Do You Sell?

Is your business online-specific or a brick-and-mortar establishment? Do you take payments on the go? Do you need to take payments over the phone? These are all factors that could influence your payment processor choices.

To illustrate, if your business is limited to brick-and-mortar sales, a traditional POS terminal and payment processing platform would work best for you.

What’s Your Sales Volume?

If you’re an up-and-coming merchant with a smaller company that is concerned about overhead costs, providers like Square offer inexpensive solutions with quick, easy launches. However, other providers have several options to choose from if you're strictly an eCommerce merchant that may be better depending on your sales volume.

What’s Your Product Vertical?

Some products — fashion, health and beauty products, gas stations, etc. — are considered high-risk because they typically incur more chargebacks. So, some processors may elect not to do business with you depending on your industry.

What’s Your Sales Model?

Subscription-based goods and services tend to experience an elevated rate of disputes and chargebacks. So, if your business engages in this practice, odds are that you will be limited to high-risk processors.

Many products that are influenced by local and state laws, like alcohol or firearms, as well as cannabis products, which may be illegal in some states. Some processors may opt not to work in these fields, or may even be legally barred from doing so.

Did You Know?

High-risk processors typically charge higher fees than traditional processors and impose more restrictions. However, you have more leeway in terms of chargebacks and fraud incidents.

Do You Change Providers Often?

A few payment processors don’t charge cancellation fees. However, the vast majority do. If you think you may end up canceling service at some point, you should consider cancellation fees before you decide on a provider.

Direct vs. Third-Party Merchant Accounts

So, those are a few of the preliminary questions to consider. Another important question to ask is: How will you get paid?

There are two basic types of payment processing accounts to choose from here: direct and third-party providers.

Direct Merchant Account

A direct merchant account is an account opened for you, by your acquiring bank, with assistance from a payment processing provider. However, you own the account directly.

With a direct account, the money will be taken from the cardholder’s issuing bank and given to your acquiring bank within a given timeframe. Some merchant accounts allow advance access, though some may take a few days to finalize. When you think of a direct merchant account, you’re thinking of those offered through traditional banks or massive payment processing companies like Payment Depot.

Third-Party Merchant Account

With a third-party account, a provider opens a sub-account for you, then conducts credit and debit card payments on your behalf. You don’t own the account; your payment processor does.

Some payment processors like Stripe and Square maintain their own merchant accounts, which you pay them to access. When you take a payment, the funds are rerouted to a subsidiary account that you must open and manage from within that processor’s client portal.

Though you don’t have direct access to your own merchant account with the bank and network, choosing a third-party provider can grant you access to funds faster since you are technically being paid by the processor rather than the bank.

The Top 10 Payment Processors for 2024

We took a detailed look at today's highest-rated payment processing companies and developed a comprehensive rundown of the leading service providers.Ratings and reviews were averaged based on sources featured by Forbes, Nerdwallet, and TechRadar. The pros and cons listed are paraphrased directly from real, firsthand customer reviews on G2.com.

The 10 Best Payment Processor Companies, According to Merchants

We took a detailed look at today's highest-rated payment processing companies and developed a comprehensive rundown of the leading service providers.

Ratings and reviews were averaged based on sources featured by Forbes, Nerdwallet, and TechRadar. The pros and cons listed are paraphrased directly from real, firsthand customer reviews on G2.com.

What is a Payment Processor?

#1 | PayJunction

“Best Payment Processor for Balanced Service”

PayJunction provides small and medium-sized businesses with solutions that make it easy to accept credit and debit card payments in-store, online, and on the go. They deliver secure, innovative services, including a contactless payment system for in-person transactions, plsu eco-friendly remote payment features like digital invoicing, signatures, and receipts.

PayJunction’s cloud-powered payment solution easily and securely integrates with industry-leading business software and management platforms. This is done via RESTful APIs for businesses seeking an integrated payments solution. Companies looking for a stand-alone, out-of-the-box solution should look no further.



  • Outstanding, personable customer support
  • Clean and concise reporting
  • Accurate and easy-to-use online portal and POS terminals


  • In some cases, processing fees are deducted daily instead of monthly
  • For a multi-location business, transaction limits cannot be extended or applied to sister locations
  • Limited mobile processing options

Pricing: Two-tier, volume-based pricing

Transaction Fees: Interchange + 0.75% per transaction. Additional fee of $0.07 for swiped credit card transaction, which may vary depending on card/transaction type.

Extra Perks:

  • Month-to-month service
  • Securely store and recharge cards on file
  • Streamlined electronic invoice payments
  • Automated sales reports
  • Hosted checkout

What is a Payment Processor?

#2 | Payline

“Best Payment Processor for Brick-and-Mortar”

Payline is a Pineapple Payments company headquartered in Chicago, Illinois. They provide solutions to businesses ranging from startups to Fortune 500 companies, focusing on the payment experience.

Payline offers gateway payment processing, and its web solutions are designed to integrate with over 175 online shopping carts. The company also offers mobile solutions designed to accept payments via mobile apps. The Payline payment processing gateway also integrates with QuickBooks for ease of payroll management and business financials in general.

Pricing for brick-and-mortar stores includes a monthly fee, plus a small percentage fee per transaction. For online stores, the monthly and transaction fees are a little higher.



  • Easy to use and set up
  • No early termination fees
  • Excellent customer service and clarity are guaranteed


  • Occasional program glitches noted by customers
  • Transaction costs are not fully transparent
  • Not available outside the US

Pricing: Call for a free quote

Transaction Fees: In-person transactions are 0.2% + $0.20 per transaction, and a fee of $20 per month. CNP transactions are 0.4% + $0.20 per transaction, plus the $20 monthly fee.

Extra Perks:

  • Built-in security and fraud protection
  • Mobile app integration
  • Lower monthly fee

What is a Payment Processor?

#3 | Stripe

“Best Payment Processor for Payments Technology”

According to Forbes, Stripe outshines its competitors in terms of online payments because it accepts all types of mobile wallets. They take Apple Pay and Google Pay, plus popular international wallets like Alipay and WeChat Pay. Stripe also lets merchants accept payments or recurring charges with ACH debit, ACH credit or wire transfers for an 0.8% fee (capped at $5).

Stripe is designed for larger firms, and offers a plethora of APIs that allow merchants to create their own subscription services, on-demand marketplaces, or crowdfunding platforms. It supports a range of development languages, including Ruby, Python, PHP and Java.

The company also offers credit card readers that integrate with popular eCommerce and accounting software, including Shopify, WooCommerce and Xero. Payouts are typically available within two days but you can also choose instant payouts for an additional 1% ($0.50 minimum). Stripe also offers 24/7 email, chat, and phone support.



  • Faster, frictionless payments
  • Seamless to set up and use, and comes with a variety of integration options
  • One of the best tools for collecting payments from different countries/currencies


  • Requires fundamental tech savvy to operate (large learning curve)
  • Stripe has slightly higher fees than Square, and takes a day longer to deposit funds
  • Spotty customer service where troubleshooting is involved

Pricing: Flat rate pricing, with $0 monthly fees

Transaction Fees: 2.7% + $0.05 per transaction for card-present payments. 2.9% + $0.30 per transaction for online or manually keyed-in payments.

Extra Perks:

  • Global processing
  • Omnichannel
  • Instant payouts available
  • Transparent pricing structure

Take the “pain” out of payments. Accept more sales without increasing your chargeback risk.


What is a Payment Processor?

#4 | Square

“Best Payment Processor for Small Businesses & Startups”

Square is a highly integratable payment platform that was established to empower small businesses and startups the ability to take physical and online credit card payments. The company has added a multiplicity of channels, integrations, and portals over time to empower and enable every type of business.

Square offers a complete suite of business tools for eCommerce and brick-and-mortar businesses, with an intuitive dashboard that centralizes all income streams and data sources with advanced analytics. Hardware and software options work seamlessly to provide stress-free, modern business solutions.

Square also offers register and payment hardware for retailers, restaurants and more, as well as loyalty, appointment scheduling, and inventory software.



  • Accepts multiple forms of payment that arrive in your bank account within one business day
  • Pays out next business day
  • Easy to setup and use


  • Pricing model makes it less cost-effective for bigger companies
  • Deposit limits and add-on services are pricey
  • Hardware can sometimes be buggy

Pricing: Flat rate pricing, with $0 monthly fees

Transaction Fees: Card-present payments are 2.6% + $0.10 per transaction. Card-not-present payments are 2.9% + $0.30 per transaction. Keyed-in payments are 3.5% + $0.15 per transaction.

Extra Perks:

  • Next-business day transfers
  • Account takeover protection
  • End-to-end encrypted payments
  • Active fraud prevention
  • Dispute management
  • Data-security (PCI) compliance coverage

What is a Payment Processor?

#5 | ACI Worldwide

“Best Payment Processor for Online Payments”

ACI Worldwide delivers white label global payment gateway solutions to payment service providers (PSPs), independent sales organizations (ISOs), acquirers, independent software vendors (ISVs), and value-added resellers (VARs). They allow merchants to fully outsource payment transaction processing and integrate a gateway-to-gateway solution.

It’s a smart, agile payments orchestration platform for international growth. ACI Worldwide enables customer journeys, accepts all payments, prevents fraud and optimizes payments configuration for maximum conversion with minimum cost.



  • Best encrypted payment portal, with real-time alerts
  • Superior analytics and conversion data
  • Designed specifically with eCommerce in mind


  • Pricing and fees lack transparency
  • Limited personalization with integration
  • Payments are not frictionless; advanced security measures increase false negatives

Pricing: Call for a free quote

Transaction Fees: No data; call for clarification

Extra Perks:

  • Omnichannel solutions
  • Wide range of products to choose from

What is a Payment Processor?

#6 | Authorize.Net

“Best Payment Processor for Flexible Payments”

According to G2, Authorize.Net (from Visa) supports all major credit cards, including Visa, Mastercard, American Express, Discover, Diner’s Club, and JCB. The platform is compatible with digital payment services such as Apple Pay, PayPal, and Visa Checkout.

The software can accept transactions made by customers all over the world. However, your business must be registered in the US, UK, Canada, Europe, or Australia if you’d like to use this service.

Plans start with the gateway-only offering, which has no setup fee; only a monthly gateway fee, plus a per-transaction fee and a daily batch fee. At the other end of the spectrum are enterprise solutions that offer comprehensive, tailored pricing for larger business needs.



  • Simple, easy-to-navigate interface
  • Robust security protocols that help against fraud and chargebacks
  • Merchant payouts are processed and finalized in just a few days


  • False positives and negatives are common
  • The Authnet Dashboard has not changed in over a decade, and could use a modern facelift
  • The platform is pricey

Pricing: $25 monthly gateway fee. Setup is $49.

Transaction Fees: All-in-one option with a per-transaction rate of 2.9% + $0.30, with no setup fee.

Extra Perks:

  • Global merchant account provider
  • Support for credit cards and digital providers
  • Wide range of currencies supported
  • Designed for any business

What is a Payment Processor?

#7 | Payment Depot

“Best Payment Processor for High-Volume Sales”

Unlike other payment processor companies, which take a percentage of each transaction, Payment Depot uses a subscription pricing model based on a merchant’s monthly transaction volume. Merchants pay a flat fee per transaction, plus the interchange rate, regardless of the transaction type.

Payment Depot doesn’t charge any cancellation or hidden fees. At the same time, they provide access to funds within 24 to 48 hours of a transaction. The company also offers a variety of terminals, credit card readers, and POS systems with customer support available 24 hours a day.

Payment Depot works best with high-volume merchants or merchants who frequently process high-dollar products and services.



  • Saves merchants a ton of money in fees
  • Customer care and support are top-notch
  • Month-to-month billing


  • Hardware options are limited
  • Pricey for businesses with lower volumes
  • High-risk businesses may be denied

Pricing: A flat $79 to $99 per month (Enterprise membership starts at $199) with a monthly transaction limit of $25,000 to over $300,000 depending on the plan.

Transaction Fees: Fixed $0.07 to $0.15 per transaction, plus the interchange rate.

Extra Perks:

  • Low transaction fees
  • 24/7 customer support

What is a Payment Processor?

#8 | Veem

“Best Payment Processor for International Payments”

Veem is a payment processor that “uncomplicates the end-to-end AP/AR process.” They offer seamless integrations to leading accounting software, real-time tracking on payments and cost-effective, and flexible payment options. Now businesses have the power to pay how they prefer and eliminate friction with customers to get paid faster.

Veem provides broad access to online global payment tools to send and receive payments in 100 countries and in over 70 currencies, all on one payment network. The company enables businesses to track international payments from start to finish, providing live updates on transactions at any time.



  • Transactions are easy and traceable
  • All-in-one dashboard
  • Low cost for international payments


  • Transactions can take 4-6 business days to process
  • Not all countries are represented
  • Setup and onboarding is dodgy

Pricing: Two-tier pricing scale—international and domestic (international wire transfers start at $29 per transaction)

Transaction Fees: Transaction Fees: 2.9% per transaction; 1% of total amount.

Extra Perks:

  • Mass pay options for contractors and partners

What is a Payment Processor?

#9 | BlueSnap

“Best Payment Processor for Vendor Partnerships & Split Payments”

BlueSnap supports payments through multiple sales channels such as online and mobile sales, marketplaces, subscriptions, invoice payments and manual orders through a virtual terminal. For businesses looking for embedded payments, the company offers white-labeled payments for platforms with automated underwriting and onboarding. This supports marketplaces and split payments.

With one integration and contract, businesses can sell in over 200 geographies with access to local acquiring in 47 countries, 110+ currencies and 100+ global payment types. These include popular eWallets and automated accounts receivable, all backed by world-class fraud protection and chargeback management, built-in solutions for regulation and tax compliance, and unified global reporting to help businesses grow.



  • New features continuously available
  • Bluesnap is very accommodating for unique needs and works with merchants to modify workflows to fit the business requirements
  • Integration with hosted fields is fairly simple and seamless


  • Technical support needs work
  • Good reference docs, but no helpful implementation guides, recommendations for choice among the various technical solutions, etc
  • Patchwork system; not all facets of operations are on the same platform

Pricing: Pay-as-you-go pricing, with $0 startup, monthly, or cancellation fees

Transaction Fees: 2.9% + $0.30 per successful card transaction

Extra Perks:

  • Global processing with one account
  • Interchange plus, tiered or flat-rate pricing
  • Level 2 and Level 3 data processing rates
  • Charity or nonprofit payment processing rates
  • Accounts receivable automation

What is a Payment Processor?

#10 | GoCardless

“Best Payment Processor for Recurring Billing”

GoCardless is the global leader in recurring payments. They’re also the world's largest bank-to-bank direct debit platform, helping businesses accept payments in over 30 of the world’s largest economies. GoCardless takes the pain out of getting paid for more than 55,000 businesses worldwide, from enterprise to small businesses. Their clients range from small businesses to household names such as DocuSign, TripAdvisor, and The Guardian.

The company’s focus is on collecting payments through direct debit. This is done by seamlessly working with customers' existing billing software or payment gateway. The platform integrates with 200+ partners such as Zuora, Salesforce Billing, Recurly, and Yaypay.



  • Online dashboard interface is clean and user-friendly
  • Minimal fees
  • Excellent processes for automated payments


  • Any per-transaction price increases are substantial
  • Can be difficult to speak to a real person when tech support is required
  • Slight delay in payouts

Pricing: Two tier per-transaction pricing; custom pricing available.

Transaction Fees: 1% + $0.25 for domestic transactions, with a maximum of $2.50 per transaction.An additional fee of 0.3% applies to transaction values above $1,000. Failure and chargeback fees apply. For international transactions, the fee increases to 2% + $0.25 per transaction; currency conversion is included, with exchange rate powered by Wise.

Extra Perks:

  • Personalized billing
  • Accounting integration
  • Usage tracking

Are There Alternatives to Payment Processing?

What if you don’t use a payment processor? How can you process payments?

It’s technically possible to run a business without a payment processor. However, you’d limit your business to three payment options: cash, check, or money order. That’s simply not practical; after all, who even carries a checkbook with them anymore? Who’s going to take out a money order to pay for something in person?

Credit cards are the currency of our new digitized age. To turn a stable profit, you must be where your customers are, and accept the payment methods they want to use.

While there are some alternatives to conventional processing, like Paypal or Venmo, you will need some platform that can allow you to accept card payments. Choosing your processor based on the factors listed above will dramatically improve your chances of achieving a symbiotic relationship with processors and banks.

Chargeback Management Can Help

If you’re on the fence about payment processors because you are experiencing a high number of chargebacks, effective chargeback management could be your solution.

Chargebacks911® enables sellers in all MCCs, sales models, and product verticals to increase profitability. We help standard merchants avoid excess chargebacks and help high-risk merchants recoup revenue that would otherwise be lost to fraudulent chargebacks.


What does a processor do in payments?

A payment processor is a company that facilitates credit card payments on behalf of a merchant by receiving, communicating, and relaying the cardholder’s information between issuing and acquiring banks.

Is PayPal a payment gateway or payment processor?

PayPal serves as both a payment gateway and a payment processor. It's a platform enabling online money transfers and eCommerce, acting as a secure bridge between purchasers and merchants.

What is the difference between a gateway and a payment processor?

While a payment gateway is responsible for securely transmitting payment details from the customer to the relevant financial entities, a payment processor manages the entire transaction process, including communicating with the acquiring bank to confirm and transfer funds.

Is Venmo a payment processor?

Venmo, owned by PayPal, is a mobile payment service that enables peer-to-peer (P2P) money transfers. It can be seen as a kind of payment processor since it handles transactions between two parties.

However, its function is a bit different than traditional payment processors as it's primarily used for transferring money between individuals rather than facilitating transactions between customers and merchants (although Venmo has been increasing its capabilities for merchant transactions as well).

Why do you need a payment processor?

A payment processor is necessary to ensure secure and efficient electronic transactions, communicating between the customer, merchant, and respective banks to validate and transfer funds.

How much do payment processors take?

Payment processors typically charge a fee per transaction, which often ranges from 2% to 3% of the transaction amount, plus a small fixed fee per transaction. These rates can vary based on the processor and the specifics of the merchant's business.

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