Definition

A payment processor is a company (often a third party) appointed by a merchant to handle credit card transactions for merchant banks. They are usually broken down into two types: front-end and back-end.

• A front-end payment processor has connections to various card associations and supplies authorization and settlement services to the merchant banks' merchants.
• A back-end payment processor accepts settlements from front-end payment processors and, via the Federal Reserve Bank, transfer the money from the issuing bank to the merchant bank.