Are Banks Payment Processors?

If you are currently looking for a payment processor for your business and you want to learn whether or not banks can be them – rest assured that you have come to the right place.

In this helpful guide, we are going to be talking you through what a payment processor is, as well as explore whether or not banks are able to process payments on behalf of a merchant. So, just keep reading to get all of the payment processing knowledge you need.

What Is A Payment Processor?

Before we jump any further into this guide, we first think that it would be helpful to explain what a payment processor is, as this will help you to better understand whether or not a bank can be classified as one. Let’s take a closer look at what a payment processor is:

Essentially, just like the name suggests, a payment processor is a type of entity that has been specifically created to process payments for a merchant. They have the responsibility to authorize and carry out all credit and debit card transactions on behalf of a bank. There are currently two types of payment processors that merchants can choose from, and these are the following:

 

• • An issuer payment processor: The first type of payment processor is what is known as an issuer payment processor. This is essentially a payment processor that is able to connect with issuing banks in order to effectively manage card issuances and safely authorize all transactions being made via a merchant’s checkout terminal.

• • An acquiring processor: The next type of payment processor is an acquiring processor. This is a payment processor that has been specifically appointed by a merchant in order to handle all credit and debit cards for an acquiring bank.

Keep in mind that, regardless of which payment processor is chosen by the merchant to process their transactions, all payment processors must make sure that they are abiding to the rules and regulations of all card associations such as Visa, Mastercard and more.

This includes ensuring that protection measures are put in place to ensure that all transactions are as safe as they possibly can be, while also checking the authenticity of each transaction to reduce fraud.

Are Banks Payment Processors?

As you will have seen from the description above, banks are not technically payment processors because payment processors are entities that have been specifically created to process payments on behalf of a bank.

However, this is where things can get a little confusing. Even though banks can’t technically fall under the category of being a payment processor entity, they can process debit and debit payments if they are an “acquiring bank”.

Essentially, if a bank is what is known as a merchant acquirer, then they will have the ability to process credit and debit payments on behalf of a business. This is because acquirers are able to enable merchants to accept and process credit/debit payments with a card association such as Visa or Mastercard.

When used by a merchant as its payment processor of choice, an acquiring bank will be required to receive the card transaction details via the merchant’s checkout customer terminal, and then pass the details over to the card issuer to get the payment authorized and then approved.

So, after the transaction has been successfully processed, the merchant’s terminal will then go ahead and forward all of these details to the acquiring bank, which will then be responsible for sending the information over to the card issuer.

From there, the acquirer will then be required to complete the transaction by crediting the merchant’s chosen bank account with the funds in order with the agreement of the purchase that has been made between the merchant and the customer.

All that being said, by both processing the transaction and then crediting the merchant’s chosen bank account with the amount owed, an acquirer bank has the ability to act in pretty much the exact same way as a payment processor entity.

Along with this, it is also worth noting that if an acquirer bank is selected as the chosen payment processor, the acquirer bank will also be required to deal with chargebacks, as well as any additional disputes or issues that may be raised via card issuers with regards to merchant transactions.

What Is An Issuer?

Now that we have outlined what a payment processor is (as well as the instances in which a bank can serve as one) you might currently be wondering where a card issuer falls into all of this. Essentially, an issuer, which is also sometimes referred to as an issuing bank, is a type of entity that is able to “issue” cards to consumers for all major card associations.

In other words, a card issuer is able to act as a payment facilitator between the customer and the card association (such as Mastercard or American Express) by authorizing the payment of the transaction on behalf of the cardholder.

Frequently Asked Questions

What Is Bank Payment Processing?

There are many different types of popular banking payment processors that are used all over the world. Some of the most common bank payment processors that you might already be familiar with are Stripe, PayPal and Stax.

Is A Bank A Payment Service Provider?

While there are payment processor organizations that are able to act on behalf of a bank, there are certain banks that can process payments directly on behalf of a client/merchant.

Why Do Banks Need Payment Processors?

Essentially, a payment processor serves as an intermediary between the merchant and the bank that the customer is using. When the payment is made, the payment processor will act on behalf of the bank in order to receive the transaction details and then authorize the payment.

The Bottom Line

You’ve made it to the end. Now that you have taken the time to read through all of the above, we hope that we have been able to provide you with a clear understanding of whether or not a bank can be classified and used as a payment processor or not.

Just to sum up all that we have discussed, a payment processor is a type of technological entity that is specifically created to process merchant payments on behalf of a bank. Along with payment processors, acquiring banks also have the ability to process payments on behalf of a merchant, too.

That being said, even though banks are not classified as being “payment processors” (as this term refers to technological entities that process payments on behalf of a bank) banks do have the ability to process payments in the same way that a payment processor can, as long as they are what is known as an acquirer bank.

Delve deeper into the details of payment processing over at our knowledge hub.