A payment processor is the entity responsible for handling the technical infrastructure of a card transaction. It facilitates the movement of payment data between the merchant, the acquirer, the card network, and the issuer by routing authorization requests, delivering responses, and managing the settlement of funds.

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While sometimes used interchangeably with terms like acquirer or PSP, the payment processor is typically focused on the back-end operations of payment flow - not financial risk ownership.

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Key Responsibilities of a Payment Processor:

• Routing transactions to card networks and issuers for authorization
  
• Managing transaction responses and relaying approvals or declines to the merchant
  
• Batching and settling transactions at the end of processing periods
  
• Supporting fraud detection tools, tokenization, and real-time risk rules
  
• Ensuring PCI DSS compliance and secure data handling throughout the transaction lifecycle

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Relationship to Acquirers and PSPs:

• Some acquirers operate their own processing platforms, while others outsource this function to third-party processors.
  
• Many PSPs bundle processing with onboarding and merchant services, but the processing component may still be handled by a distinct processor on the back end
  
• In many cases, processors serve multiple acquirers, providing a shared infrastructure across different institutions.

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From a risk perspective, payment processors support real-time security functions such as:

• Transaction velocity monitoring
  
• Geo-location risk filtering
  
• Rule-based fraud alerts
  
• Cardholder authentication support (e.g., 3D Secure)

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While the merchant’s relationship is typically with the PSP or acquirer, the processor is the "engine" behind the scenes that ensures transactions flow smoothly and securely.

In summary, a payment processor is a core technology provider in the payments ecosystem, enabling the authorization, routing, and settlement of card transactions without necessarily taking on financial liability for the transaction itself.

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