Credit Card Processors vs. Merchant Service Providers

It’s very likely you looked at the title of this post and thought, “Those are different?” The general public uses these terms interchangeably, and without extensive knowledge of the payments industry, it makes sense to do so.

However, it’s important that business owners understand the difference between credit card processors and Merchant Service Providers as each provider handles different parts of your credit card processing.

Let’s jump in.

Credit Card Processors

The term credit card processors is often used as a blanket term for all credit card processing middlemen, but it actually refers to Payment Processors. A Payment Processor works behind the scenes as the technical glue to maintain communication between Merchant Service Providers and the banks.

Although processors do their part to facilitate the processing of your credit card transactions, they do not have a direct relationship with your business. Credit card processors are chosen by the bank your Merchant Service Provider partners with.

Merchant Service Providers

Just like it sounds, Merchant Service Providers supply the merchant services a business needs to tangibly run a credit card transaction. In the payments industry, providers are also referred to as Independent Sales Organizations because they manage the sales and marketing of products and services for credit card processing. These items includes merchant accounts and credit card readers.

Unlike processors, a Merchant Service Provider works directly with businesses. From demoing and onboarding to processing and troubleshooting, your provider should be there for you every step of the way. A large part of its involvement can be chalked up to the level of customer service it provides.

Roles in Credit Card Authorization

The processor plays a part in three of the six steps it takes to authorize a credit card transaction, while the provider participates in two.

After the Merchant Service Provider receives the payment information, it’s passed to the credit card processor and then onto the network. Seconds later, after the banks have confirmed that the credit or funds are available, the processor relays this information back to the provider.

While the processor is responsible for communicating transaction information between the provider and the network, the provider is responsible for the initial input and output of the transaction information from the cardholder’s perspective.

If the provider is unable to read the payment information, the transaction cannot be passed on to the processor. Similarly, if the provider cannot read the code from the banks communicated by the processor, the cardholder will not know if their payment was successful or not. You can get a visual of the general flow in this diagram.

While these two providers play very different roles in this process, they are both vital to successful credit card processing at your business.

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Do you use other payment industry terms interchangeably? Tell us below and we will let you know if they are truly the same.

Editor's Note: This post was originally published in December 2018 and has been updated for comprehensiveness and accuracy.