Traditional payment processing typically involves a complex arrangement of many disparate third-party vendors to facilitate the payment flow. For the merchant, each vendor requires a separate relationship, contract, overhead cost, and accountability. The resultant risk from this typical setup is unfortunately quite high, as nearly all the vendors keep a copy of the consumer’s payment information—or have direct access to it.

The primary vendor relationships required for payment processing are:

• ISOs - The sales organizations that solicit merchants on behalf of the Merchants Acquirer. They provide merchant account underwriting and customer service and act as a middleman between Merchants and Merchant Acquirers.
  
  
• Merchants Acquirers - The parties that hold the processing contract with the merchant. Typically, a bank is either all or part of this group of entities, as they ultimately hold all the risk of the transactions as well as being directly responsible for association fines.
  
  
• Gateways - Connect Merchants to the entity that is the Front-End connection to the Networks. They are referred to as gateways because they can take payment data from a variety of sources (terminals, web sites, payment applications) and distribute that data to various Front-End connections.
  
  
• Front-End Processors - The entities that facilitate the authorization transactions to entities with Network connectivity (such as a Back-End Processor), or they may have this connectivity themselves.
  
  
• Back-End Processors - Take the authorization data from the Front-End and settles funds through the Network’s interchange system. Retrieval requests and chargebacks are handed by the Back-End.
  
  
• Networks - The Visa and MasterCard card associations, who run payment networks that connect all of the Processors with all of the Issuers, as well as manage the collection and distribution of data and fees between them.
  
  
• Issuers - The financial institutions that issue the card plastics to Consumers, and manage their account balances and distribute monthly statements. Even more entities are typically required for ACH and debit transactions. A credit card transaction typically involves authorization, where an electronic request is sent through various parties to either approve or decline the transaction, and Clearing and Settlement, where all parties settle their accounts and get paid.

Even more entities are typically required for ACH and debit transactions. A credit card transaction typically involves authorization, where an electronic request is sent through various parties to either approve or decline the transaction, and Clearing and Settlement, where all parties settle their accounts and get paid.