Payment processor
What is a Payment Processor?
A payment processor is a third-party service provider that handles the technical side of processing payments between a customer, merchant, and their respective banks. Acting much like a virtual till, a payment processor enables businesses to accept credit and debit card payments, whether in-store, online, or through mobile devices. When a customer makes a purchase, the payment processor securely transmits the transaction details in real time, verifying the cardholder’s information with their issuing bank and the merchant’s acquiring bank. If the details check out, the payment is authorised and the transaction is completed, all in a matter of seconds. Security is central to this process. Payment processors use technologies such as encryption, tokenisation, and fraud detection tools to safeguard cardholder data and prevent unauthorised transactions.
How Does Payment Processing Work?
To accept card payments, most UK businesses require three key components:
- A merchant account – a type of business bank account where funds from card transactions are settled.
- A payment gateway – software that securely transfers transaction data between the customer, the merchant, and the processor, often used in online or app-based checkouts.
- A payment processor – the infrastructure that handles communication between banks and authorises the payment.
Some service providers bundle these components into a single solution (e.g. Stripe, Square, Shopify Payments), simplifying the setup for smaller businesses or startups.
Why It Matters for UK Businesses
A reliable payment processor is vital for delivering a smooth, secure checkout experience, and for building trust with customers. Whether you run a traditional shop in London or an ecommerce brand serving customers nationwide, choosing the right processor can affect everything from transaction fees and settlement times to your ability to handle recurring payments or offer Buy Now, Pay Later options. If you’re operating in multiple markets, it’s also worth checking whether your processor supports multiple currencies and local payment methods preferred by your audience.
