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Banks vs Payment Processors

Banks and payment processors work closely, making sure that the money gets where it needs to go. But what are some of the key differences between each of these systems?

Payment Processors Connect Organizations

This can be a tricky topic. Because of this, it can help to look at what a typical transaction looks like and the role each of these organizations plays. So, what happens when you pay with your debit or credit card?

First, the bank is responsible for issuing your card and getting it set up properly. For example, they will need to program the RFID chip. This contains your bank account information, which is what is scanned by the EFTPOS machine and sent to the payment processor.

The financial details of the transaction are then sent to the bank. If you have sufficient funds in your bank, the transaction will be approved. This information is relayed to the payment gateway, which alerts the payment processor. The EFTPOS machine tells the merchant that the sale went through successfully. Remarkably, these steps occur within a few seconds.

A misconception that people have is that banks do the processing of your transactions; this is not the case, banks do not process payments. Some banks might do this but most are reselling the services of a merchant service provider with a mark-up. Your bank is also not responsible for deciding whether to approve your transactions.  It’s the payment processor that allows the merchant to send the transaction to the payment gateway. This facilitates the transfer of funds. Some of the most prominent examples are Visa and Mastercard.

Banks Store and Transfer Funds

Once the transaction is approved, the funds will move from the customer’s bank to the merchant’s account. Often, it will sit for a few days before the transaction is approved and the money will be deposited into the merchant’s account.

Do Banks Own Payment Processors?

It’s rare for banks to own payment processors themselves. Usually, the company that provides the EFTPOS machines will work as the payment processor. In exchange, they will charge a small fee for each transaction that they facilitate.

Banks Track Suspicious Activity

It’s up to the bank to keep track of all the transactions that occur. If you notice that someone has been committing fraudulent activity on your card, you’ll need to contact your bank. They will be able to stop any future transactions from going through.

It should be noted that some payment processors come with the technology to detect fraud. For example, large transactions might require the use of a PIN to verify the customer’s identity. They might also check the CCV. If it doesn’t match the one the bank has on file, it could be a sign that someone is trying to misuse your card.

Large transactions might be flagged by the payment processor. This signals to the banks that they might need to investigate these before they transfer the funds.


Both banks and payment processors play an integral role in deciding whether a transaction gets approved or denied. But their role is slightly different. A payment processor acts as a mediator between the customer’s bank and the merchant’s bank. Once the transaction is approved, the bank will transfer the money from one account to another. Please note that this is only some basic information, it is your responsibility to research what works best for your processing needs. For more information, call us at 310.826.7000.