Once the credit card number, and other payment data is entered at the point of sale, that data is sent out over the front-end in order to authorize (or decline) and capture the payment. So, what does the “Front End” or “Platform” terminology mean in the world of credit card processing?
The short answer is that the “Front-End” platform (sometimes called the “Front-End Processor which can be confusing) handles the process of authorizing a transaction but they do not actually move any money. Once all the of the payment data is entered, that packet of information is sent over the card network such as Visa, Mastercard or Discover back and forth between the “Issuing Bank” which is the bank that issued the card and has the money in an account to cover the transaction, and the “Acquiring Bank” which is the bank where the money is being sent.
The last step of involvement for the “Front-End” is the settlement of the transaction. This is where the approved transactions for a given period of time, usually one day, are sent back through the various networks confirming that the transaction did indeed happen and was finalized. These front-end processes are obviously very complex and so a “front-end” is really just a software platform that facilitates all of these processes and ties the technology at the point of sale to the various card networks and banks in order to complete the transaction.
The most common “Front-End” processors in our industry are TYSYS, Global, Chase Paymentech, and First Data has several “Front-End” solutions such as First Data North, First Data Bypass and First Data Omaha.
The Importance of the Front-End Platform
At this point, you might be asking yourself, “Why do I need to know this information?” That is a valid question and so let me explain the two most important factors in understanding the “Front-End” solution you are using.
First is the ability of a front-end solution to integrate with whatever software your merchant is using. This is especially important when re-programming an existing credit card terminal or when trying to switch a merchant that is already using a touch screen point of sale system. In both of these cases, it is important to know what front-end solutions you are able to offer so you can sell the merchant.
For instance, if you run across one of the FD terminals I mentioned above, they can usually only be reprogrammed using a “First Data Front End” and so if your company doesn’t offer one, you will need to provide a free terminal.
Secondly, the front-end processor or as I like to call it “Platform” has a lot to do with the per item fee costs. These costs effect both your ability to sell a merchant and your residual income. It is not uncommon for a credit card processing company to have several front end solutions, each with their own unique cost structure. Usually they have a “Primary Front-End” where they send 80%+ of their new merchant accounts and this Front-End will provide a volume discount meaning your schedule A costs will probably be lowest using your company’s primary front-end.
One final warning about front end solutions. While there is certainly value in a credit card processing company controlling the “back-end”, be careful about a company that claims to have “our own front-end.” Some of the larger processors have started moving in that direction in order to cut costs and this is fine for small merchants where you will most likely be providing a free terminal anyway. However, you will at least need a secondary company to sell for because it is unlikely that touch screen point of sale software systems will be built to integrate with this custom front-end solution. You need to have TYSYS, Global or First Data front end solutions in order to ensure integration with most systems.