What is a Front-End Processor – Platform? – Merchant Services

The terms “front-end processor” and “front-end platform” refer to the same thing.  This terminology is important in the world of credit card processing.  It is key information which will help you sell.  Understanding the front-end platform affects your ability to integrate and get the lowest costs for merchants.  In this episode I’ll teach you how to work the system.

At the point of sale, payment data is sent out over the front-end to authorize or decline and capture payment.  The front-end platform handles the process of authorizing a transaction but does not actually move the money.  The “issuing bank” is the bank that issued the payment card being used for a transaction and has the money in an account to cover the transaction.  The “acquiring bank” is the bank where the money is being sent.  The payment data is entered and sent over the card network such as Visa, Mastercard, or Discover back and forth between the issuing bank and the acquiring bank.

The final step of involvement for the front-end is the settlement of the transaction.  The approved transactions for a given time period (usually one day) are sent back through the card networks to confirm the transaction did happen and was finalized.  These front-end processes are obviously very complex.  The front-end is actually a software platform.  It facilitates all 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.  First Data has several front-end solutions such as First Data North, First Data Bypass and First Data Omaha.

There are two important factors in understanding the front-end solution being used.

#1.  The ability of a front -end solution to integrate with whatever software the merchant is using. This is especially important when re-programming an existing credit card terminal or when trying to switch a merchant who is already using a touch screen point of sale system.  In both of these cases, to know what front-end solutions you are able to offer is important for selling the merchant.  For instance, if you run across an FD terminal, it can usually only be reprogrammed using a First Data front-end.  Therefore, you will need to provide a free terminal if your company doesn’t offer that front-end solution.

#2.  The front-end platform has great effect on the per item fee costs.  These costs determine both your ability to sell a merchant and your residual income.  Often a credit card processing company has several front-end solutions, each with a unique cost structure.  Usually a company has a “primary” front-end.  They send 80%+ of new merchant accounts there.  The primary front-end will provide a volume discount.  This means the schedule A costs will probably be lowest using your company’s primary front-end.

One final warning about front end solutions:  There is certainly value in a credit card processing company controlling the “back-end.”  But be careful about a company who claims to have “our own front-end.”  Some of the larger processors have started moving in that direction to cut costs.  This is fine for small merchants where you will most likely be providing a free terminal anyway.  However, touch screen point of sale software systems are likely not built to integrate with a custom front-end solution.  You may want to have a secondary company for whom to sell if you are in that situation.  You need to have TYSYS, Global or First Data front-end solutions to ensure integration with most systems.

Understanding this complex aspect of our industry will help you make sales and better service your merchants.

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