Types of Processors
LST Financial is a Tier 1 processor; but not every processor is alike, and it is important to understand the differences so you can make an informed choice! Three main types of processors exist:
Tier 1 - Directly connected to the Federal Reserve via a private proprietary network. Tier 1 processors transmit data directly to, and receive transactions directly from, the Federal Reserve using routing numbers assigned directly to them. Tier 1 processors also can transmit and receive data for multiple financial institutions. It is estimated that less than 1% of processors are in the Tier 1 category. Tier 2 - Transmit data via the Internet to a single sponsor bank. The sponsor bank then combines data from multiple processors into one file, and uploads the data to the Federal Reserve once a day. All returns go back through the bank, are separated, and then downloaded by the processor. It is estimated that 10-20% of processors are in the Tier 2 category. Tier 3 - Capture data and then transmit the data to a Tier 1 or 2 processor, which forwards the data onward. Returns are transmitted in reverse order, are separated by processor, and then further transmitted before being made available to customers. Most processors fall into this category.
