What Is Payment Processing?

Payment processing is the exchange of information and documentation between a merchant and an acquiring bank or financial institution. The purpose of payment processing is to establish guidelines for transferring funds between the consumer and the merchant during credit card, debit card, ACH, gift/loyalty card transactions. Payment processing also includes establishing risk management practices such as fraud detection.

How Payment Processing Works?

When a consumer approaches a merchant to make a purchase, the merchant must establish if the consumer has funds available in their account or credit limits with their card issuer. The merchant then needs to establish how they will receive payment for the transaction. Lastly, the merchant sends an authorization request to complete the transaction and the consumer’s information and purchase details are received by the merchant. Payment processing is used to authorize, capture and settle transactions.

How Do I Use Credit And Debit Cards To Accept Payments Online?

As of 2010, there were over 1 billion credit cards issued worldwide, making them a common method of payment for online merchants. Over 80% of online merchants accept credit card payments because it is a fast, easy and secure way to process transactions from almost anywhere. However, if the merchant has a brick and mortar store they may also have a POS credit card machine that will accept physical cards for in-person purchases.

In addition to using traditional credit cards, there are other types of cards that can be accepted online. Debit cards are linked to checking accounts and act like a non-reloadable credit card, where the money for purchases comes out immediately.

Consumers can also use prepaid debit cards at online merchants. Prepaid debit cards require the consumer to load funds onto the card first. These types of cards are often used by people from developing countries who do not have a checking account. Some online merchants accept gift cards and loyalty cards, which can be purchased at a brick and mortar store.