How Payment Processing Works
In a typical online purchase, several payment processing systems interact within seconds. For example, a customer in the UK places an order through an eCommerce platform:
- Card information is entered and transmitted via a payment gateway.
- The online processor receives the request and forwards it to the appropriate card network.
- The network contacts the customer’s issuing bank to verify available funds and assess for potential fraud.
- If authorised, the acquiring bank holding the merchant’s account receives confirmation.
- The merchant payment processor completes the transaction by moving funds from the issuing bank to the acquiring bank.
This process includes multiple layers of security, must comply with PCI standards, and is optimised for speed and reliability.
Key Players in the Remittance Ecosystem
Each stage of a transaction involves a specific responsible party. Efficient processing relies on their coordination — let’s take a closer look.
Merchant
The merchant is the business accepting payouts. This includes retailers, service providers, and digital platforms. Merchants require collection infrastructure to accept online and physical funds reliably.
Payment Processor
So, what is a payment processor, and what is its role in the ecosystem? It manages the technical workflow, validating pay requests, transmitting data securely, calculating fees, and handling settlements. It also helps detect fraud and manage disputes.
Acquiring and Issuing Banks
- The issuing bank provides the credit or debit card to the customer and authorises or declines the transaction.
- The acquiring bank processes transfers on behalf of the merchant and deposits funds into the merchant’s account.
The banks coordinate via the card network to complete the transaction.
Card Networks
Card networks (e.g., Visa, Mastercard, AmEx) establish the infrastructure for card-based transactions. They connect banks and matching services, define interchange fees, route transaction data, and influence the rate merchants pay per transaction.
Payment Gateway
A payment gateway captures and encrypts billing data during checkout. Unlike a payment processor, which handles authorisation, clearing, and settlement, it acts as the first line of defence in transaction security by transmitting encoded data from the customer to the processor.
Types of Payment Processors
Credit Card Processors
A credit card processor handles debit and credit card transactions for businesses. UK providers like Worldpay and Elavon support retail, service, and hospitality sectors with integration options and regulatory compliance.
Online Payment Processors
An online payment processor is for businesses operating in digital environments. Solutions like Stripe and PayPal support eCommerce platforms by offering scalable APIs, transparent pricing, and multi-currency support. They also help businesses meet security standards like PCI DSS by handling sensitive payment data on their certified infrastructure. This not only reduces compliance costs but also minimizes the risks associated with storing and processing cardholder information directly.
