A payment processor is a service that facilitates electronic transactions between businesses and their customers, such as payments through debit and credit cards or bank accounts.
Think of it as a middleman that finalizes the transactions, transferring the funds between the customer’s bank account to the merchant’s account while also taking care of technical aspects of the payment process. Without a payment processor, accepting card payments won’t be possible.
More than just transferring funds, payment processors play a crucial role in securing transactions. They protect sensitive customer data and help prevent fraud, guaranteeing the safety of every payment.
Here is how it works:
- You select a product, head to checkout, and enter your card details.
- Once you click “Make Payment,” the merchant’s website sends the transaction details to the payment processor, such as the payment amount and cardholder information.
- The processor then verifies your card details, checks for sufficient funds, and encrypts the card details for security.
- The processor then requests authorization from the card network (Visa, Mastercard, American Express, etc.), which contacts your issuing bank.
- Your bank checks for sufficient funds and approves or declines the transaction, which is relayed through the card network to the payment processor and merchant.
- If approved, the funds (minus processing fees) are instantly transferred to the merchant’s bank account.
All these processes happen in seconds, making your transactions swift and secure.
👉 Also Read: Ecommerce Payment Processing: A Quick Guide