What is payment processing?

Have you ever bought something electronically? Did you make a purchase on a website? If at any time you participated in an electronic transaction, it is likely that you have interacted with a payment processing system. Payment processors allow the movement of funds from buyer to seller in e-commerce transactions. How do they work? What are the different payment processing methods? Here is a brief introduction to the process of making payments online.

First, how do payment processors work? A payment processor is a third-party payment management system that allows businesses to accept and organize payments for goods and services offered in electronic transactions. For example, if you make a purchase from a large website like Amazon, your money will be managed and deposited with Amazon through a payment processing company. If you pay by credit card at a grocery store, your money goes through payment processing. In this way, stores can focus on their customers and retailers and can leave money management to a third party.

What are the different payment processing methods? If you ever use a debit or credit card, you are interacting with one of the largest forms of payment processing. Online services like PayPal and Square are other methods. These systems allow you to pay using a direct link to your bank accounts. Credit card payment applications that allow you to use your smartphone to receive payments are gaining popularity. Now, places that previously only accepted cash can open their sales to customers who want to pay by card. Payment processing systems have opened up a completely new method of conducting transactions that was not possible 20 years ago.

Payment processing systems keep businesses running. They allow large companies to outsource their payments so they can focus on customers and services. Credit card companies and online payment processors, in turn, profit from their services by taking a small percentage of the total transaction for their role in administration. Our society used to be cash only. We now have a wide variety of options when it comes to payment options for our transactions. If you head to a local farmers market, you will be surprised how many vendors accept cards and other types of electronic payment processors. In fact, there are now so many businesses that accept payment processors, be they hot dog vendors or large retail stores, that it seems odd that a business doesn’t accept cards or payments online.