What Is Payment Processing & How Does It Work In an Online Store?

Payment processing is the system that enables online stores to accept electronic payments from customers. It involves the use of various technologies and processes to securely transmit and authorize the transfer of funds from a customer’s account to the merchant’s account.

The process typically involves the following steps:

1. Customer places an order: The customer selects the items they want to purchase and adds them to their online shopping cart. Once they are ready to checkout, they will be prompted to enter their payment details.
2. Payment information is transmitted: When the customer enters their payment information (e.g. credit card number, expiration date, and security code), the information is transmitted securely to the payment processor.
3. Payment processor verifies information: The payment processor then verifies the information to ensure that it is accurate and that the customer has sufficient funds to cover the transaction.
4. Payment is authorized: If the payment processor approves the transaction, the payment is authorized, and the funds are transferred from the customer’s account to the merchant’s account.
5. Confirmation is sent: Once the transaction is complete, the customer will receive a confirmation that their payment has been accepted, and the merchant will receive notification that the payment has been processed.

The entire process typically takes only a few seconds, and it is designed to be fast, secure, and convenient for both the customer and the merchant. Online stores typically use a third-party payment processor to handle the payment processing, as it requires specialized technology and expertise. Examples of popular payment processors include PayPal, Stripe, and Square.