Payment processor

What is a payment processor?

A payment processor is a service or platform that handles electronic transactions between customers and merchants. It securely transfers payment details, verifies information, and ensures funds are moved from the buyer’s account to the seller’s account. Popular payment processors include Stripe, PayPal, and Square.

Acting as a bridge between the customer’s payment method (like a credit card, debit card, or digital wallet) and the merchant’s bank, the payment processor communicates with banks to authorize or decline transactions in real time. In ecommerce, a reliable payment processor is essential for smooth, secure, and fast checkout experiences.

How does a payment processor work?

When a customer checks out online or in-store:

• The processor captures payment details securely.
• It sends the request to the card network or payment method provider.
• The issuing bank approves or declines the payment.
• The processor informs both merchant and customer of the result.
• If approved, the funds are settled into the merchant’s account.

This process usually happens within seconds and is crucial for seamless transactions.

Example of payment processor

Imagine you’re shopping online and choose to pay with your credit card. When you click “Pay Now,” a payment processor like Stripe takes your card information, sends it to your bank for approval, and notifies the store if the payment was successful. The entire process happens in seconds, securely and behind the scenes.

Driftcharge Tip

When choosing a payment processor, consider fees, fraud protection, currency support, and integration ease. If you operate a subscription-based business, look for processors that support recurring billing and easy refund management to streamline operations and boost customer satisfaction.

Ganesh Pawar

• 

Ganesh Pawar is the founder of Driftcharge, a subscription management app designed to help Shopify merchants streamline and scale their subscription businesses. With a deep focus on solving real-world pain points—like legacy account page support, flexible subscription options, and advanced analytics—Ganesh is passionate about building tools that drive growth and retention.