Definition of Payment Processing

Payment processing refers to the method of processing web-based payments for an ecommerce site. Payment processing typically involves setting up a merchant account that allows the ecommerce site to accept payment with credit cards, debit cards, gift cards, and other forms of electronic payment. Financial institutions such as banks often handle payment processing or merchant accounts. The terms of this account are predetermined and set up to coordinate with governmental guidelines. The fees or rates that are charged to access payment processing are set up by the organisation that arranges the account for the ecommerce client.

The ecommerce site that is used to authorise electronic payments for online businesses or ecommerce sites is referred to as the payment gateway. In some cases, the payment gateway is a third party entity rather than the merchant account provider. This application is typically set up on the merchant’s server. It can also be set up on the server that is located at the merchants ISP or CSP. Payment gateways are designed to accept the information, encrypt it, and transfer it over the Internet.

External links:

• Wikipedia explanation of payment processing
• Paypal - A popular online payment method offering free shopping cart facilities
• Google Checkout - Google's solution to online payment processing