What is Payment Processing?

Payment Processing serves as the behind-the-scenes system of a marketplace, enabling the transfer of funds from a buyer to a seller. This technology-driven process involves a series of stages which include: transaction authorization, payment gateway, payment processor, and merchant accounts.  

Breakdown of Payment Processing

In a marketplace, Payment Processing entails four key stages.

1. Transaction Authorization: The process initiates when a customer chooses a product or service, proceeds to checkout, and enters their payment details. The payment card is then verified for adequate funds.

2. Payment Gateway: A digital portal that captures the payment details and routes this information securely to the payment processor. This is a crucial link in the chain of payment processing.

3. Payment Processor: It's the mediator that communicates transaction details between the merchant, issuing banks, and the credit card networks. It confirms a transaction's status - approved or declined.

4. Merchant Account: The final stage where the approved funds are transferred. This is essentially a holding spot from which the merchant can draw upon.

Examples of Payment Processing

To grasp these abstract concepts of Payment Processing, let’s put them in a real-world context.

- Think of an e-commerce store like eBay. A buyer finds a vintage watch, adds it to the cart and enters their credit card details to make the purchase. Through the payment gateway (stage 2), details are forwarded to the payment processor (stage 3). They confer with the buyer's bank to confirm if the credit limit is sufficient for the purchase. If approved, the transaction is authorized and funds are shifted to eBay's merchant account (stage 4) waiting to be settled in the merchant’s bank account.

The bottom line

Payment Processing might seem like a complex feature of a marketplace, yet it’s the backbone of every online transaction. It ensures seamless and safe buying, bolstering customer trust and marketplace credibility. While complexities and technologies can vary, the fundamental process remains the same: to safely and efficiently facilitate the flow of money from the buyer to the seller.