A company that handles the technical execution of credit card and debit card transactions between the customer, the merchant, and the issuing/acquiring banks. Examples include Stripe and Square.
Understanding Payment Processor
A payment processor is the company that handles the technical execution of electronic payment transactions between the customer, the merchant, the card networks (Visa, Mastercard, Amex), and the issuing and acquiring banks. Payment processors ensure that funds are securely transferred and that all parties are properly debited and credited.
Major payment processors for ecommerce include Stripe, Square, PayPal, Adyen, and Worldpay. Some ecommerce platforms have their own integrated processors: Shopify Payments (powered by Stripe), Amazon Pay, and eBay Managed Payments (powered by Adyen).
Payment processors charge per-transaction fees that typically have two components: a percentage of the transaction amount (2.2-3.5%) and a flat per-transaction fee ($0.20-0.30). These fees are automatically deducted from each transaction or settled periodically.
Why It Matters for Ecommerce
Payment processing fees are a cost on every single transaction — they are unavoidable but can be optimized. At scale, negotiating even 0.1% lower processing rates can save thousands annually. Tracking processing fees by platform and card type also helps you understand your true cost of doing business and price products accordingly.
Practical Example
Your business processes $80,000/month through Stripe (2.9% + $0.30, averaging 2,000 transactions). Monthly processing cost: ($80,000 × 2.9%) + (2,000 × $0.30) = $2,320 + $600 = $2,920 (3.65% effective rate). Negotiating to 2.5% + $0.25 would save: ($320) + ($100) = $420/month — over $5,000/year.
Related Terms
Payment Gateway
A service that authorizes and processes credit card and digital payments for online transactions. Acts as the intermediary between the customer's bank and the merchant's bank.
EcommerceInterchange Fee
A fee paid by the merchant's bank (acquirer) to the customer's bank (issuer) each time a card transaction is processed. Typically the largest component of credit card processing costs.
EcommercePayout
The net amount a marketplace or payment processor transfers to a seller's bank account after deducting all fees, refunds, and reserves from gross sales.
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