What Is Payment Processing? Steps, Fees, Timelines, Examples

Payment processing is the behind‑the‑scenes sequence that moves money from a customer to a business after a tap, swipe, or click. Data is encrypted, sent through a payment gateway to a processor, routed over card networks to the issuing bank for authorization, then returned with an approval or decline; later, funds are settled to the merchant’s acquiring bank. It’s the invisible plumbing behind receipts and payouts.

This guide breaks down the players and a step‑by‑step card flow; clarifies authorization vs capture, clearing, and settlement; contrasts card‑present and card‑not‑present; demystifies gateways, processors, acquirers, and payfacs; covers ACH, RTP, and digital wallets; maps fees and funding timelines; highlights security and fraud essentials; and shares implementation, reconciliation, cross‑border tips, and real‑world examples—including healthcare logistics—to help you choose a payment partner with confidence.

The moving parts of payment processing: who does what

To understand what is payment processing, map the participants and their handoffs. Each actor plays a precise role from tap to payout, minimizing friction and risk. Here’s who is involved and what each does.

• Customer/cardholder: Initiates payment and consents to be charged.
• Merchant: Accepts payment and delivers goods or services.
• POS/checkout: Captures payment details and starts the transaction.
• Payment gateway: Encrypts data and forwards it securely.
• Payment processor: Routes for authorization and returns response.
• Card network: Sets rules and carries messages between banks.
• Issuing bank: Approves/declines based on funds and risk.
• Acquiring bank: Receives funds and settles to the merchant account.

Security and settlement span the entire flow.

Step by step: how a card payment flows

Whether a card is tapped in a clinic lobby or typed into an online checkout, the same message dance happens in seconds. Here’s the high‑level card flow most teams need to understand when evaluating what is payment processing.

1. Customer starts the payment: Card is tapped, dipped, swiped, or details entered online.
2. Gateway secures the data: Checkout encrypts and forwards details to the processor or acquirer.
3. Processor routes to the network: Visa/Mastercard/AmEx carry the request to the issuing bank.
4. Issuer verifies and decides: Account status, funds/credit, and risk checks drive approve/decline.
5. Auth response returns: The decision travels back through network → acquirer → processor → gateway → POS.
6. Order proceeds on approval: Funds are held; the merchant completes the sale or prepares fulfillment.
7. Batching and settlement: Approved transactions are submitted; the issuer transfers funds to the acquirer, which deposits to the merchant account, typically within a few business days.

Authorization vs capture, clearing, and settlement

A big part of what is payment processing is knowing when money is merely earmarked versus actually moved. Authorization checks funds and risk and places a temporary hold; capture tells the system to collect; clearing packages the transaction for the networks; settlement moves funds to your acquirer and, ultimately, your payout.

• Authorization (auth): Issuer approves and sets a hold; no money moves yet. If you don’t proceed, the hold expires or is reversed.
• Capture: Merchant confirms all or part of the authorized amount within the network-defined window; captured items proceed to funding.
• Clearing: Processor sends finalized transaction data to the card network and issuer for posting and fees.
• Settlement: Issuer transfers funds to the acquirer, which deposits to the merchant account, usually within a few business days. After settlement, changes require a refund, not a void.

Card-present vs card-not-present transactions

Card-present (CP) payments happen when a physical card is read at a terminal—dip, tap, or swipe—typically with EMV chip or contactless in clinics, retail, or at the front desk. Card-not-present (CNP) payments are keyed or stored-card transactions made online, by phone, or via an emailed invoice link. The underlying authorization and settlement steps are the same, but risk controls, fees, and hardware differ.

• Card-present: Lower fraud risk and typically lower fees; requires certified POS hardware and EMV support; helps reduce chargebacks.
• Card-not-present: Higher fraud/chargeback risk and typically higher fees; relies on a gateway plus controls such as AVS, CVV, and 3D Secure; tokenization helps with returning customers and recurring billing.

Payment gateways, processors, acquirers, and payfacs

When teams ask what is payment processing in practice, they’re really asking how these roles line up—and which ones a single vendor will cover. Sometimes one provider is the gateway, processor, and acquirer; other times you’ll contract each piece separately.

• Payment gateway: Secures and transmits card data from POS/checkout to the next party, using encryption and tokenization, then relays the result back.
• Payment processor: Orchestrates authorization, risk checks, batching, and messaging among the acquirer, card networks, and issuer.
• Acquiring bank (acquirer): Provides the merchant account and receives funds from the issuer for deposit to the merchant.
• Payment facilitator (payfac): Onboards businesses as sub‑merchants under its master account, handling underwriting, risk, and compliance so you can start accepting payments quickly—often with unified reporting and payouts.

In healthcare, a bundled provider can reduce PCI scope and simplify integrations and reconciliation.

Common methods beyond cards: ACH, wires, RTP, digital wallets

Cards aren’t the only way value moves. For many use cases—recurring invoices, large one‑off transfers, instant payouts, or one‑tap mobile checkout—other rails fit better. Choosing the right method can lower costs, speed up funding, and reduce friction for patients and operations teams alike.

• ACH: Bank‑to‑bank, batch‑based transfers; typically lower cost than cards; ideal for recurring bills, invoicing, and higher‑ticket payments.
• Wires: Direct bank transfers suited to large, time‑sensitive payments; higher per‑transfer fees; difficult to reverse once sent.
• RTP: Real‑time or near‑instant bank transfers for faster disbursements and on‑demand payouts.
• Digital wallets: Tokenized card credentials (e.g., mobile wallets) enable tap‑to‑pay in person and one‑tap checkout online with strong device authentication.

What it costs: fees, pricing models, and sample calculations

Payment processing fees combine network interchange, processor markup, and per‑transaction cents. Pricing is typically offered as interchange‑plus, flat‑rate, or tiered—and card‑present is often cheaper than online because risk is lower. Expect additional line items such as gateway, chargeback, and currency conversion/cross‑border fees. Track your all‑in cost with: effective rate = total fees / gross volume.

• Interchange‑plus: You pay actual interchange (often 1%–3% + a fixed cents amount) plus a processor markup. Example on $100: 2.0% + $0.10 (interchange) + 0.5% (markup) = $2.60 in fees.

• Flat‑rate: One blended rate for all cards and scenarios. Example: 2.0% + $0.10 per transaction. On $100: fee $2.10, net $97.90.

• Tiered: Transactions bucketed (e.g., qualified vs non‑qualified) with different pricing. Example: in‑person debit ~1% + $0.10; riskier online credit ~3% + $0.15 (illustrative).

Funding timelines: settlements, ACH, refunds, and chargebacks

Funding speed depends on rails, batching, bank cutoffs, and risk reviews—core reasons teams ask what is payment processing beyond the swipe. Card transactions are authorized in seconds but funded after settlement; ACH moves in batches; refunds follow different rules before and after settlement; and chargebacks remove funds while a case is reviewed. Plan cash flow with conservative assumptions and clear customer messaging.

• Card settlements: Submit batches by cutoff; acquirer deposits funds in a few business days.
• ACH payouts: Batch‑based; clearing isn’t instant, and returns may post after initial credit.
• Refunds vs voids: Void pre‑settlement to release holds; post‑settlement refunds depend on the cardholder’s bank.
• Chargebacks: Disputes debit funds during review; respond promptly with evidence to resolve.

Security must-haves: PCI DSS, EMV, tokenization, 3D Secure

Security is inseparable from what is payment processing. Strong controls reduce fraud, shrink PCI scope, and keep in‑person and online checkouts trustworthy for patients and staff. Focus on these must‑haves that protect data from capture through settlement and simplify audits.

• PCI DSS: Follow the card‑industry security standard; encrypt data, minimize storage, segment networks, and validate compliance.
• EMV: Use chip/contactless terminals generating dynamic codes to curb counterfeit fraud in card‑present payments.
• Tokenization: Store tokens, not PANs; your provider vaults card data and returns safe tokens for reuse.
• 3D Secure: Add issuer authentication for CNP checkouts; step‑up challenges block many fraudulent attempts.

Fraud, declines, and chargebacks: prevention and response

Fraud control and dispute management are core to what is payment processing because they protect revenue and patient trust. Card‑not‑present payments carry higher risk; card‑present is safer but still benefits from strong controls. Pair layered prevention with clear processes for declines and chargebacks so your team knows when to authenticate, when to retry, and how to respond with evidence.

• Prevent fraud: Use AVS, CVV, and 3D Secure; encrypt and tokenize; monitor for unusual patterns; keep software current; train staff on policies and red flags.
• Reduce declines: Surface clear error messages, let customers re‑enter details, offer alternative tenders, and work with your processor for routing and retry guidance.
• Handle chargebacks: Communicate refund/return policies upfront; provide responsive support; when disputes occur, submit timely, accurate documentation and track outcomes to fix root causes.

Implementing payments online and in person

Turning strategy into a working checkout or front desk flow means choosing the right integration, keeping card data out of your systems, and building reliable day‑to‑day operations. For online, use a secure payment gateway pattern that tokenizes cards and supports strong customer authentication. For in person, deploy certified EMV/contactless terminals with encryption so staff can take payments quickly without increasing risk.

• Online: Use hosted fields/pages or a client SDK; enable tokenization, AVS/CVV, and 3D Secure for higher‑risk CNP flows; support saved cards and invoice/payment links for follow‑up billing.
• In person: Select EMV/contactless POS with point‑to‑point encryption; keep terminal firmware updated; configure batching and settlement cutoffs; print or send digital receipts.
• Operations: Offer alternative tenders (ACH, digital wallets); define clear refund/void paths pre‑ and post‑settlement; train staff on decline handling.
• Integration: Connect POS/EHR/dispatch/billing to pass amount, currency, order_id and receive authorization_code, transaction_id, and status for downstream workflows.

Reconciliation, reporting, and payout management

Once transactions settle, clean books depend on matching orders to processor reports and bank deposits. Reconciliation confirms that each authorization/capture ultimately appears in a payout, that fees and adjustments are accounted for, and that refunds and disputes are tracked to closure. Tight reporting and payout controls reduce finance fire drills and keep cash flow predictable.

• Daily reconciliation: Match processor payout reports to bank statements by payout_id, date, and amount; tie payouts back to batch_id and underlying transaction_ids.
• Track the right IDs: Persist authorization_code, capture_id, transaction_id, batch_id, payout_id, and dispute_id on each order.
• Net vs gross accounting: Choose a method and calculate net = gross - fees - refunds - chargebacks ± adjustments.
• Handle exceptions: Queue items for unsettled auths, uncaptured sales, ACH returns, and chargeback reversals; resolve with documentation.
• Payout management: Configure payout frequency and cutoff times, separate card vs ACH payouts when needed, and monitor reserves/holds.
• Operational KPIs: Approval rate, effective fee rate, average ticket, refund rate, chargeback rate, and days-to-fund; review variances weekly.

Cross-border and multi-currency payments

Selling to customers in other countries adds FX, compliance, and routing decisions to the basics of what is payment processing. You’ll choose how prices are shown, how funds are settled, and how transactions are routed to maximize approvals while controlling costs and risk—without creating friction at checkout.

• Multi‑currency pricing vs settlement: Show local prices; settle in your home or local currency.
• Local acquiring and routing: Domestic routing can improve approval rates and reduce cross‑border fees.
• FX and fees: Conversions add spreads/markups; monitor costs per currency in reporting.
• Compliance and authentication: Observe sanctions/tax rules; use 3D Secure where SCA applies (e.g., EEA).
• Local payment methods: Offer regional bank transfers and wallets to lift conversion.

Payments in healthcare and patient logistics

In healthcare and patient logistics, payment processing must fit clinical workflows, multi‑party billing, and strict compliance. Front desks take EMV card‑present copays, ride fees, or DME deposits, while back‑office teams send secure invoice links and set up ACH for recurring home care or equipment rentals. Card‑on‑file tokenization supports episodic and subscription‑like charges without storing PANs. Understanding what is payment processing here also means tight reconciliation with EHR/dispatch IDs, fast refunds when plans change, transparent vendor remittances, and offering cards, ACH, and digital wallets to cut friction and bad debt.

Real‑world examples: three common flows

Seeing end‑to‑end scenarios makes what is payment processing concrete. Below are three frequently used flows in care settings—each showing where authorization, capture, clearing, and settlement happen, and how operations and finance connect the dots.

1. Clinic copay at the counter (card‑present EMV): Patient taps/dips; gateway encrypts; processor routes; issuer approves (auth). Staff completes check‑in; batch submits later; issuer → acquirer → deposit in a few business days. Same‑day cancel = void; after settlement = refund.

2. Emailed invoice paid online (ACH or card): Staff sends secure link; patient enters details; gateway tokenizes. ACH debits via batch with possible returns before final credit; card runs auth → capture → clearing → settlement. Status sync updates the patient balance.

3. NEMT ride with adjustable fare (card‑on‑file): Dispatch places a preauth on booking; after trip, price finalizes; capture up to the authorized amount (or request incremental auth). Processor clears and settles; reconciliation ties ride_id to transaction_id and payout.

How to choose a payment partner

The right payment partner should fit your workflows, risk profile, and reporting—not just process transactions. In healthcare and patient logistics, favor providers that unify card‑present and online payments, support ACH and invoice links, reduce PCI scope, and integrate cleanly with EHR/dispatch/billing so finance can reconcile every ride, visit, and device order without spreadsheets.

• Coverage: Clarify which roles they own (gateway, processor, acquirer, payfac) and whether you prefer one partner or best‑of‑breed.
• Pricing: Transparent interchange‑plus vs flat; track your effective rate = total fees / gross volume.
• Methods & hardware: EMV/contactless terminals, cards, ACH, RTP, and major digital wallets.
• Security: PCI DSS support, tokenization, P2PE, and 3D Secure for CNP.
• Funding & risk: Days‑to‑fund, reserves/holds, chargeback tooling, and dispute SLAs.
• Integration: Mature APIs/webhooks, sandbox, SDKs, reconciliation IDs, and native EHR/CAD/billing connectors.
• Reporting & ops: Payout statements, batch controls, dispute portal, and audit trails.
• Reliability & support: Uptime history, 24/7 support, healthcare references.

Pilot two vendors side‑by‑side and compare approval rate, effective fee rate, days‑to‑fund, refund/chargeback handling, and implementation effort before you decide.

Trends to watch in payment processing

Payments are shifting quickly as customers lean into digital-first experiences and businesses optimize for speed and security. Recent research shows digital payments have surpassed traditional methods in the US, with most consumers making a digital payment in 2024. Here are the developments most likely to impact operations and cash flow next.

• Real‑time payments (RTP) and instant payouts: Faster funding for disbursements, refunds, and vendor remits.
• Digital wallets and contactless: Tokenized, device‑authenticated checkouts continue to rise in person and online.
• Account‑to‑account (A2A) and modern ACH: Lower‑cost rails for recurring and high‑ticket billing.
• Stronger authentication: Broader use of 3D Secure and issuer risk checks to curb CNP fraud.
• Embedded payments and payfacs: Software‑led onboarding, unified reporting, and faster go‑lives.
• Cross‑border localism: Local acquiring, multi‑currency pricing, and regional methods to lift approvals and conversion.

Key takeaways

Payment processing is the secure handoff of data and funds from authorization to settlement, coordinated by gateways, processors, networks, issuers, and acquirers. Your costs, funding speed, and risk depend on the rails you choose (cards, ACH, RTP), whether the payment is card‑present or online, and the strength of your security controls.

• Know the flow: Auth → capture → clearing → settlement.
• Mind pricing: Track your effective rate across interchange‑plus, flat, or tiered.
• Choose rails wisely: Cards for convenience, ACH/A2A for cost, RTP for speed.
• Harden security: PCI DSS, EMV, tokenization, and 3D Secure.
• Manage risk: Prevent fraud, reduce declines, and respond to chargebacks.
• Operationalize: Reconcile to payouts, monitor KPIs, and integrate cleanly.

Coordinating care and payments together? See how unified logistics and billing can streamline your operations with VectorCare.