Payment processing: What it is & how it works (2026)

Key Takeaways:

• Payment processing is the set of steps that moves money from a customer's card or bank account into your business account.

• Singapore's eCommerce market is forecast to grow to S$33.3 billion by 2028¹, making fast, reliable payment processing a bigger priority for local businesses.

• Airwallex handles the entire payment processing chain for Singapore businesses in one platform, so you don't need to piece together multiple providers.

Payment processing is what happens between the moment a customer taps their card and the moment your business receives the money.

Several parties work behind the scenes to make this happen, including your customer's bank, your bank, the card network, and a payment processor. Together, they communicate in seconds to approve and move funds.

In this guide, you'll learn what payment processing involves, who the key players are, and how a transaction moves from authorisation to settlement. You'll also see what it costs and how Singapore businesses can simplify the process instead of juggling multiple providers.

Key elements of payment processing

Payment processing relies on a few core pieces working together: the people and institutions involved, and the technology that connects them. Knowing each piece helps you see where fees come from and where delays can happen.

Who's involved in payment processing

A payment processing transaction involves several parties working together in seconds: the customer paying, your business as the merchant, the customer's bank (issuing bank), your bank (acquiring bank), the card network, and the payment processor that connects them all.

Each one plays a specific role in approving and moving the payment. For a closer look at what a payment processor specifically does in this chain, see our guide on what a payment processor is.

Payment gateway vs. payment processor vs. merchant account

These three terms often get confused, but they each play a different role in the same transaction:

• A payment gateway captures and encrypts your customer's card details at checkout.

• A payment processor moves that transaction data between the card network and the banks to get it approved.

• A merchant account holds approved funds briefly before they settle into your business bank account.

For a full breakdown of how these three pieces work together, see our guide on what a payment processor is.

How payment processing works

Every card payment moves through two phases: authorisation and settlement. Authorisation happens in seconds. Settlement takes longer, since it involves banks reconciling and transferring the actual funds.

Authorisation: approving the payment

1. The customer enters their card details or taps to pay at checkout.

2. The payment gateway encrypts the details and sends them to the payment processor.

3. The payment processor forwards the request through the card network to the issuing bank.

4. The issuing bank checks the customer's account and sends back an approval or decline within seconds.

Settlement: moving the money

1. The payment processor batches approved transactions together.

2. The card network clears the batch and calculates what each bank owes.

3. The issuing bank transfers funds to the acquiring bank.

4. The acquiring bank deposits the funds into your merchant account, and from there into your business bank account.

Settlement speed varies by processor and market, so it's worth checking this upfront when you choose a provider.

Why payment processing matters for your business

Payment processing isn't just a technical back-end step. How well it works affects your cash flow, your customers' experience, and how easily you can grow into new markets.

Faster access to your money

Slow settlement ties up cash you could be using elsewhere in the business. Efficient payment processing gets funds into your account sooner, which matters most when you're managing inventory, payroll, or supplier payments on tight timing.

Fewer lost sales at checkout

Customers abandon a purchase quickly if their preferred payment method isn't supported or the transaction fails. Supporting the right mix of payment methods, and processing them reliably, keeps more customers through to checkout instead of dropping off.

Room to grow into new markets

As you expand into new countries, your payment processing needs to keep up: new currencies, new local payment preferences, and different regulatory requirements. A setup that only works for one market becomes a bottleneck the moment you try to sell beyond it.

How to choose the right payment processing setup

Not every business needs the same payment processing setup. Before choosing or switching providers, it helps to weigh a few criteria against how your business actually operates.

Settlement speed

Check how quickly approved transactions turn into funds in your account. Faster settlement gives you more predictable cash flow, especially if you're managing regular supplier or payroll payments.

Supported payment methods and currencies

Look at whether your setup supports the payment methods your customers actually use, and whether it can accept and hold multiple currencies if you sell internationally. A setup that only handles one currency or a narrow set of payment methods limits where you can sell.

Security and compliance

Confirm that any provider you use meets recognised security standards like PCI DSS, and handles compliance without adding manual work on your end.

Ease of integration

Consider how easily a payment processing setup fits into your existing website, point of sale, or accounting tools. A setup that requires heavy custom development slows down your time to launch.

Ability to scale with you

Think beyond your current volume and markets. A setup that works today but can't handle more transactions, currencies, or countries later means you'll be re-evaluating your setup again soon.

4 popular payment methods in Singapore

Singapore shoppers use a mix of payment methods, and offering the right combination affects whether customers complete a purchase. Here are the methods your business is most likely to encounter:

1. Cards

Credit and debit cards remain the most common way Singapore customers pay online and in-store. Cards from networks such as Visa, Mastercard, and China UnionPay work with almost every payment processor, which makes them a safe default to support.

2. Digital wallets

Digital wallets let customers pay with their phone instead of a physical card. In Singapore, this includes Apple Pay and Google Pay, along with local wallets such as GrabPay and ShopeePay.

PayNow, Singapore's bank-linked instant transfer service, is also widely used for both peer-to-peer and business payments through QR codes.

3. Buy now, pay later

Buy now, pay later (BNPL) lets customers split a purchase into smaller payments, usually interest-free. Atome and Hoolah are examples of BNPL providers used in Singapore, and many online retailers now offer this option at checkout alongside cards and wallets.

4. Bank transfers

Some customers prefer to pay directly from their bank account rather than using a card. In Singapore, this usually happens through PayNow or FAST transfers, which settle quickly between local banks.

Data security in payment processing

Every payment processor you use should meet Payment Card Industry Data Security Standard (PCI DSS) requirements, and use safeguards like tokenisation and encryption to protect card data as it moves between parties.

These protections run in the background on every transaction, so you don't need to manage them manually.

For a closer look at how tokenisation, encryption, and fraud detection work together, see our guide on what a payment processor is.

Why Singapore businesses choose Airwallex for payment processing

Airwallex is a strong option for companies that need more than a payment processor. With Airwallex, you can accept payments from customers around the world, manage multiple currencies, pay overseas suppliers, and control team spending from one platform.

Accept payments from 180+ countries

Accept cards and local payment methods in 180+ countries, then settle funds into the currency you choose. This gives you one payment setup as you expand beyond Singapore, rather than having to add a new provider for every market.

Keep your money in the currencies you need

With Global Accounts, you can hold, receive, and convert multiple currencies in one place. That makes it easier to manage international revenue and expenses without converting money back to SGD every time.

Pay overseas suppliers in 200+ countries

If you import stock, pay contractors abroad, or work with regional vendors, you can send payments in multiple currencies through Airwallex. There's no need to manage a separate setup just for international supplier payments.

Frequently asked questions (FAQs)

What is payment processing?

Payment processing is the system that moves money from a customer to your business whenever they pay by card, digital wallet, or bank transfer. It involves several parties working together within seconds, including a payment gateway, a payment processor, and the customer's and your bank. Most businesses never see these steps happen, but they run behind every transaction you accept.

How do I know if I need to change my payment processing setup as my business grows?

Watch for signs like frequent payment declines, slow settlement times, or customers abandoning checkout because their preferred payment method isn't supported. As you expand into new markets, you'll also need a setup that can accept local currencies and payment methods, not just cards. If your current processor can't keep up with these changes, it's worth reviewing your options.

Do I need a separate payment gateway if I already have a payment processor?

Not always; many payment processors include gateway functionality built in, so you don't need a separate service. If you sell online, you still need gateway functionality somewhere in your setup to capture and encrypt card details at checkout. Businesses that only take in-person payments can sometimes skip a standalone gateway, since their point-of-sale terminal handles this step directly.

How much does payment processing cost?

Payment processing costs usually include a mix of card network fees, a processor's markup, and sometimes a separate gateway fee. The exact amount depends on your provider, your pricing model, and the types of cards your customers use. Airwallex combines processing into one transparent fee structure, so you're not tracking charges from multiple providers.

Is payment processing secure?

Yes, when it follows PCI DSS requirements and uses tools like tokenisation and encryption to protect card data. Reputable processors build these protections into every transaction, so sensitive data isn't exposed as it moves between parties. Ask your processor directly about their compliance status if you're unsure.

Can one processor handle both online and in-store payments?

Yes, many payment processors support both online and in-person transactions through a single account. This saves you from managing separate systems, reports, and reconciliation processes for each sales channel. Airwallex lets Singapore businesses accept payments across online and offline channels from one platform.