eCommerce payment processing: What is it and how does it work?

Key takeaways

• eCommerce payment processing is where money moves from your customer into your account. There are three parties involved with these transactions: the payment gateway, the payment processor, and the merchant account.

• When choosing a processor, you need to look past the headline rate. Try to factor in FX markups, integration options with your platform, and whether the payment methods your customers actually use are supported.

• Airwallex lets you accept payments in 130+ currencies across 180+ countries through a single platform, with local acquiring in 35+ markets and built-in fraud prevention.

eCommerce payment processing is the system that moves money from your customer's card, digital wallet, or bank account into your business account. It's what happens behind the scenes every time someone clicks "pay" on your website, and getting it right has a direct effect on whether your customers complete their purchase or abandon their cart.

In this guide, we'll walk you through how eCommerce payment processing works, the security standards that protect your transactions, common payment methods, the challenges you'll run into (especially if you're selling across borders), and how to choose the right payment processor for your business. Let's get started.

What is eCommerce payment processing?

eCommerce payment processing is where funds are moved from a customer's chosen payment method to a merchant's account during an online purchase. Try to think of it like the digital version of the card machine at a shop till, except there are several more steps happening in the background to verify, authorise, and settle the transaction.

With global retail eCommerce sales still growing rapidly¹, customers expect payment options that are convenient and secure to them; not to mention a frictionless checkout experience.

Reliable payment processing system's can help keep your customers happy, improve your conversion rates, and keeps your business competitive, as it should be, whether you're selling at home or across borders.

The key components in eCommerce payment processing

Three main players work together to make an online payment happen. Once you understand what each one does, it's much easier to compare payment solutions and fix issues when they come up.

The payment gateway encrypts payment information

The payment gateway is the secure front door between your website and the payment processor. When a customer enters their card details, the gateway captures that sensitive information and encrypts it using SSL technology before sending it on. You can think of it as a secure envelope that seals your customer's payment data before it travels anywhere. Without a gateway, card details would be sent in plain text, which is a serious security risk.

The payment processor moves the transaction forward

The payment processor is the messenger between the customer's bank and yours. It gets the encrypted transaction details from the gateway, checks the information, and sends it through the right card network, such as Visa, Mastercard, or others, to the customer's issuing bank. So if a customer in London buys from your store using a Visa card, the processor sends the transaction details through the Visa network to the customer's bank, checks whether they've got enough funds, and passes the approval back to your site. It's the part coordinating the whole thing and keeping it moving.

The merchant account receives the funds

A merchant account is where approved funds go before they reach your business bank account. It's your collection point for card payments. The funds don't show up instantly. There's usually a one to three business day settlement period whilst the transaction clears. Some modern payment providers build the merchant account function into their platform, so you don't need to open a separate account with a traditional acquiring bank.

People often mix up payment gateways and payment processors. The difference is simple: the gateway captures and encrypts the data, while the processor moves it between the banks. You need both for a transaction to go through.

How does eCommerce payment processing work?

Here's what happens from the moment a customer clicks "buy" to the moment the funds land in your account.

1. The customer places an order. The process starts when a customer goes to your online store, picks products or services, and heads to checkout. At that point, they've decided to buy. Now they need to pay.

2. The customer enters payment details. The customer enters their payment information on the checkout page. That might be credit card details, digital wallet credentials, or bank account information, depending on which payment methods you offer.

3. The payment gateway encrypts and transmits the data. The customer's browser sends the payment data securely to your payment gateway. The gateway encrypts this sensitive information using SSL technology and passes it to the payment processor. All of that happens in milliseconds, and the customer never sees it.

4. The payment processor validates and routes the transaction. The payment processor receives the encrypted transaction details, checks the information, and routes it to the right card network. The card network then sends the authorisation request to the customer's issuing bank. This is the step that checks both the transaction details and whether the customer has enough funds.

5. The customer's bank approves or declines. The issuing bank reviews the authorisation request and decides whether to approve or decline it based on things like available funds, spending limits, and fraud risk indicators. It then sends a response code back through the card network to the payment processor, which relays it to the gateway and then to your website.

6. The merchant receives the response and fulfils the order. Your website shows the transaction result to the customer. If it's approved, you process the order, prepare physical products for shipping or deliver digital goods, and send the customer a confirmation. If it's declined, the customer sees an error message and can try a different payment method.

7. Settlement and record-keeping. At the end of the day, or after a set period, the payment processor starts settlement. Funds from approved transactions move from the customer's bank to your merchant account, minus any processing fees. Both you and your customer get transaction records for accounting and reconciliation purposes.

Security in eCommerce payment processing

Every step in that process involves sensitive data, so security isn't optional. Good security protects your customers from fraud and protects your business from chargebacks, fines, and reputational damage.

Encryption, tokenization, and PCI DSS

SSL certificates encrypt data between a customer's browser and your website, which makes payment details unreadable to anyone who intercepts them. But encryption on its own isn't enough.

Tokenization replaces your customer's real card number with a random string of characters, like swapping a house key for a single-use code. Even if someone intercepts the token, it's useless without the original data. It also reduces your PCI compliance burden because you're not storing real card numbers on your servers.

Merchants and payment providers must adhere to the Payment Card Industry Data Security Standard (PCI DSS). It's not legally required, but major credit card companies require organisations that process, store, or transmit card information to follow these standards. PCI DSS Level 1 is the highest certification level, and it's required for businesses processing over six million transactions annually. Non-compliance can lead to financial penalties, restrictions on card processing capabilities, and reputational damage.

3D Secure and strong customer authentication

3D Secure (3DS) adds an extra layer of authentication to online payment transactions. It asks users to verify their identity through a one-time passcode, a redirect to the bank's authentication page, or biometric methods, and that significantly reduces the risk of fraudulent or unauthorised purchases.

In the UK and EU, Strong Customer Authentication (SCA) rules make 3D Secure a requirement for most online card payments, not just something that's nice to have. If your payment processor doesn't support 3DS, you can expect higher decline rates and possible regulatory issues when you're selling to European customers.

Common payment methods in eCommerce

The payment methods you offer have a direct effect on your conversion rates. If customers don't see the option they prefer, they often abandon their cart. Here are the main categories to think about.

Credit and debit cards

Cards are still one of the most widely used payment methods globally, although digital wallets have now overtaken them as the leading online payment method by transaction value. Visa and Mastercard lead in most markets, while American Express and regional networks like UnionPay matter in specific regions. Cards are familiar to customers and come with built-in fraud protection, though merchants do pay processing fees for them.

Digital wallets

Digital wallets like Apple Pay, Google Pay, and PayPal are growing quickly, especially for mobile purchases. Asia-Pacific leads adoption, with wallets like Alipay and WeChat Pay dominating in China. Digital wallets make checkout faster because customers don't need to type in card details by hand. They just authenticate with a fingerprint or face scan.

Bank transfers, BNPL, and local payment methods

Bank transfers are still important for high-value transactions and in markets where card infrastructure is less developed. Real-time payment systems are making bank transfers faster and easier in many countries.

Buy now, pay later (BNPL) services like Klarna and Afterpay let customers split purchases into interest-free instalments. That can lift average order values for higher-priced items.

Local payment methods differ a lot by market. iDEAL is dominant in the Netherlands, PIX in Brazil, and Konbini convenience store payments in Japan. If you're selling internationally, supporting the right local methods in each market can make a big difference to conversion rates.

Key challenges in eCommerce payment processing

If you're selling online, and especially if you're selling across borders, you'll probably run into a few common pain points.

Cross-border payment complexity

Cross-border payments often come with high fees that eat into your margins. Traditional providers may charge 3–5% in hidden FX markups on top of their stated transaction fees. You also need to support local payment methods in each market. So if a UK-based store is selling to customers in Japan, it needs to accept methods like Konbini, offer pricing in yen, and manage currency conversion, all without losing money on every sale.

Cart abandonment at checkout

A significant portion of online shoppers abandon their carts at checkout. Payment-related issues are among the main reasons: customers leave when they don't see their preferred payment method, run into unexpected fees, or have to deal with a clunky checkout flow. Every extra step, or any moment of friction, raises the chance that they'll give up and buy somewhere else.

Fraud and chargebacks

Chargebacks happen when a customer disputes a transaction with their bank and the bank reverses the payment. You lose the sale amount, pay a chargeback fee, which is typically £15–25 per incident, and you may face restrictions on your processing account if your chargeback rate gets too high. Fraudulent transactions make this even worse. You ship the goods, then lose the money when the real cardholder disputes the charge. Strong fraud prevention tools and 3D Secure authentication help reduce both fraud and chargebacks.

How to choose an eCommerce payment processor

There are dozens of providers out there, so when you're comparing them, these are the things to focus on. If you want a deeper comparison, see our guide to eCommerce payment solution providers.

Fees and pricing transparency

Payment processing costs usually include:

• Transaction fees: A percentage of each sale, usually 1.5–3.5%, plus a fixed fee per transaction

• Monthly or setup fees: Some providers charge ongoing platform fees

• Chargeback fees: Fees for disputed transactions, regardless of outcome

• Cross-border and FX fees: Additional charges for international transactions and currency conversion

Ask for the total cost per transaction, including FX markup, not just the headline rate. A provider advertising 1.5% fees might end up costing you 4% or more once currency conversion is factored in.

Integration and platform support

Check whether the provider has plugins for your eCommerce platform, whether that's Shopify, WooCommerce, Magento, or BigCommerce. Pre-built integrations mean a faster setup and less developer work. It's also worth checking whether the provider handles PCI compliance for you, because that reduces both your security burden and your risk.

Settlement speed and currency support

Settlement timing has a direct effect on your cash flow. Some providers settle funds in one to two business days. Others take a week or more. If you're selling internationally, look for multi-currency support that lets you hold funds in different currencies and convert when rates are favourable, instead of being forced to convert straight away at whatever rate the provider gives you.

Why use Airwallex for eCommerce payment processing?

Airwallex gives you one platform where you can accept payments, convert currencies, and manage your global finances. We connect directly to payment networks around the world, so you don't have to manage relationships with multiple providers.

Here's what that means for your business:

• Accept payments in 130+ currencies across 180+ countries. Offer customers their preferred payment methods and local currency pricing without setting up separate accounts in each market.

• Local acquiring in 35+ markets. Process transactions locally to reduce decline rates and avoid cross-border fees, even if you're based somewhere else.

• Competitive and transparent FX rates. Convert currencies at interbank rates with clear pricing, so you keep more of what you earn.

• Built-in security and fraud prevention. Our 3DS risk engine, SOC 1 and SOC 2 certifications, and PCI DSS compliance help protect your transactions and your customers.

• Easy integration with major eCommerce platforms. Connect with Shopify, WooCommerce, and other platforms through pre-built plugins, or use our API for custom implementations.

Sign up for a free account to see how Airwallex can simplify your payment processing.

FAQs

What are the top features for an eCommerce payment process provider?

The top features for an eCommerce payment process provider include robust security protocols, multiple payment options, ease of integration, and exceptional customer support.

How much does an eCommerce payment process cost?

The cost of an eCommerce payment process varies depending on the provider, the supported payment methods, and transaction volumes. Compare pricing structures and transaction fees to identify the most suitable option for your business that aligns with your financial goals and operational needs.

What are the key steps in an eCommerce payment process?

• The customer initiates the payment

• The payment gateway encrypts the data

• An authorisation request is sent to the payment processor

• The bank or card issuer approves or declines the transaction

• The transaction is completed on the merchant's website

• Funds are transferred to the merchant's account

Disclaimer: This information doesn’t take into account your objectives, financial situation, or needs. If you are a customer of Airwallex Pty Ltd (AFSL No. 487221) it is important for you to read the Product Disclosure Statement (PDS) for the Direct Services, which is available here.