What is a payment processor? How does it work, and how to choose one for your business

Key takeaways:

• Payment processing allows businesses to quickly, easily, and securely accept payments from customers.

• An ideal payment processor accepts various payment methods, is easy to set up and use, and offers accounting management features to track pay-ins.

• Payment processors like Airwallex can help businesses of any size grow globally with features that help manage cross-border transactions.

Real-time payments are revolutionizing global finance as more customers have come to expect the speed, efficiency, and innovative capabilities of digital payment products. In the US and Canada, cashless transactions are projected to nearly double by 2030.¹ As the world shifts to cashless payments, investing in the right payment processor is more important than ever.

A payment processor can make it quick and easy for businesses to accept digital payments via credit cards, debit cards, or mobile wallets.

Read on to learn how payment processing works and how to choose the right payment processor for your business.

What is a payment processor?

A payment processor is a company that acts as an intermediary between businesses and financial institutions in a transaction. It ensures that transactions are:

• Authorized

• Secure

• Completed efficiently while protecting customers’ checkout experience

Whenever a customer pays via a credit card, debit card, or digital wallet, the payment processor verifies and facilitates the transfer of funds.

How payment processors work

Payment processors facilitate the exchange of payment details between your bank, the customer’s bank, and the payment gateway, ensuring seamless transactions. Here’s the step-by-step process:

• Customer initiates a payment: The payment gateway collects the customer's payment details.

• Payment is sent for authorization: The payment gateway encrypts the data and sends it to the payment processor for authorization. 

• The customer’s card is verified: The payment processor communicates with the customer’s bank to verify card information and check for sufficient funds to complete the purchase. 

• The transaction is approved or denied: If approved, funds are released into the merchant account; if declined, the transaction is rejected.

• The transaction is settled: Once approved, the funds are held in the merchant's account before being transferred to your business account.

Payment gateway vs. payment processor vs. merchant account

Understanding the payment process means first knowing the differences between its three key components:

• Payment gateway: Securely collects and transmits payment details to the payment processor. A payment gateway lets you accept payments online or via a point-of-sale system, and it helps prevent fraud by encrypting data during the transaction process.

• Payment processor: Transfers payment details between the customer’s bank and yours, verifies payment details, and facilitates authorization of transactions. It also sends the approval or denial back to the payment gateway.

• Merchant account: Temporarily holds funds from your customers’ payments. Once those payments are approved, the funds are moved to your regular business account.

Each of these components plays an essential role in enabling businesses to accept payments.

Tips for choosing a payment processor

Here are some helpful tips for choosing the best payment processor for your business goals:

• Costs and fees: Review and compare the different fees associated with your payment processor. Pricing models may include flat fees, percentage-based fees, or bundled pricing. While bundled fees may keep costs predictable, percentage-based fees can benefit businesses with smaller volumes. 

• Onboarding time: Consider how easy the platform is to set up and use. Payment API integration methods can significantly impact this process, as some platforms offer simple plug-and-play APIs while others may require more customization. A user-friendly API can make accepting payments much quicker and more streamlined.

• Payment methods accepted: Ensure the processor supports major payment methods, such as Visa, Mastercard, and Amex, and check for multi-currency support if you’re expanding globally. 

• Integrations: Integrations make it easy to pair with tools you already use. For example, Airwallex integrates with popular accounting tools like Xero, QuickBooks, and NetSuite so you can consolidate your operations. It also supports major eCommerce platforms, including compatibility with tools like Shopify Markets for managing multi-region storefronts and payments.

5 payment processor options for your business

Here are the five top payment processing services and their features and benefits:

• Airwallex: Airwallex accepts major card networks and 160+ local payment methods and offers like-for-like settlement in 14 currencies. It also provides digital wallet infrastructure, enabling businesses to store, manage, and use funds across multiple currencies within their Airwallex account.

• PayPal: Supports many payment methods, including credit and debit cards and PayPal accounts.

• Square: Provides hardware and software solutions for in-person sales and online purchases.

• Stripe: Known for its developer-friendly platform, Stripe offers a flexible full stack of services. 

• Payoneer: Accepts payments in 120+ currencies, offers prepaid debit cards, and integrates with popular marketplaces.

*Payouts require a local bank account

**Payouts require a local bank account and must meet a currency's minimum payout amount for US merchants; Stripe provides multi-currency settlement for only CAD, EUR, and GBP at 1% (or minimum fee)⁷

***Stripe doesn't offer multi-currency accounts to hold or send funds in other currencies, and FX fees typically apply

1. Airwallex

Airwallex is a payment processor that helps businesses of all sizes efficiently manage global payments.

With Airwallex, you can boost conversions by displaying prices in local currencies. Customers can pay using their preferred methods in over 180 countries.

The platform uses an ML-powered optimization engine and 3-Domain Secure (3DS) logic to improve payment acceptance, enhance security, reduce fraud risk, and increase overall transaction success. Also, Airwallex offers flexible integration options, from embedding a low-code checkout to building a fully customized payment acceptance experience using APIs.

Airwallex simplifies international payments, allowing you to collect and settle funds across borders, save on conversion costs, and streamline your global cash flow.

2. PayPal

PayPal allows businesses to accept online, mobile, and in-person payments using credit cards, debit cards, and PayPal accounts. Like Airwallex, PayPal lets companies send invoices via QR payment codes and payment links that can be easily shared.

However, a local currency bank account with matching details is required to avoid forced currency conversion. If unavailable, PayPal applies its own exchange rate and charges a 3%–4% FX fee on withdrawals in a different currency.

3. Square

Square is a financial services and digital payment company specializing in payment processing. Square also provides hardware and software solutions for in-person sales and online purchases.

Square doesn’t offer multi-currency business accounts or like-for-like settlements. All payments are settled in the seller’s local currency. If a customer pays in a foreign currency, their bank handles the conversion. Because Square doesn’t perform the conversion, it doesn't disclose the exchange rate – the customer’s card issuer sets that rate and may include additional fees.

4. Stripe

A payment processor known for its developer-friendly platform, Stripe helps online and brick-and-mortar businesses accept payments. Stripe allows US merchants to settle in CAD, EUR, and GBP without currency conversion – but only if you provide a local bank account in the corresponding currency and meet the minimum payout thresholds. For all other currencies, Stripe automatically converts funds to USD, and a 1% currency conversion fee applies. The platform offers over 100 local payment methods and accepts major card networks.

While Stripe is a widely used payment processor, businesses looking to consolidate tools and streamline operations may benefit more from an all-in-one financial platform.

5. Payoneer

Payoneer helps businesses manage funds in up to 11 supported currencies using local receiving accounts. While you can hold multiple currencies, you’ll incur up to a 3% FX fee when withdrawing to a local bank in a different currency.

Payoneer integrates with major marketplaces and typically offers lower fees for transfers within its own network, though external transactions may cost more.

It offers API features like payment pages and shopping cart plugins for larger businesses. While Payoneer supports various payment methods, its card acceptance is more limited compared to some competitors.

Maximize business potential with the right payment processor

The right payment processor can make a big difference in scaling and growing your business. Airwallex can offer a comprehensive solution to power your growth if you're a global business. With Airwallex, companies can accept payments through 160+ payment methods in 130+ currencies, helping them expand their customer base and revenue potential.

Airwallex Payments is designed to work seamlessly with the rest of the platform. With an Airwallex Business Account, you can open multi-currency Global Accounts and access a built-in wallet that lets you receive, hold, and spend funds in multiple currencies – all in one place. This end-to-end infrastructure helps businesses avoid unnecessary conversion fees and manage global cash flow more efficiently.

Disclaimer: We wrote this article in Q2 2025. The information was based on our own online research, and we were not able to manually test each tool or provider. The information is provided for educational purposes only, and a reader should consider the specific requirements of their business when evaluating providers. This research is reviewed every six months. If you would like to request an update, feel free to contact us at [email protected].

Payment processor frequently asked questions

How long does payment processing take?

The payment process timeline depends on the type of payment processor used, the payment method submitted, and the financial institutions involved.

However, card and mobile wallet payments are usually the quickest. For example, Airwallex processes same-day payments. 

Which payment processor is best?

The best payment processor for your business will depend on your needs and goals. Compare different processors and their costs to see which best meets your priorities.

What fees are associated with payment processors?

Payment processors typically charge various fees, including transaction fees, monthly subscription fees, and chargeback fees.

Additional costs may include cross-border fees for international transactions, PCI compliance fees, and hardware fees for payment terminals.

Sources:

• https://www.pwc.com/gx/en/financial-services/fs-2025/pwc-future-of-payments.pdf

• https://www.paypal.com/us/business/pricing#online

• https://squareup.com/us/en/payments/our-fees

• https://stripe.com/pricing

• https://www.payoneer.com/en-in/about/pricing/

• https://www.payoneer.com/resources/the-ins-and-outs-of-receiving-accounts-how-payoneers-multicurrency-account-can-help-smbs-expand-globally/

• https://docs.stripe.com/currencies