Payment Processing Explained: Payment Methods and Top Companies in the Payments Industry in 2022 (2023)

• The coronavirus pandemic has accelerated the digitization of the payments industry by two to three years.
• And online retail sales soared to $794.50 billion, a record 14.4% of total U.S. retail sales in 2020.
• Do you work in the financial services industry?Gain business insights into the latest technological innovations, market trends and your competitors with data-driven research.

The pandemic has accelerated the payments industry's transition to digitization: merchants have started to rely on e-commerce, more consumers have switched to contactless payments, and technology providers have developed new tools to counteract this change in behavior.

Insider Intelligence examines today's payments ecosystem, including the impact of the pandemic on industry growth drivers. We break down key terms relevant to the payment processing industry and share information on how consumers will pay for goods and services in the future.

Here are some key payment processing stats to keep in mind:

What is a payment processor?

A payment processor or payment intermediary acts as an intermediary between a merchant and a financial institution, authorizing transactions and facilitating the transfer of funds. Some options for vendors are Shopify, Square, Paysafe.

Online payment processing

Online payment processing connects a brand website with a payment processor to connect a merchant account with credit and debit card issuers. Merchants can set up recurring payments, accept or decline transactions based on predefined parameters, and process foreign currency payments.

The pandemic has fueled increased use of online payment processing as more businesses begin to offer online and mobile transaction options. US mobile P2P apps like Venmo and Square Cash are growing in popularity, with volume expected to reach $797.43 by 2024.

Processing of credit card payments

Credit card payment processing is a system through which a customer's credit card details are transmitted in order to authorize a dollar transaction from their account to the merchant's account.

While we've seen the value of in-store credit card transactions fall during the pandemic, Insider Intelligence predicts the value will return to pre-pandemic levels, reaching $2,107.94 in 2021 and rising to $2,113.43 in 2022.

ACH payment processing

Automated Clearing House (ACH) transactions route payments between banks. There are two types of ACH transactions: Credit transactions, where funds are sent to a recipient, e.g. direct deposit, and direct debit transactions where funds are debited from the requesting party, e.g.

They grew in popularity as a relatively inexpensive payment option.calculationless than $1 in fees. ACH was created as a way for banks to digitally process paper check payments, but has since gone more digital with online ACHUnderstanding27.9% of all transactions by volume in Q3 2020, according to the National Association of Automated Clearing Houses (NACHA). ACH is booming, not only in traditional check-based segments like bill payment, direct payments, and deposits, but also for digital P2P transactions and online money transfers.

mobile payment processing

Mobile payment processing allows merchants to sell products and accept card payments from their preferred mobile device. Mobile point-of-sale (POS) solutions like Square offer businesses a more affordable and mobile payment acceptance option than traditional offerings.

The pandemic has accelerated the adoption of mobile POS platforms as Americans seek retailers that offer contactless services, leading to an acceleration in user and transaction value growth. In-store mobile payment app usage hit a milestone in 2021, reaching 101.2 million among Americans 14 and older. This comes after a 29.0% annual growth in 2020. Usage is now on track to surpass half of all smartphone users by 2025.

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Electronic check payment processing

An eCheck is a digital version of a paper check that can be used to make an online payment. Information received from the online payment processing center is processed via the ACH network. To use an electronic check, consumers must provide a checking account number, sort code, and account name.

Checks, already falling in popularity, saw an even sharper decline during the pandemic as users replaced paper with digital apps and businesses migrated to digital accounting platforms, payroll cards and ACH payments.

Payment processing for merchants

Merchant payment providers allow merchants to accept credit cards, debit cards, and other forms of payment from consumers. While merchant acquirers facilitate payment transactions, merchant processors such as Fiserv and Global Payments are responsible for the secure transmission of data related to those transactions and for providing varying degrees of administrative support.

The pandemic helped accelerate PayPal's growth as merchants trusted the company to facilitate transactions during a shift toEcommerceit's himassumptiondigital and contactless payments. The total payment volume from PayPal (TPV) in the first quarter of 2021popped up46% YoY on a constant currency basis to reach $285 billion19%YoY in the first quarter of 2020.

PaypalDataplans to change some of the fees it charges US merchants for its payment services. Raising merchant fees can help PayPal fund its own products and continue to grow sales, and lowering other fees can make PayPal more competitive against companies like Square and Visa, which offer their own payment processing services.

Beginning in August 2021, PayPal will change its fee structure so that merchants will pay $3.98 in fees for a $100 transaction, up from $3.20 previously. Increasing those trading fees could help PayPal fund its own products and continue to grow revenue, which grew 29% year over year. While this shift could turn merchants away from PayPal, the retail and payment solutions PayPal offers likely outweigh the risks.

Contactless payment processing

Contactless payment processing occurs when credit cards, debit cards, key fobs, smart cards, or mobile devices use Radio Frequency Identification (RFID) or Near Field Communication (NFC) to make secure payments.

Contactless payments have been around since the 1990s, but few merchants and retailers used the technology back then. Since then it has spread to many banks, credit card companies, merchants and retailers around the world.

The use of contactless payments has been particularly popular during the pandemic as employees and customers try to avoid unnecessary physical interactions. About 60% of US dealers nowacceptcontactless payments, which not only give consumers more ways to pay for goods and services, but can also help drive adoption.

electronic payment processing

Electronic payment processing, or Electronic Funds Transfer (EFT), is the process of transferring money from one bank account to another without manual conversion. Businesses must have access to a payment platform like venmo or paypal to accept payments online.

With payment hardware manufacturers and software providers not processing payments themselves, the shift to electronic payments combined with technological innovation continues to blur the lines between hardware and software. This is forcing stakeholders to reconsider their strategies and their role in the payment processing ecosystem.

Ecommerce Payment Processing

E-commerce credit card processing refers to all purchases made online. Payment gateways such as Adyen and Stripe act as a gateway through which e-commerce merchants connect with acquirers and perform a similar function as in-store payment terminals.

In the last two years, e-commerce sales have increased. Notably, online retail sales soared to $794.50 billion in 2020 as smartphone spending surged amid the pandemic. While in-store purchases will regain some of their share as the pandemic subsides, the events of 2020 have accelerated the shift to e-commercetwo or three years.

payment processing industry

The payments industry has seen a transformation as businesses and consumers move away from cash and checks and toward digital payments. Cards still dominate traditional retail, but the use of mobile wallets like Apple Pay has increased.

Digital peer-to-peer (P2P) applications like Venmo have become a part of everyday life for users of all generations. Even providers in larger industries traditionally dominated by cash and checks are diversifying to find new volumes.

inner intelligencePayment ecosystem reporthighlights how rising fraud, low revenue and growing demand for white-label payment capabilities from unconventional players could lead to change in the years to come.