As the world becomes increasingly digitized, the payment processing industry’s growth has emerged as a critical component of the global economy. One critical aspect of payment processing is the transfer of funds into the merchant’s bank account after a transaction is approved. Payment processors facilitate the secure transfer of funds between buyers and sellers, both online and offline and provide a range of value-added services to their customers. The global payment processing market size was valued at $63.5 billion in 2020 and is projected to reach $140.3 billion by 2026, growing at a CAGR of 13.3% during the forecast period, according to the payment processing industry report by Allied Market Research.
However, the industry is facing a range of challenges, from regulatory scrutiny to changing consumer behavior. In this article, we will examine the current state of the payment processor market, including market share trends, key challenges, and emerging opportunities for growth and innovation.
What is payment processing?
Payment processing refers to the entire process of verifying, authorizing, and completing a financial transaction between a buyer and a seller. Payment processing solutions are designed to process payments securely and efficiently, ensuring the transfer of funds from the buyer’s account to the seller’s account. It involves the exchange of payment information between the parties and the transfer of funds from the buyer’s account to the seller’s account.
Payment processing can be used for credit cards, debit cards, e-wallets, bank transfers, and other digital payment methods. It typically involves several parties, including a buyer, a seller, a payment gateway, an acquiring bank, and an issuing bank.
The global market for payment processing solutions estimated at US$58.5 billion in the year 2022, is projected to reach a revised size of US$161.9 Billion by 2030, growing at a CAGR of 13.6% over the analysis period 2022-2030.
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The payment processing system uses encryption and security protocols to ensure the privacy and safety of the payment information. The entire process usually takes a few seconds to a few minutes, depending on the payment method and the complexity of the transaction.
Definition of Payment Processing
Payment processing refers to the process of facilitating transactions between a merchant and a customer, enabling the exchange of goods or services for payment. It involves the transfer of funds from the customer’s account to the merchant’s account, typically through a payment processor or payment gateway. This process can occur in various forms, including in-person, online, or mobile transactions. Payment processing ensures that the transaction is secure, efficient, and seamless, allowing businesses to accept payments from customers using different payment methods.
Importance of Payment Processing for Businesses
Payment processing is crucial for businesses to operate efficiently and effectively. It enables merchants to accept payments from customers, manage transactions, and reconcile their accounts. A reliable payment processing system can help businesses increase sales, reduce costs, and improve customer satisfaction. By offering various payment methods, including credit cards, debit cards, and mobile payments, businesses can expand their customer base and cater to diverse consumer preferences. Additionally, advanced payment processing solutions provide valuable insights into transaction data, helping businesses make informed decisions and optimize their operations.
Brief History of Payment Processing
The history of payment processing dates back to the early 20th century when merchants began to accept credit cards as a form of payment. The first credit card, the Diners Club card, was introduced in 1950, followed by the BankAmericard (now Visa) in 1958. The development of electronic payment processing systems in the 1970s and 1980s revolutionized the way merchants processed transactions, making it faster and more secure. The rise of e-commerce in the 1990s and 2000s further accelerated the growth of payment processing, with the emergence of online payment gateways and mobile payment solutions. Today, payment processing continues to evolve, incorporating advanced technologies like blockchain and artificial intelligence to enhance security and efficiency.
How does payment processing work?
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Payment processing is the handling of financial transactions between a buyer and a seller. Payment gateways play a crucial role in facilitating online credit card payments, ensuring that transactions are processed securely and efficiently. It involves the transfer of funds from the buyer’s account to the seller’s account, typically through a payment gateway or merchant account. The payment processing involves several steps:
- A purchaser either physically or online presents their card to a vendor and the payment gateway receives the card information, including the account number and cardholder name, and transmits it to the bank of the merchant.
- The payment processor uses this information to inform the issuer bank of the card regarding the transaction.
- Upon being notified of the transaction, the cardholder’s bank verifies if there are funds available for the purchase.
- Depending on the situation, the transaction is either approved or denied. Additionally, this step may also involve identifying any fraudulent activities.
- Once the payment is authorized, the payment processor informs the retailer through communication with the issuer bank.
- The transaction is recorded, and all parties, including the vendor and the purchaser, are informed through the payment gateway.
Although it may appear complex, we will examine gateways and processors further below. The essential elements to remember are that gateways aid in data transmission and processors are responsible for managing the transaction that leads to a purchase.
Watch the video to find out what a payment gateway is and how it works
Types of Payment Processing Solutions
There are various types of payment processing solutions available, each designed to cater to specific business needs. These solutions can be broadly categorized into in-person, online, and mobile payment processing, each offering unique features and benefits to merchants.
In-person Payment Processing
In-person payment processing refers to transactions that occur in a physical store or location. This type of payment processing typically involves the use of a point-of-sale (POS) terminal or a mobile payment device to process credit card transactions. In-person payment processing solutions often include features such as contactless payments, chip card readers, and mobile payment acceptance.
In-person payment processing solutions are ideal for businesses that operate in a physical store or location, such as retail stores, restaurants, and hotels. These solutions enable merchants to accept payments from customers in person, reducing the risk of fraudulent transactions and improving the overall customer experience.
Some popular in-person payment processing solutions include:
- Square
- Stripe
- PayPal
- Apple Pay
- Google Pay
These solutions offer a range of features, including contactless payments, mobile payment acceptance, and recurring payments. They also provide merchants with real-time transaction data and analytics, enabling them to make informed business decisions.
In-person payment processing solutions are an essential component of any business that operates in a physical store or location. They enable merchants to accept payments from customers, manage transactions, and reconcile their accounts, all while providing a seamless and secure payment experience.
Payment processing market around the globe
Payment processing varies significantly between different regions and countries due to differences in banking regulations, payment infrastructure, and cultural preferences.
Some regions may have different requirements for payment security and data privacy, which can impact the types of payment methods and processing systems that are used. As a result, businesses that operate in multiple regions need to adapt their payment processing strategies and systems to meet the needs of customers in each market.
The payment processing market in MENA
MENA (Middle East and North Africa) is highly dynamic and there are several key players in this space. Here are some of the major players in the MENA payment processing market:
PayTabs is a leading payment gateway in the MENA region. It offers a range of payment options including credit cards, debit cards, and local payment methods.
PayFort is a payment gateway that offers a range of payment options including credit cards, debit cards, and local payment methods. It is owned by Amazon and is a popular choice among merchants in the MENA region.
Telr is a payment gateway that offers a range of payment options including credit cards, debit cards, and local payment methods. It operates in the UAE, Saudi Arabia, Bahrain, Oman, Qatar, Kuwait, Jordan, and Lebanon.
Network International is a payment solutions provider that operates across the MENA region. It offers a range of payment services including card payments, online payments, and mobile payments.
Fawry is a payment solutions provider that operates in Egypt. It offers a range of payment options including credit cards, debit cards, and cash payments through a network of over 110,000 retail points.
CASHU is a digital wallet that operates in the MENA region. It offers a range of payment options including credit cards, debit cards, and local payment methods. It is a popular choice for online gaming and entertainment purchases.
These are just a few of the key players in the MENA payment processing market. The market is highly competitive and there are many other players that operate in this space as well.
The payment processing market in EMEA
The payment processing market in Europe, Middle East, and Africa (EMEA) is a diverse and rapidly evolving landscape. In recent years, the region has seen a significant shift towards digital payments and an increasing demand for mobile and online payment solutions.
Based in France, Ingenico is a technology company specializing in merchant services that enables secure electronic transactions. Initially a producer of point of sale (POS) payment terminals, the company has since broadened its offerings to encompass comprehensive merchant payment SaaS and associated services.
PayU is a financial technology company that provides online payment processing solutions to businesses and consumers worldwide. The company was founded in 2002 and is based in the Netherlands, with operations in over 20 countries across Europe, Asia, Africa, and the Americas. PayU offers a range of services including online payments, digital wallets, remittances, and credit solutions, and serves industries such as e-commerce, travel, and financial services.
SumUp is a financial technology company that provides mobile point-of-sale (mPOS) solutions for small businesses. The company was founded in 2011 and is based in London, UK, with operations in over 30 countries worldwide. SumUp’s mPOS technology enables businesses to accept card payments using their mobile devices, and also offers features such as invoicing, cash registers, and inventory management.
Adyen is a Dutch payment company with the status of an acquiring bank, that provides a unified platform for accepting payments across channels and geographies.
Key players of the payment processing market in LATAM
According to a report by Mordor Intelligence, the LATAM (Latin America and the Caribbean) payment processing market is expected to grow at a compound annual growth rate (CAGR) of over 12% from 2021 to 2026. Brazil is the largest market for payment processing there, accounting for over 40% of the market share. There are several leading payment processing companies in LATAM, including:
Based in Argentina, MercadoPago is a leading online payment platform that offers a range of payment solutions for consumers and businesses across Latin America.
PagSeguro is Brazil’s digital payments and financial services company that offers a variety of payment solutions, including point-of-sale terminals, mobile payments, and online checkout services.
Cielo is a leading payments and merchant acquiring company that offers a range of payment solutions for businesses, including credit and debit card processing, e-commerce payments, and mobile payments.
Based in Mexico, Openpay is a payment processing company that offers a range of payment solutions for businesses, including online payments, mobile payments, and point-of-sale terminals.
Key payment processing companies in APAC
The key trends in the APAC (Asia Pacific region) payment processing market include the increasing adoption of mobile payments and digital wallets, the growth of e-commerce and m-commerce, the emergence of real-time payments and blockchain technology, and the expansion of digital banking and fintech. These are just a few examples of the leading payment processing companies in APAC, as there are many other companies operating in this space across the region.
Based in China, Alipay is one of the largest mobile and online payment platforms in the world, offering a range of payment and financial services to consumers and businesses.
Also based in China, WeChat Pay is a digital wallet and mobile payment platform integrated into the WeChat social messaging app, with a user base of over a billion people.
Paytm is an Indian digital payments and financial services company that offers a range of payment solutions, including digital wallets, mobile payments, and point-of-sale terminals.
Based in Singapore, GrabPay is a digital wallet and mobile payment platform integrated into the Grab ride-hailing app, with operations across Southeast Asia.
The market is also becoming increasingly competitive, with both traditional financial institutions and new players entering the market and offering a wide range of payment solutions to businesses and consumers alike.
Trends in payment processing
Due to consumer demand, payment trends have started to evolve dramatically.
Nowadays payment processing solutions provide customers with a seamless, immersive, and effortless experience, using cutting-edge technologies and transaction methods. There are several notable payment processing industry trends in payment processing that have emerged in recent years, including:
Contactless payments
The COVID-19 pandemic has accelerated the adoption of contactless payment methods like mobile payments and contactless cards. Consumers are now looking for payment options that don’t require them to physically touch payment terminals.
Alternative payment methods
Traditional payment methods like credit and debit cards are facing competition from alternative payment methods like e-wallets, cryptocurrencies, and buy now, pay later (BNPL) options. These payment methods offer increased security and privacy, as well as faster transaction times, making them an attractive option for many customers. However, they are still relatively new and have yet to gain widespread acceptance, with traditional payment processors still dominating the market.
Real-time payments
Real-time payments allow for instant transfer of funds between bank accounts, making it easier for consumers and businesses to manage their cash flow. These systems use advanced technology and infrastructure to ensure that the transaction data is transmitted securely and that funds are transferred immediately between the parties involved.
Real-time payments can offer several advantages over traditional payment processing methods, such as faster settlement times, reduced transaction costs, improved cash flow management, and enhanced security and transparency.
Voice payments
The rise of smart speakers and voice assistants has led to the development of voice payment technology. While this technology offers a convenient and seamless user experience, it also presents new challenges in terms of security and fraud prevention. Therefore, payment companies need to prevent unauthorized access to a customer’s account by mimicking their voice and implementing advanced voice recognition and authentication technologies.
The increasing importance of security and fraud prevention
With the rise of digital payments, fraudsters have found new ways to steal sensitive financial information and carry out fraudulent activities, making it imperative for businesses to implement robust security measures to protect their customers and themselves.
Artificial intelligence
AI is being used to enhance fraud prevention and detection, as well as to improve customer service in the payment processing industry. These technologies also can be used to automatically approve or reject payments based on predefined rules or past transaction history. AI has the potential to revolutionize payment processing services by improving efficiency, reducing errors, and enhancing security.
Adoption of blockchain technology and cryptocurrencies
The adoption of blockchain technology and cryptocurrencies for payment processing services has been on the rise in recent years. Blockchain technology provides a secure and transparent way to process transactions, and cryptocurrencies offer a decentralized and digital form of currency that can be used for transactions. These features have made blockchain and cryptocurrencies attractive options for payment processing, especially for those who value privacy, security, and speed.
Consequently, the payment processing industry is continually evolving to meet the changing needs and preferences of consumers. Companies that can adapt and innovate in response to these trends will be best positioned to succeed in the future.
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Challenges the payment processing industry is facing
Security
With the rise of online and mobile payments, security is a significant concern for payment processors. They must continually innovate to keep up with emerging threats and prevent fraud.
Regulation
Payment processing solutions providers face several regulatory challenges that require payment processors to invest in compliance programs, adopt new technologies, and work closely with regulators to navigate the complex regulatory landscape. For example, companies must adhere to a range of regulations, including Know Your Customer (KYC) and Anti-Money Laundering (AML) laws.
Another challenge is the lack of uniformity in cross-border regulations. Different countries have different regulatory frameworks, making it difficult for payment processors to comply with multiple regulations when conducting transactions across borders. The payment processing solutions providers also must comply with data privacy regulations.
Increasing competition in the market
The payment processing industry is highly competitive, with many companies vying for market share. This has driven innovation and improved services for consumers but also created challenges for smaller companies trying to break into the market.
Need to adapt to changing consumer behaviors
Consumers want convenient payment options that are easy to use and require minimal effort. Payment processing companies need to offer simple and streamlined payment processes that are easy for consumers to navigate.
Therefore, the payment processing industry is a complex and rapidly evolving sector that plays a critical role in the global economy. As technology continues to advance and consumer preferences shift, payment processors will need to adapt to remain competitive and secure.
Opportunities for payment processors
The payment processing industry is poised for significant growth and innovation in the coming years, creating a range of opportunities for payment processors. Here are some key opportunities to watch:
Global expansion
Payment processors can expand their business globally by partnering with local banks, payment networks, and other financial institutions to offer their services in new markets. This will require navigating regulatory and compliance requirements in different jurisdictions and adapting to local payment preferences.
Value-added services
Payment processors can offer value-added services to their customers, such as data analytics, loyalty programs, and invoice management. This can help differentiate their offering and increase customer retention.
Integration with emerging technologies
Payment processors can integrate with emerging technologies such as blockchain, Internet of Things (IoT), and artificial intelligence (AI) to create new payment solutions and improve efficiency and security.
Partnerships with fintech companies
Payment processors can partner with fintech companies to offer new payment solutions and leverage their technology and customer base. This can help drive innovation and growth in the industry.
Payment as a service market innovates and adapts to changing trends and customer preferences, and is well-positioned to capitalize on the opportunities in the payment processing industry.
Examples of successful payment processors and their strategies for success
Here are some examples of successful payment processors and their strategies for success:
What makes PayPal successful?
PayPal is one of the largest payment processors in the world, with over 400 million active accounts. The company’s success can be attributed to its user-friendly interface, ease of use, and security features. PayPal has also expanded its offerings by acquiring other companies, such as Venmo, to offer a wider range of payment options.
Square secret sauce
Square is a payment processing company that focuses on small businesses. The company’s success can be attributed to its innovative products, such as Square Reader, which enables small businesses to accept credit card payments using their mobile phones. Square has also expanded its offerings to include other financial services, such as loans and payroll processing.
What factors contribute to Stripe’s progress?
Stripe is a payment processing company that focuses on online businesses. The company’s success can be attributed to its developer-friendly platform, which enables businesses to easily integrate payment processing into their websites and mobile apps. Stripe has also expanded its offerings to include fraud detection and prevention tools, subscription billing, and other services.
Successful payment processors have focused on developing user-friendly, secure, and innovative solutions that meet the specific needs of their target markets. They have also expanded their offerings to include other financial services and developed partnerships with other companies to create value for their customers.
Launch a payment processing business with the SDK.finance platform
With SDK.finance payment processing software, you can build the financial solution faster, without having to start from scratch. Using our platform, you can get the most out of flexible transaction fees and limit configuration possibilities to maximize your revenue and attract and retain customers via personalized tariffs.
SDK.finance payment processing software offers the following features for businesses:
| Feature | SDK.finance payment acceptance software |
| Customer onboarding | We provide online account creation, document uploading, manual KYC-related data collection, and the ability to integrate a KYC vendor. |
| Transactions management | It is possible to control transaction history, view details of each transaction (currency, amount, type, time, and date) and check the transactions on the map. |
| Online POS | The software offers online POS registration, web payment acceptance via, and a configurable checkout page. |
| Payment initiation | Customers can send invoices and payment requests via push notifications, dynamic QR codes with POS data and transaction sum, and a payment link via email, messengers, or SMS. |
| Payment acceptance | Users can make in-store payments via credit or debit cards or from a bank account; online payments (checkout page): by credit or debit cards, or from digital wallets and tips acceptance. |
| Regular payouts | Receiving settlement amounts to the merchant’s bank account, card, mobile phone, or digital wallet. |
| Receipts generation | You can generate the receipts manually, from transaction history, or via sending email receipts after the transaction. |
| Refunds initiation | It is possible to Initiate refund transactions on the customer’s demand. |
| Merchant’s digital wallet | Open a digital wallet for the merchant’s personal use. |
| Roles & permissions management | The following roles are available through the payment processing platform: individual, merchant, administrator, accountant, and compliance manager. |
- Our digital payment processing solution is available in two variants: the hybrid-cloud version with a subscription-based payment model, and an on-premise version that comes with the source code license, available for a one-time flat fee.
- The hybrid version is available on major cloud providers marketplaces like AWS or Azure, so the database is hosted on your own server for the sake of compliance with regulations and security.
Conclusion
The payment processing market is expected to continue to grow as digital payments become more popular and new technologies are developed, creating new opportunities for payment processors to innovate and offer new solutions to customers.
Start growing your revenue by providing a complete stack of online and offline payment acceptance services for merchants using the payment platform by SDK.finance.
