Payment processing is the system and series of steps that allow businesses to accept electronic payments, such as debit and credit card transactions. It involves securely transferring funds from a customer's account to a merchant's account. This system works for both in-person and online transactions. Key components of payment processing include:

• Payment Gateway: A service that securely transmits the customer's payment information from the sales point (physical terminal or online checkout) to the payment processor.
• Payment Processor: A vendor that handles the technical aspects of the transaction, including validating payment information, communicating with banks, and transferring the money.
• Issuing Bank: The customer's bank that issues the payment card and authorizes or declines the transaction.
• Acquiring Bank: The merchant's bank that receives the payment and deposits the funds into the merchant's account.
• Card Networks: Organizations like Visa and Mastercard that establish rules and infrastructure for processing card payments.

How payment processing works in brief:

1. Customer initiates a payment by presenting card details or using a payment method at a merchant's point of sale or online.
2. The payment gateway encrypts and transmits the payment information securely to the payment processor.
3. The payment processor sends the transaction details to the acquiring bank, which forwards it to the card network and then to the issuing bank for authorization.
4. The issuing bank checks the customer's account for sufficient funds and either approves or declines the transaction.
5. The authorization response is sent back through the same channels to the merchant.
6. If approved, the merchant completes the sale.
7. Funds are settled — transferred from the issuing bank to the acquiring bank, which deposits them in the merchant's account.
8. The transaction is recorded and reconciled.

Payment processing supports multiple payment methods such as credit/debit cards, digital wallets, bank transfers, and electronic checks. It is vital for enabling fast, secure, and efficient financial transactions, helping businesses offer convenient payment options and improving customer experience. In summary, payment processing is the entire technical and procedural mechanism behind accepting and completing electronic payments between customers and merchants. It ensures secure, quick, and seamless financial transactions in the modern economy.