Ecommerce Payment Processing: An Ultimate Guide (2024)

Processing payments is maybe essentially the most nerve-wracking aspect of running an ecommerce business. Not only does it keep what you are promoting’s lights on, nevertheless it deals with sensitive customer information. 

Most customers may imagine the ecommerce payment process takes only a number of seconds—so long as the press of a button. Nevertheless it entails many points of communication between multiple players: customer, merchant, payment processor, merchant account service, and each the shopper and the merchant’s respective banks.

The rewards of selecting a payment processing solution that most closely fits your and your customers’ needs will be major. Not only can you’re taking in more cash, but you may capture the 19% of users who’re prone to abandon checkout because they don’t trust a site with their financial information.

This guide shares how ecommerce payment processors work, complete with tips about methods to find the suitable one for your personal online store. 

What’s ecommerce payment processing?

Ecommerce payment processing is the system that permits online businesses to just accept and process electronic payments for goods and services. It involves the secure transmission of transaction details between customers, merchants, and payment service providers. It’s the processor’s job to authorize, capture, and settle funds. 

Ecommerce payment processing vs. traditional payment processing

Traditional payment processing involves an ecommerce merchant using a third-party payment gateway as a part of the checkout process. The shopper is redirected to an internet payment page on the third party’s own website, which serves as the purpose at which the shopper’s payment details are entered to finish the acquisition.

Ecommerce payment processing is integrated into what you are promoting’s own site. It’s a one-stop shop that builds the next grade of trust between customer and merchant. When customers are redirected to a third-party site with a view to complete a transaction, they change into less confident in the safety of their sensitive financial information. Also they are more prone to abandon their online shopping cart altogether.

What are the major ecommerce payment methods?

• Credit and debit cards
• Mobile payments
• Buy now, pay later (BNPL)
• Bank transfer

There are several payment methods to select from when buying from an internet store. Fail to supply them and also you risk losing the 11% of individuals who’ve abandoned their online cart because their preferred method was unavailable. 

Prioritize the preferred ecommerce payment methods when evaluating potential payment processors, including:

Credit and debit cards

This stays the preferred payment method. When customers buy out of your store, a processor contacts the issuer (similar to Visa, Mastercard, or American Express) for authorization. The funds are transferred to your checking account when approved. 

Mobile payments 

Roughly half of all ecommerce transactions occur using a mobile device. Mobile payment methods similar to Apple Pay, Samsung Pay, and SMS payments make it easier for mobile shoppers to purchase online. 

Buy now, pay later (BNPL)

Not everyone desires to pay for products in full upfront. BNPL services split the fee into different transactions and routinely bill a customer when their next payment is due. Shopify Payments, for instance, offers Shop Pay Installments—a way for purchasers to interrupt their purchase down into smaller payments. You continue to receive the overall order amount upfront (excluding the fee for using the service).

Bank transfer

With this payment method, a customer signs into their online banking app and manually sends money to an ecommerce business. It’s predominantly utilized in business-to-business (B2B) ecommerce where transactions are high in value and money is paid after an order has been placed. 

How does ecommerce payment processing work?

1. Customer initiates payment 

Many online payments start when the user enters credit or debit card information on the checkout stage, often by a form embedded in your website or mobile app. Encrypted payment details entered in your website are sent to the processor via payment gateways.

A payment processor is a financial services provider, similar to a bank card services provider, that facilitates the ecommerce transaction chain. The payment processor conveys all transaction data between the shopper’s bank or bank card company and the merchant’s account.

The payment gateway is a technological platform connecting your ecommerce site to a merchant services provider. This facilitates the transfer of knowledge between the payment processor (and, by extension, the issuing and receiving banks) and the customer-facing website.

2. Processor authorizes the payment

The processor then notifies the bank that issued the shopper’s credit or debit card to make sure there are sufficient funds within the associated account. The transaction is either authorized or declined and the data is transmitted back to the ecommerce site via the payment gateway. If the payment is permitted, the shopper receives an order confirmation, often in the shape of an email receipt.

3. Funds are transferred to merchant checking account

A merchant checking account allows an ecommerce merchant to receive electronic payments from customers. This happens after customer payments have been authorized and settled—meaning the funds from the shopper’s credit or debit card institution have been deposited into the merchant account. The funds are then transferred to the merchant’s own business banking account, often after one to 2 business days. 

The best way to select the perfect ecommerce payment processor

• Check security measures
• Evaluate accepted payment methods
• Check for international payment support
• Search for tokenization services
• Confirm integrations
• Analyze costs and charges

There are quite a lot of aspects to contemplate before selecting a provider. Let’s explore each so you could find the suitable ecommerce payment processor for what you are promoting.

Check security measures

Your site will need an SSL certificate, or secure sockets layer certificate, to securely process payments. An SSL certificate is a code applied to your web server to supply a layer of security for online communication and transactions. When a customer’s web browser contacts what you are promoting’s website, the SSL certificate encrypts the connection, effectively shielding customer information from prying eyes.

When you’ve arrange an SSL certificate to your site, ensure your ecommerce payment provider is PCI compliant. PCI stands for payment card industry, a set of regulations merchants must follow to just accept payments online. Compliance is remitted by bank card firms to make sure the security of bank card transactions passing through your processor.

Evaluate accepted payment methods 

The most effective ecommerce payment processing solution to your online store will give you the chance to process quite a lot of payment options—not only a credit and debit card, but PayPal, Venmo, and e-checks too.

Check for international payment support

If what you are promoting sells only to the US market, you could not have to contemplate choosing an internet payment processor that permits for international transactions. Nonetheless, for those who plan to have customers overseas, you’ll need to pick out a service that may facilitate foreign payments.

Your ecommerce payment gateway might want to give you the chance to support credit and debit cards from various foreign banks, and permit users to convert payments to their country’s currency. The gateway must also offer support for navigating various tax systems.

Gymshark, for instance, uses Shopify to sell internationally. It has localized storefronts for its biggest markets, each billing customers of their local currency with the applicable taxes for the region. 

Search for tokenization services

Need to process recurring payments or charge a card you’ve stored on file? Storing bank card information directly isn’t advised; the data can be readily accessible to hackers within the event of an information breach.

Some ecommerce payment processors offer payment tokenization to store customer data for later use. As a substitute of saving customers’ actual bank card details, your site saves a randomly generated alphanumeric code, which represents and replaces customer information in your system. From then on, your platform uses the token as a substitute of card numbers when charging customers.

Confirm integrations

For those who’re hosting your store on Shopify, there are millions of third-party apps to select from within the Shopify App Store. Confirm your latest payment processor is compatible with those you’ve already installed. 

Analyze costs and charges

Costs related to using an ecommerce payment processor will be divided into three major components:

• Set-up costs. Processors will often charge an initiation fee, ranging between free and $250.
• Monthly subscription fee. These generally fall between $10 and $50.
• Transaction fees. Processors will typically charge between 1% and 5% of every transaction on top of a flat fee, often not more than 25¢.

Examples of ecommerce payment processors

You’ll need a payment processor to take payments from customers who buy products through your online store. Many popular payment processors integrate with ecommerce platforms and the technology that works with them.

Shopify Payments is the preferred processor for merchants who use the Shopify platform. It will probably collect payments from online customers without complicating your toolstack.

Plus, it eliminates third-party transaction fees and offers customers more flexibility. When Shopify Payments is enabled in your ecommerce store, customers pays in installments, use one-click checkout, and securely store bank card details for repeat purchases. 

For those who’re selling in person alongside your website, Shopify Payments can handle every type of payments. Use the processor to just accept chip and PIN, contactless, or mobile payments on Shopify POS, then sync the information with transactions processed through your online store.

Other ecommerce payment processors include: 

• Stripe
• Adyen
• PayPal
• Klarna
• Amazon Pay

Improve customer experience with slick ecommerce payment processing

Choosing the suitable ecommerce payment processing solution is probably the most necessary decisions a business owner could make. Consider the security measures offered, whether or not they accept international payments, and the fee schedule to discover the perfect payment processor to your online store. 

Remember, selecting a payment processor is just step one in processing payments. Prioritize the shopper experience when setting yourself as much as take payments. Speedy checkouts win; security is important.