E-commerce Payment Processing 101

Creating and launching an e-commerce site can be an exciting accomplishment! However, it is important to understand how e-commerce payment processing works to ensure sales are being handled correctly.

For those looking to learn more, we referenced Big Commerce’s article, “E-commerce Payment Processing 101: A Beginner’s Guide for Small Businesses,” by Shelley Kilpatrick, to create this helpful blog that focuses on exploring the various online payment options that customers can use, how payment processing works on e-commerce sites, and the outside payment processing services that can be used to achieve your respective company’s goals and needs.

Online Payment Methods

It is likely you have made a few online purchases in the past. Therefore, you are probably familiar with the various forms of payment methods one can use during check-out. Below are the most common options, and ones most people prefer:

Credit Cards

Direct Debit: (Entering Bank Account Details)

Alternative Payments Methods: (PayPal, Amazon Pay, Google Pay and Apple Pay, & Buy-Now-Pay-Later Solutions)

Digital Currency: (Bitcoin or Another Cryptocurrency)

Three Elements of E-commerce Payment Processing

E-commerce payment processing is made-up of three different elements: payment gateways, payment processors, and merchant accounts. Before we go into detail about how these three elements work together, it may be helpful to review their definitions below.

Payment gateways:

“Act as the courier between your e-commerce website where the customer enters their payment information and your payment processor” (Kilpatrick, 2021, p.1).

Payment processors:

“Take the information from the gateway, verify that the customer has the funds, and deposit the money in your merchant account” (Kilpatrick, 2021, p.1).

Merchant accounts:

“Receive the funds once they are processed” (Kilpatrick, 2021, p.1).

How Do E-commerce Payment Processors, Gateways and Merchant Accounts Work Together?

To better understand how these three elements work simultaneously during checkout, we will use Kilpatrick’s example scenario below:

Step 1. The customer enters their credit or debit information at checkout.

Step 2. The payment gateway secures the data and sends it to the payment processor.

Step 3. The payment processor checks with the credit card network to ensure that the customer has the funds to cover the purchase.

Step 4. The customer’s credit card issuing bank either accepts or rejects the payment request.

Step 5. The payment processor then sends the results (approved or denied) through the payment gateway, so the customer can view on the merchant’s website if the transaction was approved.

Step 6. The payment processor issues the funds to either the merchant account or the merchant’s bank.

Important Considerations for E-commerce Payment Processors

While it may seem as though payment processing is a large feat due to its many steps, this procedure is conducted in a matter of seconds. Below are some general things to consider when choosing a payment processor for your e-commerce site to ensure it remains quick and effective.

1. They should be PCI compliant. 

All companies that handle credit card information must be compliant with the requirements stated by the Payment Card Industry Data Security Standard (PDI DSS). Learn more about how to achieve PCI compliance.

2. They should create tokens for sensitive payment information. 

Your e-commerce site should make sure the processor chosen converts the account numbers into a token that it can use to identify the specific customer once their info is captured. By doing this, you’re protecting yourself and your customers from hackers that might attempt to steal sensitive payment information.

3. The payment methods they accept. 

Make sure the payment processor accepts the payment methods used most or preferred by your target demographic and loyal customers.

4. How much they charge in fees. 

Typically, payment processors will charge a percentage, as well as a fixed fee per transaction. However, some may charge a monthly fee for a subscription instead of transaction fees. There are also extra fees you might be required to pay for things like chargebacks, disputes and international payments. Knowing your number of transactions can help you estimate your costs and find the right type of payment processor for your e-commerce business.

Do You Need an E-commerce Merchant Account? 

For those still intimated by the complexity of e-commerce payment processing, there are e-commerce merchant accounts that can be used as a resource and guide to help ensure your site works properly and meets consumer expectations. Some benefits of using e-commerce merchant accounts are:

• They offer the right digital payment options for your customers.

• They manage and reduce the fees associated with various payment gateways.

• They make services very secure for transactions.

7 Examples of E-commerce Payment Solutions

1. PayPal. 

2. Stripe.

3. Square. 

4. BlueSnap

5. Amazon Pay. 

6. Klarna

7. Sezzle

References

https://www.bigcommerce.com/blog/ecommerce-payment-processing/