Looking at the current state of the market, eCommerce has seen a significant rise over many years. In fact, consumers have really never looked back on their consumption behavior. In recent years, with companies leveraging digital transformation, the ease of doing business is at the tip of their fingers and has significantly changed the game.
According to Forbes, the eCommerce market is expected to rise to a whopping $8.1 trillion by 2026, a $2.4 trillion increase from 2022. This just goes to show how eCommerce will only continue to be a preferred business and consumption method by many individuals for the foreseeable future.
What is eCommerce payment processing?
eCommerce payment processing is the process of receiving payments from customers through an online store or eCommerce website. The need to streamline and modernize payment processing came at the onset of eCommerce and online transactions. It’s one of the most urgent challenges that eCommerce businesses need to tackle.
According to Ken Savage, Owner of Ken Savage, “As the world struggles to keep up with endless technological advancements, businesses must keep up with providing their consumers with the most secure, easiest, and seamless way to process payments. Adopting secure eCommerce payment processing on your website or online shopping platforms gives this assurance to both businesses and consumers.”
But there are a few questions to be answered: Why is there a need for a specific eCommerce payment processing? How is it different from other online payment processing methods?
eCommerce payment processing vs. traditional payments
To have a clearer picture of how eCommerce payment processing works, we must know how it’s different from traditional online payment processing.
The difference between eCommerce and traditional payment processes is mainly due to one factor: third-party integration. An online business that uses a conventional online payment process redirects customers to a third-party website or payment portal to make payments. The customer enters their bank, card, or other payment details into this third-party website and, upon completion, is redirected back to the merchant’s website.
eCommerce payment processing simplifies payment methods. This is done by using three important elements: payment gateways, payment processors, and merchant accounts.
Payment gateway
Simply put, payment gateways are what your consumers use to enter account information details for payment. Payment gateways are the entry point in performing eCommerce payment transactions. Many often confuse payment gateway with payment processors, but both have completely different, yet interconnected, functions.
Payment processors
If payment gateways are the entry point of the payment process, payment processors are in charge of the financial services of the transaction chain. These payment processors act as intermediaries between the business, consumers, and bank or financial institutions to process the payment.
Merchant accounts
The merchant account, or merchant’s bank, receives the payments after they are completely processed by the payment gateway and processors.
How does the entire eCommerce payment process work?
Here is how all the key elements of the entire eCommerce payment process work from checkout to payment:
- After customer checks out items from their cart, they’ll be asked to enter debit or credit card details.
- The payment gateway is where the customers enter this information and will serve as the entry point in the payment process.
- After the payment gateway, the payment processor sends and receives data from the issuing bank to make sure that there are enough funds to cover the payment. When there are enough funds, the payment processor sends a response back to the payment gateway and then back to the customer to inform them that the payment has been processed and an invoice (if applicable) will be issued.
- The payment processor then sends the funds to the merchant's bank if the payment has been approved.
It’s important that new business owners, whether a sole proprietor, partnership, LLC, or corporation, are aware of how the eCommerce payment process works. They also need to know about its relevance, pros and cons to the business, and the important factors to consider in choosing the best payment processing solution for their eCommerce website.
Important factors to consider when finding the best eCommerce payment processing solution
There are many eCommerce payment processing solutions you can find on the internet that promise to deliver the best performance and features for your business needs. However, processing payments deals with a jungle of sensitive information, so here are some of the most important factors you must consider when trying to pick the best options for your business:
Security
As much as online shopping and transactions have grown over the years, the number and frequency of online payment scams have increased just as much. According to Juniper Research, it’s expected that eCommerce fraud will increase by $7 billion in 2023 to $48 billion from $41 billion in 2022. These frauds take advantage of the fact that businesses had to quickly transition to eCommerce without knowing the relevant risks or how to protect themselves from these risks.
Here are some ways you can increase the safety and security for your eCommerce payments solutions:
- An SSL certificate: An SSL certificate, or secure sockets layer certificate, simply provides a layer of protection that protects the data your customers enter into your website from potential scammers and cybercriminals. The SSL encrypts or conceals this data by turning it into cipher codes, protecting your customer’s sensitive information.
- PCI compliance: Developed by the PCI Security Standards Council, PCI, or payment card industry compliance, means that the payment solution provider has met the technical and operational standards that make sure that the credit and debit card information of customers is secured and protected.
- Tokenization: Payment tokenization is a process where a customer’s saved card information is converted into a series of tokens or random codes in your website. This is done so that cybercriminals will not be able to freely see the actual account numbers in your customer’s information.
Payment methods
Different consumers have different preferred types of payment methods, so choosing an eCommerce payment processing solution that caters to a wide variety of payment methods will be more beneficial for your business. Some consumers take the availability of their preferred payment method as a key factor in making a purchase.
Your choice of eCommerce payment solutions should have at least the following:
- Credit card
- Debit card
- Paypal
- Venmo
- E-checks
- Digital wallets
According to Morgan Taylor, Co-Founder of Jolly SEO, “As someone who runs a business, making sure that allowing your partners, stakeholders, employees, and customers access to multiple payment methods and platforms provides an avenue for easier transactions. This builds trust and confidence in your organization.”
Dealing with local and international customers
Dealing with international customers means that you have to choose a payment processor that can deal with foreign payments, including:
- Support for credit cards from foreign banks.
- Conversion of foreign currency to local currency.
- Recognizing and dealing with tax implications.
Costs and charges
As you may have guessed, these payment solutions come with a fee. Depending on your service provider, some eCommerce payment processing solutions may charge a fixed fee, a percentage of the transaction costs, and/or some fixed monthly fees.
Checking out your possible choices and breaking down their costs versus your estimated monthly transactions may help you in deciding which of your choices best provides you with the most savings. Sometimes the costs of these charges and fees can be astronomical, so picking which of them has the best return on investment for you is crucial.
Why is eCommerce payment processing important for you and your customers?
The role of eCommerce payment processing in the modern age goes beyond sending and receiving funds. In an era where everything is done in a few clicks, businesses that provide an avenue for their consumers to make the easiest and most seamless purchase experience are most often at the forefront of the best business practices. This not only translates to more sales but increased customer loyalty and retention as well as brand equity.
Published June 9, 2023
