E-commerce Payment 101: Understanding the Fundamentals of Online Payments KEY TAKEAWAYS Online payments are the core of any e-commerce business. It is important to understand what these online payments are and how they work. We get to know more about the benefits of using online payments for e-commerce as well as the different methods of payment options available to customers. We also get to know more in-depth about the e-commerce payment cycle, ie from the customer placing an order to the merchant’s bank account. Checking the best payment gateway options for your e-commerce site in 2024.
Online payment is the beating heart of an eCommerce business. If you overlook this necessary component, it will lead to missed opportunities.
Smooth and secure digital transactions guarantee the global reach of potential customers, building trust with clients, a seamless shopping experience, and more completed purchases.
Paying on an e-commerce platform may look pretty complex. We are here to work this out for you carefully, single out traditional and alternative online options for paying, highlight the principal players involved in the online payment environment, and review top eCommerce payment gateways to streamline transaction processing.
Benefits of Online Payments for E-commerce
Why should businesses care about online payments? Is it worth the effort? Integrating new pay systems is a huge task, implying certain expenses. But e-commerce businesses offering traditional options and refusing to change are doomed to have lower conversion rates.
Even if you turn to a CRO agency for
quality conversion optimization services, revising your options for paying will remain a priority.
With digital buyers comprising more than
30% of the world’s population, it’s clear that multiple online payment solutions lead to more profit. Companies are turning to various online payment services to enhance the customer experience and increase revenue.
The online payment system presents a whole stack of benefits for eCommerce merchants and fosters their growth and success.
Higher Conversion Rates: Customers will always expect something more. Offering them alternative options like Klarna or Afterpay, along with the traditional solutions, will increase your conversion rates. Security: People oftentimes share their credit card details with their online stores. While the tech-savvy might be a bit reluctant to do that. Options like PayPal are a great way for online stores to offer a secure payment gateway for their customers. Plus, it never shares any financial information with the seller other than the transaction reference number in case something goes wrong with the transfer. Convenience: Customers also have the option to choose to pay with just a few clicks using their Apple Pay or other e-wallets. Client expansion: Diverse eCommerce transaction solutions ensure you’re not limited to a local client base but can access a global audience. This feature helps boost your trade and increase income. DID YOU KNOW? 41% of consumers say they won’t shop at stores that don’t offer contactless payments. E-commerce Payment Methods
The electronic payment setup is genuinely diverse. Just because the transactional operations happen online doesn’t mean they are similar. There are multiple ways to pay for a product or service online.
Let’s focus on the eCommerce payment methods—traditional and alternative ones—that are available now.
Credit and debit cards: They are one of the most popular payment options. The first option allows one to pay or make purchases on credits. This means you need to pay back the money within a fixed period, otherwise, you risk ruining your credit score.
But, with a debit card, it’s the exact opposite. You can only spend what you have in your account. This means if you only have $10 in your account, you can only spend $10 to buy things.
A digital wallet, e-wallet, or mobile wallet: It is a pre-paid account where a customer keeps debit or credit card information and bank account details in a safe environment.
This means that there is no need to fill in any payment data when making purchases. These wallets have support for NFC contactless payments and QR codes as well. Companies providing digital wallet services include
Apple Pay, Google Pay, Amazon Pay, Samsung Pay, and PayPal . Bank transfers: They are a pretty secure way of sending money from one account to another, but they come with some fees for each transaction for both the sender and the receiver. Plus, they are pretty impractical and slow, and it is recommended to use them for very large transactions only. Buy Now, Pay Later (BNPL): It is an alternative payment solution that allows customers to buy goods and services and pay for them in fixed installments after some time, usually interest-free.
Businesses use this as a way to increase their conversion rates as well as expand their customer base.
Affirm, Afterpay, Klarna, and Zip are some pretty popular BNPK services. Cryptocurrency payments: It’s a way of doing financial transactions with cryptocurrencies, like Bitcoin, Ethereum, Litecoin, or Ripple, as the medium of exchange instead of fiat money.
Plus, they have lower fees or charges as no central authority or bank is controlling or taxing them. There are multiple processing solutions available on the market too. For example,
B2BinPay, DePay, CoinQvest, Blockonomics, and even Stripe are some crypto payment processors. Breaking Down eCommerce Payment Cycle
This allows businesses to handle online payments for goods and services. From a customer’s side, the whole procedure might appear as a matter of a single swipe.
But behind the scenes, it’s a complex ecosystem involving interaction with various components. These basic elements make sure that online transactions are carried out efficiently and securely.
It is a software application that enables businesses to accept multiple types of online payments. And it acts as an intermediary and promotes a smooth and secure flow of funds between a customer and a merchant.
They are also accountable for collecting customer’s payment information and transferring it for future processing. This technology applies numerous methods to protect sensitive customer data, such as encryption protocols (TSL, SSL), card tokenization, etc.
Once the details are safely coded, the payment gateway transmits them to a processor.
This is an entity that transfers funds by communicating with
the merchant (the business or individual that provides goods or services online) the issuing bank (the bank that issued a customer’s credit/debit card); the acquiring bank (the financial institution that handles transactions on the merchant’s behalf).
They can guarantee smooth and quick transfers of funds. Plus, they are also responsible for completing purchases. For a better understanding of how a payment processor coordinates communication with various parties, let’s spell out the basic steps:
It gets all its transaction info from the payment gateway. After that, it asks for approval from the bank to make sure that the customer has enough money to pay When the transaction is authorized, the payment processor forwards the funds from the issuing bank to the acquiring bank The merchant account gets credited with the transaction amount. The final sum of money is slightly modified due to the deducted fees. Working of a Payment Gateway in an Online Store Features to Look For in a Payment Processor
The right payment processor can influence your business’s growth. Money is not the only criterion that you should consider. With proper information at hand, you’ll be able to choose correctly.
Pricing and fees: The fee structure of the payment gateway may come with some hidden fees namely setup fees, currency conversion costs, monthly subscriptions, etc . Choose a plan that can match your business transaction volumes and growth. Multiple payment options: They help businesses address customer’s preferences on how they pay for a product or service. Opt for a processor that supports various methods of paying. Security and PCI compliance: It makes sure that it follows industry standards, such as Payment Card Industry Data Security Standards (PCI DSS). Smooth integration and compatibility: Most processors allow smooth integration with different platforms due to APIs or plugins. Look for an option compatible with your existing software. International support: If you’re planning to take our business global, choose a processor that supports multi-currency transactions. Merchant account
Another key component in online processing is a
merchant account. It’s a type of bank account specially intended for business conditions. It allows for accepting various kinds of electronic settlements.
Merchant accounts cooperate with a merchant-acquiring bank that boosts communication in the e-commerce remittance processing mechanics.
Payment Gateway Types
Payment gateways simplify transactions by connecting a company’s website and payment processor. Four common eCommerce payment gateway types include
hosted, self-hosted, API-hosted, and local bank integration. Hosted Gateway: It is a type of external compensation solution that relies mostly on third-party providers. So, when a customer clicks on the “Buy” button, the system forwards them to an external service provider gateway page. API-hosted Gateway: This allows adding third-party services directly into an e-commerce platform with the help of an API. This means the customers can do the transaction directly on the merchant’s website instead of being redirected out. Self-hosted Gateways: These allow businesses to have control over all the payment processors on their servers. With comprehensive management and more customization, this gateway needs some pretty advanced technical skills and strict security measures by the merchant side to protect customer information. Local Bank Integration: It is a basic gateway solution in e-commerce with limited features. It links businesses directly with their banks for online payments. This method is for companies with a strong local presence and those that function in areas with unconventional banking needs. Picking the Best Payment Gateway for an eCommerce Site in 2024
With so many payment gateway solutions for eCommerce available, choosing the one that best fits your business needs is challenging.
Let’s look at the top 5 payment gateways for different business types. Hopefully, you’ll find a perfect solution to your needs.
Authorize.net Authorize.net is a great option if you want to make fraud prevention a priority. It offers 13 different fraud filters, so you can personalize them according to your business needs.
It is known for its transparent pricing and flexibility. Plus, it also provides multiple tools for managing customer transactions.
Stripe Stripe is an all-in-one payment gateway solution. It appeals to lots of business types with its wide range of features, such as invoice creation, setting up subscriptions, and processing international transactions. It has a plethora of APIs that enable you to customize a payment gateway to your convenience. PayPal PayPal has earned a reputation for its unparalleled flexibility and international recognition. It can process multi-currency transactions from over 200 countries within an instant.
It is also very easy to implement and complies with major eCommerce platforms. Its ability to increase checkout conversion rates is impressive. Businesses that opt for PayPal commonly see repeat customers and transactions increase.
With online shopping evolving at a high speed, businesses need to provide a seamless transactional experience for their customers.
There is no one-size-fits-all solution in the eCommerce payment processing industry. You should research the market and assess all options with due diligence.
Think about multiple payment methods, vast security measures, integration capabilities, and the fees applied when deciding on a payment processing solution for your eCommerce business.
About the Author
Art Malkovich is co-founder and Chief Executive Officer at Onilab, a full-service eCommerce agency. Being an experienced developer and project manager, he keeps up to date with the latest trends in headless commerce, online store development and migration, SaaS, and UX/UI design.