The Ultimate Guide To Secure Payment Processing
In October 2016, cybercriminals breached The FriendFinder Network—a company self-described as the “world's largest sex and swinger community.”
The security breach compromised 20 years' worth of sensitive user data across six databases. The stolen data from over 414 million accounts included names, email addresses, passwords, and purchase information.
I don’t have to tell you why customers wouldn’t want this information breached.
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And while credit card details aren’t as titillating as secret sexual leanings, they nonetheless constitute sensitive information.
So, even if your ecommerce business doesn’t dabble in ahem spicy products (that ship in discreet boxes), here’s what’s at stake if you don’t have solid payment security systems: reputational damage, financial loss, broken customer trust, and the risk of customer information being held hostage for a ransom (for as much as $100,000).
A secure payment processing system guards sensitive information during online transactions.
The goal is to keep customer information safe, protect user accounts, and make customers feel they can trust you.
Here, we’ll talk about why payment security is the lifeblood of your business, how secure payment systems work, and 10 best practices for secure payment processing.
What is Secure Payment Processing?
In addition to adhering to strict standards and regulations, secure payment processing protects the financial and personal information of everyone involved in an online transaction.
A secure payment system (SPS) uses technologies and processes to keep sensitive information like credit card numbers safe during the entire payment process.
Real-life example: @thriftbybrinda on Instagram
My small business on Instagram sells clothes, jewelry, vintage luxury items, and home accessories all through the platform itself.
We don’t have a website, nor do we have a brick-and-mortar store. So, how do I make sure that my customers’ payments reach me—safely?
Something called Unified Payments Interface (UPI). UPI’s system simplifies banking by consolidating multiple accounts into one mobile application. Today, 40% of all Indian transactions are conducted digitally.
UPI has the largest market share, with more than 300 million users and 50 million merchants on board. For our customers, this means that they don’t need to share their credentials, just their virtual payment address connected to their bank(s).
This makes transactions secure. For us as an ecommerce business, we’re able to tap into a customer base that doesn’t have debit or credit cards to their names—all the while collecting payments quickly with a single identifier.
Why is secure payment processing necessary?
We live online.
From Netflix to Amazon to Walmart to Spotify—in the pie chart of our lives, technological immersion has the lion’s share.
And if we have so many digital “homes,” it only makes sense to have a strong lock on each of them.
North America alone accounts for over 42% of global ecommerce fraud, according to Mastercard. Plus, ecommerce losses due to online payment fraud were estimated at $41 billion in 2022.
I talked to one of my closest friends—an avid online shopper and one of our shop’s best customers—Tanushree Baruah. What makes you feel safe when shopping online?
I always ensure I use trusted platforms with super strong security protocols and a strong online social and review presence—if the platform is not that well known, I first test with a small purchase of less than ₹1,000.
In terms of security, when possible, I ensure 2FA is always turned on, there is a secure connection, and the browser shows HTTPS.
I also do not really save my credit card information online for smaller businesses unless they are hosted on Shopify, or they are a big business like an H&M or an Amazon.
A secure payment system, therefore, increases customer trust, prevents fraud, and maintains compliance with industry standards.
Key Components of Secure Payment Systems
In order to safeguard sensitive financial data, businesses and their customers need a secure payment system that deploys multi-layered security measures.
Here are a few key components of secure online payments:
- Encryption: A cornerstone of payment security, encryption scrambles sensitive information into a form even hackers can't read.
- Tokenization: This adds an extra layer of security by replacing sensitive data like credit card numbers with unique identifiers (tokens) that don't have any intrinsic value.
- Authentication: PINs, passwords, biometrics, and two-factor authentication (2FA) verify payer identity and prevent fraud. These are all multifactor authentication methods.
- Fraud detection: To prevent fraud, sophisticated algorithms and data analysis tools monitor real-time transactions and flag or halt suspicious activities.
- Payment gateways: These allow the merchant's website or point-of-sale (POS) system to interact with payment processors. They help authorize and settle transactions by securely transmitting payment information.
- PCI-DSS compliance: Payment Card Industry Data Security Standard (PCI-DSS) compliance is mandatory for companies that handle cardholder information. The rule requires businesses to implement and maintain rigorous security measures to safeguard sensitive card information.
How Secure Payment Systems Work
Let’s suppose my thrift shop did have a website with a secure payment gateway. How would a customer complete their purchase from initiation to settlement?
Say Amy’s browsing my shop and falls in love with a sequinned blouson top. Debit card in hand, she decides to make the purchase.
An effective and secure payment system would look like this:
Step 1: Initiation
Amy clicks on the top and proceeds to checkout.
A secure payment gateway is integrated with my small shop for accepting credit and debit card information.
Step 2: Payment information entry
Here, Amy enters her card information, including the card number, expiration date, and CVV code.
Step 3: Authentication
Amy may be asked to complete 3D Secure authentication, depending on the payment gateway and card issuer.
She might be asked to enter a one-time password sent to her phone or scan her fingerprint.
Step 4: Encryption & tokenization
As soon as Amy's card details are entered, the payment gateway encrypts them.
The system may also tokenize her card information, replacing it with a unique token that has no real-world value.
Step 5: Authorization & settlement
An encrypted or tokenized copy of the payment information is transferred securely to the payment processor. Amy’s card network communicates with the processor to verify the card's validity.
As soon as the transaction is approved, the funds are transferred from Amy’s bank to my business account.
As part of this process, the payment gateway and processor use fraud detection systems to look for suspicious activity.
Any unusual activity will be flagged for further review or may even be declined to protect us both.
Step 6: Confirmation
Once the payment is successfully processed, both I and Amy will receive confirmation. I’ll then proceed to pack and ship the top to her.
What Are the Most Secure Online Payment Methods?
What are the safest payment options for sending and receiving payments online?
I talked to ecommerce business owners as well as frequent online shoppers to get a sense of their preferred online payment method(s).
1. Digital wallets
What are they?
Think of them as your virtual wallet, storing your card information so you don't have to re-enter it every time you shop.
They’re gaining ground—digital wallets captured 50% of online purchases globally in 2023.
Why are they secure?
A multilayered protection system, from device unlocking to payment verification, makes it difficult for fraudsters to crack.
As a bonus, tokenization and encryption protect your card details.
Examples: Apple Pay, Google Pay, Samsung Pay, PayPal
Here’s what Tyler Hakes, strategy director and principal at Optimist, has to say:
2. Virtual debit cards
What are they?
They're like digital versions of your regular debit card, issued directly by your financial institution.
Why are they secure?
A secure and private alternative to physical cards, they make online shopping worry-free.
3. ACH payments
What are they?
In the US, these are electronic bank-to-bank transfers, often for subscriptions or bills. Instead of using credit card networks, they use the ACH (Automated Clearing House).
Why are they secure?
Although ACH payments are generally safe, it's important to make sure your bank account information is protected.
4. Secure payment gateways
What are they?
These digital bridges allow your online store to securely transmit customer payment information to payment processors.
Why are they secure?
A reputable payment gateway protects sensitive data during transactions with security measures such as encryption, tokenization, and fraud detection.
Examples: Stripe, PayPal, Square, Braintree
Jeffrey Zhou, CEO & founder of Fig Loans, gave me a behind-the-scenes peek into their payment operations:
We use Stripe and Plaid for secure online transactions.
Stripe’s robust security features, including PCI-DSS compliance and machine-learning fraud prevention, are critical.
Plaid helps us securely connect with users' bank accounts without storing sensitive data.
These tools offer a balance of security and ease of use, which is essential for customer satisfaction and operational efficiency.
10 Best Practices For Secure Payment Processing
The cost of an average data breach in the US? A staggering $9.44 million.
So, if you conduct your business online, you need to make sure that your digital storefront is properly bolted.
I’ve talked to over 15 ecommerce business owners, cybersecurity experts, and zealous online shoppers (like myself), to compile a list of the following best practices for secure payment processing.
How many can you tick off?
1. Choose the right payment provider
The best secure payment systems employ multiple layers of security, including encrypted data, tokenized sensitive details, and authentication to verify payer identity.
In addition to fraud detection software, you want a PCI-compliant payment processing solution.
For a successful online presence, businesses need to partner with a reputable payment provider that offers transparent pricing, reliable customer support, and easy-to-use features.
We love lists.
So if you can’t decide on a payment provider, we’ve got a list of our top 10 picks for you:
While you’re at it, check out our list of best payment processing software solutions:
2. Offer diverse online payment methods
Give your customers the freedom to pay their way!
The more payment options you offer—from traditional credit and debit cards to convenient digital wallets—the more satisfied your customers will be.
How?
- Smoother checkout experience. Imagine someone excited to buy something from you goes to the checkout page only to see options for credit card payments. This is a huge missed opportunity. A more financially inclusive customer experience begins with acknowledging that not everyone is comfortable with—or has access to—the same payment options.
Here’s what Sameer Sohail, a content specialist based in Pakistan, says about his online shopping habits:
My preferred method for online payments is a debit card (MasterCard and Visa, I use both extensively).
I don't actually use a credit card, but that's just because I like to better track my finances.
I think you're more prone to overspending if you just leave things to credit.
- Global reach. Let's say a German customer wants to purchase from your online store. Local US payment gateways aren't familiar to them, but PayPal is. If you integrate PayPal as a payment option, you open the door to this customer and many others around the world—ultimately maximizing your international sales potential.
Take a look at Glossier's checkout page:
3. Conduct regular security audits
How do you know if your payment processes are secure? Get one step ahead and test them for yourself.
I spoke with Sean Clough, principal at Harmony Lab & Business Supplies—a leading provider of laboratory and safety equipment based in California.
He tells me of their offbeat security audit process: ethical hacking.
One unconventional approach we've taken is partnering with a cybersecurity firm to conduct regular "ethical hacking" attempts on our payment systems.
This proactive strategy has helped us identify and address vulnerabilities before they could be exploited.
4. Maintain PCI DSS compliance
PCI Data Security Standards (PCI DSS) set critical operational and technical requirements for the protection of payment card information.
All organizations that accept, process, or develop software, applications, or devices used in payment transactions need to comply with these standards.
Kabeier is an ecommerce brand that’s been in the baby clothes business for over 15 years. Their manager, Maggie, says:
Adhering to the Payment Card Industry Data Security Standard (PCI-DSS) is non-negotiable.
Compliance not only protects our customers but also shields our business from hefty fines.
A PCI-compliant ecommerce business is often a trustworthy one.
5. Create a user-friendly privacy policy
Customers are rightly wary of sharing sensitive information online.
In light of mega-name brands like Yahoo and Facebook guzzling customer information, it’s only natural for a customer to ask—is my data safe?
Let’s face it. Most companies’ privacy policies are lengthy law books that no one really reads.
They’re so incomprehensible that The New York Times even did a feature on them:
So, what’s the solution?
Create a user-friendly privacy policy. Transparency is at the core of it all.
I asked Lev Tretyakov, CEO and head of sales of Fortador—an ecommerce store specializing in selling sanitation and cleaning steam equipment:
What are some of the best practices for secure payment processing for online vendors?
He focused on transparency:
Always be truthful to your customers about your security practices.
Explain how you protect their data and prevent attacks. It will build trust with them.
For example, have a look at Shopify’s Privacy Policy page:
See how it’s clear? See how it’s comprehensible?
And most of all, it outlines all the top security concerns in an easily navigable table. As a customer, this tells me that they're not hiding behind long-winded legal jargon.
6. Encrypt data with TLS (Transport Layer Security)
TLS encryption protects online payments like a digital bodyguard. When hackers try to take a peek, they see garbled gibberish instead of sensitive information.
Just like turning your private conversation into a secret code only you and the intended recipient can crack.
Furthermore, it makes sure that your customers are actually communicating with your website, not some sneaky imposter—as if there were a bouncer at the club door, checking IDs before letting anyone in.
For all of this to work, you need a valid SSL (Secure Sockets Layer) certificate and the latest version of TLS (at least 1.2), because older versions have some cracks that hackers can exploit.
Here, I sought out John Pennypacker’s expertise.
He’s the vice president of sales and marketing at Deep Cognition—a company that provides businesses with next-generation AI platforms and solutions.
(Suffice to say, they’d know a thing or two about security.)
All payment transactions on our site are secured using a minimum of 128-bit SSL/TLS encryption.
We've found this to be the industry standard for reputable ecommerce businesses.
In short, TLS encryption is a combination of a secret code, a bouncer, and a software update—all working together to keep your customer data secure.
7. Train your team
Founder of Torokhtiy Weightlifting, Oleksiy Torokhtiy, emphasizes that educating employees on security measures is critical to proactively prevent fraudulent transactions.
I emphasize the need to educate employees.
Human error is the most common source of security breaches, and training your staff on security measures is often ignored.
Alert them to advanced hacking attacks, how to identify suspicious activity and phishing attempts, and occasionally do pen tests.
Torokhtiy is onto something here.
According to Stanford Research, for the past 15 years, 9 out of 10 successful 'most disruptive' cyber breaches were because of human error.
The bottom line? Educate your team on the security features of your payment processing solutions.
8. Enhance security with 3D Secure 2.0
Make your payment security more robust by confirming customer identities with 3D Secure 2.0 (3DS2).
This is an authentication solution that keeps online shoppers’ data safe for card transactions.
For ecommerce business owners, 3DS2 also prevents fraudulent account use—a major cause of chargebacks.
9. Implement two-factor authentication (2FA) and address verification services (AVS)
2FA is similar to a second lock on your front door.
The key (your password) is not enough to access your account—someone still needs to scan your fingerprint or get a code from your phone to get in.
AVS on the other hand, is a quick background check for online payments.
When you check out, it compares your billing address with the one on file with the credit card company. It's a red flag if they don't match, and the transaction could be blocked.
Shawn Plummer, CEO of The Annuity Expert swears by this practice:
2FA and AVS add layers of security, reducing fraud risks.
For example, 2FA has drastically reduced unauthorized access to our accounts, adding an extra barrier that only the account owner can pass.
10. Update your software regularly
Ponemon Institute's survey highlighted an alarming trend: the majority (60%) of data breach victims did not patch known vulnerabilities in their systems.
Karen Chen of Journaling Supplies, therefore, correctly points out:
Keeping your payment processing systems updated with the latest security patches is crucial.
Make sure your software, hardware, and any integrations are up-to-date with the latest security patches and technology advancements.
This prevents hackers from exploiting any holes in your payment processing system.
Final Thoughts
Trust is the soul of ecommerce.
As a business owner, safeguarding your customers' information is as much a moral responsibility as it is a strategic one for your company.
Don't wait for a breach to take action.
Choose reputable payment providers, regularly audit your systems, educate your team, and invest in a solid payment processing software solution.
A secure payment system is the very foundation of the future of your business—don't leave it to chance.
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Secure Payment Processing FAQs
We promised you an ultimate guide. If you’ve got more questions, we have the answers!
What is the difference between SSL and TLS?
SSL (Secure Sockets Layer) is the predecessor of TLS (Transport Layer Security). Both TLS and SSL encrypt data in transit, but TLS provides greater security through updated cryptographic algorithms and additional protections.
Why is PCI DSS compliance important?
A PCI DSS compliance audit is similar to a security checklist for businesses that handle credit card payments.
This helps to protect customer data, build trust, avoid hefty fines, and lower the risk of damaging data breaches. For any business that accepts credit cards, it’s a must-have.
What are the latest innovations in secure payment processing?
Some of the hottest trends in secure payments include:
- An additional layer of security and convenience can be provided by behavioral metrics (typing speed, face scanners, etc.)
- AI-powered fraud detection systems are becoming popular for spotting suspicious activity in real time.
- Cryptocurrencies and blockchain could make international transactions faster and safer. Although both customers and vendors are wary of this payment method as of now since the market is largely unregulated.
- The convenience of contactless payments for quick and hygienic transactions has been steadily on the rise ever since COVID.
