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Key Takeaways

Rise of the Digital Wallet: By 2026, digital wallets will dominate over half of all payment methods, highlighting a significant shift in consumer preference away from traditional credit card transactions.

Don't Sweat the Technicalities: Understanding every technical detail of payment processing isn't necessary for business owners, as software solutions are designed to manage these complexities on their behalf.

Secure and Swift Transactions: Effective ecommerce payment processing aims to ensure a seamless and secure transaction for the customer while facilitating rapid and safe funds transfer to the brand.

Beyond Processing: Choosing the right payment processing system involves not only evaluating its ability to handle transactions but also its integration with other business systems like ERP software and order management systems.

The Payment Processing Journey: The journey from order submission to funds landing in the merchant's account involves several critical steps, including payment gateways, processors, bank settlements, and ensuring a seamless and secure customer experience.

By 2026, digital wallets will account for over 50% of payments, yet many ecommerce brands still only accept credit card payments.

The truth is that many business owners don’t fully understand how payment processing even works.

Luckily, you don’t need to understand all the technicalities of payment processing, because software will handle that for you.

But it's important that you know the basic customer journey for making a payment, and how it's processed.

In this guide, we'll go through exactly what payment processing is, how it works, and some great tips for how you can build a great payment processing system for your ecommerce business.

So let’s dive in!

What is Ecommerce Payment Processing?

Ecommerce payment processing encompasses everything that happens from when a customer enters their details up to the payment confirmation, leading to the product shipping.

It includes every step from entering the payment details, submitting the payment, synchronizing the payment with the bank, fraud detection, secure payment being taken, and confirmation sent to the store.

There are three main types of payments that ecommerce brands will typically process:

  1. Credit card or debit card payments - Card payments are processed by taking money directly from the customer's bank account or credit account.
  2. Digital wallets - Payments taken via a third party, such as PayPal. These payments can be taken via an indirect card payment or through money that sits in that digital wallet.
  3. Bank transfer - This payment comes directly from the customers' bank account, and is used mostly for very big online transactions, or recurring payments such as subscriptions.

Processing all these payments is called authorization, verification, and settlement by banks and card providers.

all online payments—whether via a payment gateway, ACH bank transfer, or digital wallet—will go through this process. It protects customers by stopping fraud and protects businesses by ensuring transactions are verified and secure.

Why Does Ecommerce Payment Processing Matter?

Ecommerce payment processing matters for both the customer and the seller.

Customers expect to have a smooth journey. Part of that is good communication for processed or failed payments.

Plus, they want the payment and card data to be secure, with their card details shared anonymously and encrypted to avoid fraud. Convenience and ease to use are also key, so they can choose which payment method they prefer.

On the other side, brands expect payments to be processed fast and safe. They need funds transferred securely and available in their accounting and analysis system as quickly as possible.

Their payment processing also needs to integrate with their other systems such as order management systems and enterprise resource planning (ERP) software.

How Does Ecommerce Payment Processing Work?

Payment processing has a few different processes in between the order being placed and the store receiving the money.

This includes a payment gateway and a payment processor, two seemingly similar but very different functions.

These are the steps involved in payment processing:

how does ecommerce payment processing work featured image
  • Your customer submits their order.
  • Their payment details are sent from your store to the payment gateway.
  • The payment gateway confirms payment with the payment processor.
  • Payment is settled with the bank.
  • Funds are transferred to the merchant.
  • During the previous two steps, a response is sent back to the customer to confirm payment.

Payment Processor

The payment processor speaks to the bank or credit provider, authorizing or rejecting the customer’s payment.

The processor's main role is to make sure that the customer's funds are sent to the business. The payment processor is an entirely back-end function happening without customer input.

Payment processors also help the bank to carry out their fraud checks, which make sure payment is secure.

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Merchant Account

Merchant accounts are a type of issuing bank account set up specifically for accepting and returning customer payments.

Small businesses often have a business bank account for accepting payments. But, larger businesses will have a specific merchant account.

Usually, merchant accounts will keep customer funds for a set time (usually 72 hours) so that refunds can be easily processed.

Some payment gateways such as Stripe offer a merchant account if you need it, or they integrate with your current systems.

Fully integrated payment systems like Stripe are called Payment Services Providers (PSPs), a more convenient option for smaller businesses.

Key Features Of Effective Ecommerce Payment Processing Systems

Apart from the main features of a payment processor, there are some other key features you might want to consider before you decide on the best system for you. 

Security Measures

Security is the most important feature of any payment processing system.

Any mistakes in the data security process can give your business a bad reputation, obviously. Plus, some payment processing services may even charge you higher fees or stop working with you.

You must ensure your site has up-to-date SSL Certificates, and that any system you choose is compliant with PCI DSS standards.

These standards ensure you are protecting customer data and payment information. They also include more practical rules such as training staff and controlling who has access to customer information.

Payment Gateway Integration

Most major payment gateways will integrate with your payment processing system. Nevertheless it's important to make sure that's true for your system and the rules of your country.

More important is checking whether your payment gateway integrates with your ecommerce platform and other systems.

The biggest ecommerce platforms such as Shopify and Woocommerce make this very straightforward. If you have a custom-built system, check that payment gateway requirements are included in your planning.

Once you have chosen a payment gateway, you need to test the payment processing system to make sure the APIs work and funds are appearing in your merchant account.

Payment Gateway Features to Think About

When choosing a payment gateway, there are some features you need to consider:

  • Credit card transaction fees - Payment gateways charge a credit and debit card transaction fee. The fee can change based on the number or volume of transactions you do.
  • Payment methods - Make sure you understand how your customer makes credit card payments. Different industries and financial institutions have different requirements, such as different card types, multiple payments, and multiple currencies. Check if you need to accept different card issuers and card companies such as Visa, Discover, Mastercard, American Express, or any international card payments.
  • Customizable UX - Do you want a plug-and-play payment gateway, or do you need to change the design and UX to suit your brand?
  • Customizable messaging - You might want to update the messaging so it is more on-brand to give a great customer experience.
  • Support - Some payment gateways include 24-7 support for you and your customers. This is important for customers so they can check on the progress of an order.
  • Fraud notifications - You want to know immediately if possible fraudulent activity has happened to keep your systems secure and customers informed. If you have too many fraud problems it can cause chargebacks, which have a big impact on your rating with payment processors, affecting your fees.

Multi-Currency and International Transactions

If you only sell your products in one country, global transactions aren't all that important.

However, if you sell, or plan on selling, globally then you need a payment gateway that supports global payments and transactions.

If you are selling in multiple countries, consider how you'll manage international currency payments. Some bank accounts and merchant accounts have high interchange fees for currency conversions.

For example, Amazon US pay out in $US, which made it quite expensive for me to convert the money back into £GB. I opened a Payoneer bank account to accept international payments in $US with lower fees and a good interchange rate.

Make sure that the payment gateway you choose is affordable for the countries you want to trade in.

There are some excellent payment processing software solutions that work out of the box, and some that are more customizable. Here is a selection of some of the best options.


PayPal is one of the most famous payment processors out there. It comes with a high level of customer trust and integrates with almost all ecommerce platforms and payment gateways.

One of the big benefits of PayPal is that the customer can pay without entering their payment details, so transactions are very easy for the customer.

Another benefit of PayPal is it often allows customers to buy now and pay later (BNPL), which will increase the conversion rate for your basket, especially for more expensive items.

Usually, ecommerce businesses offer PayPal payments alongside other payment options, as their fees can often be higher than more traditional payment processors.


Stripe is a traditional payment processor that integrates with all major ecommerce platforms, as well as most back-end and accounting software.

It's one of the most popular processors as it offers a highly customizable payment gateway and a drag-and-drop service. Their customer support is excellent, and they are available 24-7 with a quick response time.

Stripe also has a POS system that integrates with your overall system, so if you have both brick-and-mortar and online sales, you can see reports for all income in one place.


Square is a similar service to Stripe, and it has a very easy-to-use interface.

There are no flat rate monthly fees and the per-transaction fees and pricing are low, so Square is particularly good for small businesses.

They also have point-of-sale systems (POS systems) that are easy to use and integrate with iPhones and Android devices, so you can take payment in-store or even at events or pop-ups.

Amazon Pay

Amazon Pay uses Amazon’s network, so there's high level of customer trust.

This is why Amazon gets great conversion rates. A huge majority of US shoppers have an Amazon Prime account, so they trust that their payment will be secure.

Amazon Pay works like a digital wallet, by using the saved payment methods in your Amazon account. Like PayPal, ecommerce businesses usually offer Amazon Pay alongside more traditional payment methods.

Apple Pay

Apple Pay works by taking mobile payments directly from Apple mobile devices.

The benefit of Apple Pay is the ease of payment, plus the added bonus of trust from Apple’s face recognition.

Apple Pay has been shown to increase conversion rates on mobile websites, so it's definitely worth having Apple payment options on your mobile site.

The downside to Apple Pay is their fees tend to be higher than other payment methods, so offer it alongside other payment methods.

Google Pay

Google Pay is very similar to Apple Pay, but for Android devices.

Android makes up a larger portion of the mobile market in most countries, so if you sell globally, you should definitely consider adding Google Pay.

Buy Now Pay Later

Another type of payment processor is buy now pay later services, such as Klarna and ClearPay.

These processors are a credit agreement between the payment provider and the customer, so the payment provider takes the risk. This is great for larger purchases, as customers can split their payments into three or four parts.

The payment provider pays your business in full, and then takes on the remaining payments from the customer.

The downside to buy-now-pay-later is the fees tend to be higher, and you don't control the payment process. This means if the customer has a bad payment experience with the lender, then you may still get the blame.

Grow Your Revenue With The Right Payments Process

Payment processing includes everything involved in taking a payment from a customer to you receiving the money in your bank account.

When choosing how to take payments, you need to consider the requirements of your business, such as international payments and different card types.

You should also think about whether you need a fully customizable system or whether a payment services provider will work best for your business.

Unless you are a big enterprise business, you may find that an out-of-the-box solution is by far the most convenient, and it will probably even save you money.

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By Teddy Smith

Teddy Smith is an ecommerce brand founder and a former Senior Ecommerce Consultant for Accenture. He is also an independent ecommerce consultant, specializing in selling on Amazon and marketplaces. Teddy has 13 years of experience working with both enterprise and small scale ecommerce brands, and has provided over 3,000 hours of independent ecommerce consulting sessions.