How To Set Up Payment Processing For Ecommerce
Payment processing is one of the most crucial parts of any ecommerce company. Obviously, it's the way you receive money in return for your products, but there's much more to it than that.
Fast, secure payment processing can help you provide a better experience for customers. Because 86% of consumers are willing to pay more for a great customer experience, prioritizing those efforts can reap many benefits for your company.
In this article, I'll talk about how to set up payment processing for your ecommerce business and how to pick the right payment processor for your company's unique needs.
Setting Up Payment Processing For Ecommerce
Setting up payment processing is fairly straightforward once you find the right software. Follow the steps below to get started today:
- Choose a payment gateway: These services connect your website to the processor. You'll want to choose your payment gateway carefully because they're responsible for transmitting your customer's payment information and, therefore, the most likely culprit for potential data breaches. You can learn more about choosing the right payment processor below.
- Apply for a merchant account: When you apply, a payment processor or third-party provider will need some basic business information. Having a merchant services account allows you to accept online payments.
- Choose the online payment options you'll accept: If there are specific payment options you want to accept, ensure your processor takes them. You may accept PayPal, Stripe, debit cards, credit cards, or various buy-now-pay-later (BNPL) options.
- Configure your payment gateway: This step will vary based on your website host and specific payment gateway. Generally, you can either integrate or embed the gateway into your website to start accepting payments.
- Comply with PCI standards: Payment card industry (PCI) standards are designed to keep customer information safe when shopping online. You'll have to ensure you comply with all their standards if you plan to accept online payments.
How Does Ecommerce Payment Processing Work?
Ecommerce payment processing begins at checkout. Your customer should see a list of payment methods they can use, and then they enter their details into the provided fields.
This process should be the same regardless of whether the customer uses your website or a mobile application.
From there:
- Your customer's encrypted payment information is sent to your payment processor through the payment gateway.
- Your payment processor notifies the customer's bank.
- The transaction is approved or denied.
- The payment processor communicates approval or denial to the gateway.
- The payment gateway shares that same information with the customer.
- If approved, the customer receives an order confirmation (usually through email).
- The funds for the purchase are taken from the customer's bank account or other source.
- Those funds are transferred to your ecommerce business bank account.
This process usually only takes a few seconds to complete, but a lot is happening behind the scenes. If your company sells products internationally, currencies will be exchanged at some point during payment processing.
Understanding Payment Tokenization
Payment tokenization is a term you may not have heard before, but it's a key player in keeping your customer's information safe while using your online payment solutions.
If you store your customer's payment information directly, it could cause serious problems in the event of a data breach. The hacking entity would have access to sensitive data and financial information that could be used to steal someone's identity or gain access to their hard-earned funds.
Payment tokenization is a safer alternative to direct information storage. Instead of saving credit card details, the website saves the data as a random alphanumeric code. Each time your customer wants to use their saved information, the generated code (i.e., token) is used instead.
Questions To Ask To Choose The Right Ecommerce Payment Processor
No single ecommerce payment processor will fit every online business's needs. Consider the questions below when choosing a payment processor for you.
What types of payments do you accept (or plan to accept)?
Consider the types of payments your company utilizes and compare them to those a potential payment processing solution can handle. You'll want the two to match up.
A few examples of common types of payments you may accept include:
- PayPal
- Stripe
- Venmo
- CashApp
- eCheck payments
- Major credit cards and debit cards (including Visa, Mastercard, American Express, and Discover)
- Klarna
- Payments through digital wallets (like Apple Pay, Amazon Pay, or Google Pay)
- Cryptocurrency (rare but becoming more popular)
You don't have to allow your customers to use all these methods for their online shopping. But customers do prefer having several payment options to choose from.
Will you need to handle international payments?
You won't have to worry about international payments if your company only handles domestic sales. But more and more business owners are deciding to extend their company's reach globally.
If this applies to you, verify with customer support that their payment systems can exchange foreign currencies.
Do you need to manage any recurring subscriptions?
Some payment service providers have features that make managing recurring payments simpler. If you plan on offering recurring services, ensuring that your customer's payment details will be safe is even more crucial.
Is the payment processor PCI-compliant?
Ensuring your online payment processing provider follows PCI compliance is a must. These guidelines, rules, and regulations are designed to make credit card processing as secure as possible.
This lowers the risk of your customer's credit card information being accessed during a data breach.
Do they use tokenization?
This is another security-based question you'll want to ask. Ideally, all debit and credit card transactions will be processed as tokens rather than sharing the actual details.
Using tokenization can help your customers feel more confident about purchasing the items they have saved in their shopping carts.
Do you have other business apps you'd like to integrate with your payment processor?
Business app integration may not be a deal breaker, but it's a nice thing to have. Integrating the business apps you regularly use is a time-saver because there are fewer applications you need to open during your workday.
For example, you may want to integrate your payment processor with your point-of-sale system (POS).
What types of fees do they charge to use their payment processing service?
There are various methods that payment processors use to charge for their services. There may or may not be upfront costs in the form of setup fees.
Some payment service providers charge a monthly fee to use their services, while others only charge based on transactions. Transaction fees (processing fees) can range but are usually charged as a percentage and flat rate. For example, you may be charged a 25-cent fee plus 2% of the total payment amount per transaction.
Best Payment Processing Software in 2023
There are countless payment processing software options you could choose for your ecommerce site. Even with the useful information above, it can feel challenging to figure out the best choice for your online business.
To help you make your decision, here are brief explanations of the best payment processing software.
- QuickBooks Online: Small and medium-sized businesses can use this option to do more than securely process payments. You can also use it for invoicing, financial management, expense tracking, and financial reporting. Plus, you can integrate with over 450 business apps, like Stripe, Square, Shopify, Magento, and more.
- PayPal: If your ecommerce store has a high volume of sales, PayPal is a good option. It can handle international sales and is currently one of the largest payment processors in the world. There are options to customize your checkout process, and the most popular payment options are accepted.
- Chargebee: This may be your best option if your online store runs off subscriptions. This payment processor allows you to automate subscriptions, streamline order management, and view detailed analytics, among other things. However, the pricing for this option is a little high, so it might not be the best choice for a small business with limited funding.
- Hopscotch: Speaking of a small business with limited funding, this specific payment processor is free, so you don't have to worry about monthly fees or upfront costs. It's also built around invoicing needs, so if your company sends or receives a lot of them, the features of this processor are geared toward you specifically.
- Freshbooks: Freshbooks is a low-cost option with monthly plans starting at $15. Detailed insights into customer behavior can be shared with your sales and marketing teams. Key features make invoicing easier for your ecommerce platform and online transactions secure for your customers.
- Square: This payment processor option accepts credit card payments from all major providers. Plus, there are options to help with recurring billing and invoicing. Machine learning is implemented to promote better fraud protection, which your customers will appreciate.
Pay Attention To Your Payment Processing
Payments are only one crucial part of running an ecommerce business. To become an expert in every aspect of ecommerce, continued learning and research of trending topics is essential.
Subscribe to The Ecomm Manager newsletter today to get the latest information delivered straight to your inbox.
More great ECM content:
- 10 Best Payment Gateway Providers In 2023
- 10 Best Payment Processing Software in 2023
- 10 Best Shopping Cart Solutions In 2023
- 10 Best Buy-Now-Pay-Later (BNPL) Platforms in 2023
- Ecommerce Credit Card Processing Guide: How To Set Up & Accept Cards
- Buy Now, Pay Later: Should Your Business Use BNPL Platforms? (With Examples)
- What Is A Shopping Cart In Ecommerce: Types, Benefits & How To Pick The Best One