eCommerce Payment Processing: A Complete Merchant Guide for 2024

As time goes on, the growth of eCommerce has far exceeded what was initially thought possible. Nearly 20% of all retail sales happen online in the United States, and that figure is predicted to continue to grow.^[1]Statista. “Global e-commerce share of retail sales 2027 | Statista.” Accessed September 9th, 2024. But converting sales online can take a bit more attention to detail than similar sales made in person. That’s why finding a strong eCommerce payment processing partner is so crucial.

If the payment and checkout process takes too long, is confusing, feels complicated, or is not intuitive, you’re likely to wind up with an abandoned shopping cart instead of a sale. You want a payment processor for your eCommerce store that is experienced in the space and can help guide you through tips and best practices for free commerce payments. This article will help you with just that. Let’s talk about how to find an eCommerce payment processing partner in 2024.

What Is eCommerce Payment Processing?

eCommerce stands for “electronic commerce.” It’s a blanket term that covers any transaction that happens over the Internet without face-to-face interaction and counts as a form of eCommerce. As we continue to discuss eCommerce payment processing, we are talking about the tools, vendors, and payment methods that all come together to process payments online. 

In order to accept these payments securely and prevent bad actors from inputting fake card numbers, stealing other people’s data, or jamming the system with fraud, you need the right systems in place. When processing in person, on the other hand, the backend systems can be a little simpler because there are built-in forms of verification. These include checking the customer’s ID, verifying that the card number that pops up on the screen matches the card number on the physical card, physical location verification (they’re shopping at a store near home, for example, or have made other purchases in the area if traveling), PIN codes, etc. To give a similar level of transaction security while completely disconnected from the customer, it’s important to have a solid payment processing partner for your eCommerce store.

There are several differences between eCommerce and traditional payment processing. These include:

• The payment types accepted.
• The technology needed to process payments.
• Security and fraud prevention measures.
• PCI DSS compliance requirements.

Let’s get into some of these differences next.

Payment types accepted

Like traditional payment processing, customers can shop online using their debit or credit cards and mobile wallets (like Apple Pay, for example). In addition to these options, there are payment methods geared specifically toward online shoppers. These include PayPal, Klarna, and Afterpay – to name a few. To get the highest level of conversion, make sure you adapt your store to its online environment and accept the payment types your customers want to see when they shop online. We’ll talk more about how to do this and why a little later in the article.

Technology needed

Online sales require no physical hardware but instead specialized software. With traditional retail payment processing, you typically receive a pre-programmed device to accept payments at your business. Online, however, you’ll need to configure payment software with your website through your chosen payment processor. Specifically, you’ll need a payment gateway (the software that facilitates the payment between you, your payment processor, and your customer).

Security and fraud prevention

As we touched on, eCommerce can open the floodgates for fraud without proper security and fraud prevention measures. A payment processor with eCommerce experience will offer measures, including encryption, tokenization, verification, and more, to protect your customers’ payment data and protect your business from fraud.

PCI DSS Compliance 

When compared to traditional payment processing, eCommerce payment processing includes additional steps for PCI DSS compliance. Your eCommerce payment processor and your business need to ensure and verify that each complies with the data security standards and regulations set by the PCI DSS security council. This compliance shows due diligence to keep payment information, your business, and your customers safe.

How Does eCommerce Payment Processing Work?

As you may have noticed, there are several parties involved in processing payments over the Internet. You have the customer, of course, you as the merchant, your payment processor, and each of your respective banks. We’ll walk you through the step-by-step process for eCommerce payment processing in the next section. Though it may seem complicated at first glance, everything happens in a matter of seconds. Once you have it down, it’s truly a simple process.

Each transaction follows the same sequence of events. These steps verify the order details, check the customer’s bank balance, verify the cardholder, and double-check inventory to keep each party happy. Here’s a breakdown, step-by-step, of the eCommerce credit card processing experience:

• Step 1: The customer orders. Before an eCommerce transaction can begin, a customer needs to browse your store, add items to their shopping cart, and head to the checkout window. Once at checkout, the customer inputs their payment information. This may be their physical debit or credit card details, Apple Pay or Google Wallet, a PayPal payment, etc. The information gets entered and stored in the payment gateway connected to your store.

• Step 2: The payment processor takes the information. Once the customer shares their payment information, the payment gateway sends that information, encrypted and secured, as a package to the relevant bank. The gateway returns an authorization if the cardholder, card information, and available balance check out.

• Step 3: The merchant confirms. After the order is authorized, the store confirms the order against the available inventory and sends a confirmation message to the customer. Up to this point, the transaction takes just a few seconds.

• Step 4: The payment processor settles the transaction. Finally, the payment processor settles the payment between your customer’s bank account and your business bank account. The settlement process generally takes a few days to facilitate the actual movement of money.

• Step 5: The merchant fulfills the order. Typically, step five happens alongside step four, but the last step in the process is order fulfillment. You, the merchant, fulfill the product or service as ordered.

The whole process, from start to finish, including payment settlement, takes a few business days. 

What Are the Three Elements of an eCommerce Payment System?

To process payments online through your eCommerce store, you will need a variety of elements. The three main elements of eCommerce payment systems include a payment processor, a payment gateway, and a merchant account. Let’s break each of these down next.

A payment processor is a vendor. They are the company you contract to facilitate payments securely. Essentially, they are an intermediary between your customer’s bank account and your business bank account. Without a payment processor, you can’t access the payment networks that facilitate remote money movement. Your payment processor choice is crucial because they control your access and the customizability of your systems (as described next).

A payment gateway is exactly what it sounds like. Imagine it as a physical gate that gives you access to a back alley between banks. That will give you a good visual image to help you picture the concept. 

It’s a secured pathway for transaction information to pass between banks almost instantly. Information gets added to the gateway and passed between banks to authorize and facilitate the movement of money. If that visual doesn’t do it for you, you can also picture it like a physical terminal that you would normally see on a checkout counter, just the digital version.

A merchant account is similar to a holding bank account, arranged and managed by your payment processor. You typically can’t hold a balance here for long; instead, it’s an intermediary bank account that keeps transactions secure while the money moves around. Once you have a merchant account, it will have set parameters for how you’re allowed to use it (for example, how many transactions or how much money you’re allowed to process each day or month). You also receive a merchant identification number or MID with your merchant account.

Your payment processor sets up your merchant account, which gives you your merchant account and identification number or MID. Think of your MID as your “code” to access that back alley gate (I.e., the payment gateway & networks).

When a customer checks out on your website, their transaction information gets tied up in a nice bundle with your MID attached. This identification number allows the transaction to flow through the payment gateway between the relevant banks. Once it passes through, you will receive an authorization code that holds the pending balance for you until settlement. This code goes to your payment processor (through your merchant account). Your processor then facilitates the payment settlement between your two bank accounts once authorized.

What to Consider When Selecting the Right eCommerce Payment Solution

You probably recognize by now that selecting the right eCommerce payment solution requires a little research. You want a partner that: 

• Keeps the processes simple 
• Protects you and your customers
• Secures data
• Works with your website
• Offers convenient payment options
• Has solid customer support
• Processes transactions for a reasonable rate
• Offers quick funding

Let’s dive into what exactly that means — what you should consider when selecting the right eCommerce payment solution for your business. 

The first thing to look at when choosing the right eCommerce payment solution for your business is PCI compliance. You want a solution that is loud and proud about their PCI compliance because that means they have taken data security seriously.

“PCI DSS” stands for “payment card industry data security standards.” The PCI DSS Security Council sets these standards for the financial services industry. They keep track of fraud trends and security vulnerabilities and respond with regulations to keep those operating businesses that process payments and manage credit card data safe. 

Each year, both you and your payment processor need to certify PCI DSS compliance. For your purposes, you can complete your annual PCI DSS self-assessment questionnaire on the PCI Security Standards Council site and submit it to the council. This will help certify your compliance and limit your liability. But the bottom line for choosing a payment processor is that you want one that is both PCI DSS compliant and certified.

After considering payment data safety, the next most important consideration is compatibility with your eCommerce platform. If you already have a website set up with an online store ready to go, you need a payment processor that can work with your existing systems.

If, on the other hand, you have not yet built your website, you may have a wider pool of options to consider. Either way, ensure your chosen partner offers the features you’ll need both today and as you scale your business.

When choosing your payment processing partner for your eCommerce store, another crucial detail is the available payment methods. These are the options your customers see as they check out on your website. The more options you have, the more likely your customers are to complete checkout instead of abandoning their cart. This directly affects your revenue, so make sure you have multiple ways for customers to pay when choosing where to set up your merchant services account.

For additional payment data security, it’s good to have a payment processor that tokenizes card data. What this means is that they take the raw and real data (full card numbers, CVV/CVC/CV2 codes, expiration dates, address information, etc.) and transform it into a token (i.e., replace it with a code). This prevents bad actors who may attempt to intercept the data transmission process from accessing the valuable information you’re sending. This protects you, your customers, and your payment processor from potential liability.

One of the greatest benefits of running an online store or service is that your clientele is far less limited by geography. If your business plans or hopes to sell internationally one day, make sure your chosen eCommerce payment processing platform supports that goal. 

Just because an international customer has a typical debit or credit card doesn’t automatically mean they can use it at your store. If their bank account is based in another currency, you’ll need a specialized payment processor who can convert that currency to USD to take that payment.

Of course, one of the most important things you’ll want to consider as a business owner is the overall cost and fees for processing online transactions. While it’s beneficial for conversion to accept as many types of payments as possible, a lot of business owners make personal choices on which of them make the most sense based on the cost to process. Other business owners build a little extra wiggle room into their prices to accept more options. 

Either way, comparing rates for different payment types and providers is important to make the best choice for your business.

What Types of eCommerce Payment Methods Should You Accept?

We went over the importance of accepting lots of payment options. But we haven’t yet covered exactly which payment methods your eCommerce store should accept. So, let’s dive into the main ones next.

First and foremost: credit cards. If you’re accepting payments online, there is pretty much no way to avoid accepting credit cards (or debit cards, which we’ll touch on next). They’re one of the original forms of electronic payment and make the process seamless. Almost everyone has one; many already have their card info saved in their browser (making checkout a breeze), and many shoppers prefer to use them online due to their enhanced consumer transaction protections. 

Along the same token, you’ll want to make sure you can also accept debit cards. Many people prefer to use debit cards because they prevent overspending and have no risk of interest. For that reason, it’s important to have the ability to accept them. 

Generally speaking, however, if you can accept credit cards, you can accept debit cards – they process over the same networks and generally get set up together without you needing to specify or take additional action.

A lot of people shop online using their cell phone browser instead of a laptop or desktop computer. This is especially true for businesses that promote themselves through social media. 

As an eCommerce store, this adds an additional challenge to ensuring your website is mobile-friendly and that the payment checkout process is as simple as possible. No one wants extra steps when checking out on their tiny phone screen. 

To ensure they have easy payment options, it’s best to make sure your website supports digital wallets like Apple Pay and Google Wallet. These systems are already built into their phones and make the checkout process incredibly simple and intuitive from the user’s perspective without costing you or your business any more than the price of processing a normal debit or credit card.

If you ever want to branch your eCommerce store out into the real world (maybe you will see a farmer’s market, flea market, or pop-up store in the future), you’ll be glad to have the option for mobile payments. 

Mobile payments make it possible for you to accept in-person payments while on the go. Your phone becomes like a terminal for payment. If you have a compatible vendor, they can ensure your in-person data connects to your normal inventory and accounting to make everything seamless.

If your business has a higher average ticket size, recurring (like a membership) billing, or services B2B customers, it may make sense to add ACH payment processing. 

ACH payment processing means that you can bill bank accounts directly. This is both cheaper for you to process than a credit card would be and quite secure, so it’s worth checking whether or not they support it before signing with a payment processor.

If your target audience is into it, you may want to look into cryptocurrency support from your potential payment processor. You may not have realized it’s an option, but it is increasingly available for stores like yours. Accepting cryptocurrency is a great way to stand out from the crowd and create a memory with your customers.

Finally, a very popular payment option for online shopping is buy now, pay later. There are a lot of platforms that support it, like PayPal, Klarna, Afterpay, and more. Having one of these (or multiple) on your eCommerce store can make it more attractive for customers to add a few extra things to their cart or check out sooner rather than saving their cart for later (and potentially abandoning it forever).

Tips and Best Practices for eCommerce Payment Processing

Everything you do for your eCommerce business should be focused on optimization, conversion rates, and bigger sales. Much of that hinges on your payment processor, but there are additional things to consider for improving your odds of success, including:

• Offering a variety of payment options. We’ve mentioned this a few times already, but it’s an important enough point to mention it again. Offering a variety of payment options makes it easy for customers to check out. The easier it is for customers to check out, the more likely they are to do so. This results in more sales for you as the business owner.
  
• Optimize the checkout process for fewer steps. The more steps and pages you require from your customers to check out, the more points of friction you create. These points of friction naturally decrease your conversion. To avoid this, the best practice is to not require customers to make accounts to check out and instead allow for guest checkouts. It’s also a good idea to reduce the number of steps it takes to as few as possible. The fewer prompts and pages, the fewer shopping cart abandonments.
  
• Make sure you have a solid privacy policy and terms and conditions page. When accepting payments on your website, it’s important to be clear about things like your return policy, exchange policy, data handling practices, and more. By offering a clear privacy policy, including a returns and exchange policy, you give your customers the little boost of confidence they need to finish the checkout process.

How to Get Started with eCommerce Payment Processing

Now that you have a better understanding of eCommerce payment processing, the next step is to pick your payment processing partner. Your business will need an eCommerce merchant account solution that offers a secure integrated payment gateway, a shopping cart directly on your eCommerce site, easy integration with your current site, and fraud and chargeback preventions. PaymentCloud offers all of these services and more. Get in touch with us today to see what we can do for your business!

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