If you have just launched a new e-Commerce store, you will need a way to take and process payments. Brick and mortar shops certainly don’t have this problem, as they have long been set up to accept all forms of payment. However, online stores work in an entirely different way. It’s important to get familiarized with all of the ins and outs of how payment processing works so that your e-Commerce venture will not only remain profitable but will become scalable and grow.
How Does E-Commerce Actually Work?
E-Commerce has more players involved than just the buyer and the seller. How it works is that online merchants hire a third-party company that connects their website with their customer’s bank or credit card provider.
E-Commerce payment processors fulfill the role of providing a secure portal (payment gateway) for merchants to receive funds from their customers.
The steps that payments take to get processed include the following:
1. Your customer selects a product from your website and places it in the virtual shopping cart. After that, they click on the “Buy” button.
2. The customer then is directed to choose the type of payment method they desire to use.
3. Once chosen, the payment processor gathers the customer’s information and verifies it.
4. The processor then collects the funds and transfers them into your business’s e-Commerce merchant account.
5. Finally, the customer receives their order and your business will receive its payment. It usually depends on the agreed-upon date that was issued by your gateway processor.
Merchant Accounts Defined
A merchant account can be likened to a bank account in that, whenever a customer makes a purchase, either with a debit or credit card, the funds are directly deposited into the business’s merchant account. There are essentially two types of merchant accounts: an aggregated account and a dedicated account.
An aggregated account is a type of merchant account between the business owner and its payment processor. Aggregated accounts are essentially the merchant accounts that come with payment processors. When you select a gateway processor, there will be no need to sign up for a merchant account since the gateway processor will do that for you. New merchants are highly recommended to choose aggregated accounts because they are practical. As soon as a transaction is cleared, it is transferred into the business bank account.
Meanwhile, a dedicated account is a merchant account used entirely by the business owner. These types of accounts have no interaction with payment processors. However, they do require extra steps before being completely installed. When you have a dedicated account, do know that it will take a couple of days for all payments to be transferred into the bank account.
Why Have An E-Commerce Payment Processor?
Gateway processors are simply a very good tool to have. They serve a variety of functions, not limited to only transferring money into your business’s bank account. Payment processors also perform various operations to not only serve but also protect your online business. They do so by practicing anti-fraud policies in order to protect your business’s safety as well as your customers. They are also required to follow the stringent rules as set forth by credit card associations.
Payment gateways are your “all-in-one” solution to make sure all payments coming in are received and verified. When it comes to more difficult tasks, such as managing customer disputes or authorizing credit cards, your payment processor will take care of all these tasks on your behalf. If there are any issues with the payments, customer support will be ready to assist you.
Choosing The Best Payment Processor
When it comes to choosing just the right payment processor for your e-Commerce business, there is a lot to consider. Here are a few things to keep in mind when you set out the right payment processor that meets the needs of your business:
1. PCI Compliance
When talking to different payment processors, make sure you ask about how they approach PCI Compliance. Basically, what that entails is that any business that accepts, processes, stores, or transmits any kind of credit card information must be in strict compliance with the Payment Card Industry Data Security Standard (PCI DSS). This also means that your payment processor must also comply with these regulations.
2. Tokenization
In order to secure your customers’ sensitive payment information, your payment processor must be equipped to use tokenization. The way that tokenization works are that, from the moment credit or debit card information is entered, the processor automatically converts this information into a token so that it can identify the customer. By using tokenization, you are protecting your business and your customers from bad actors and hackers that might try to steal sensitive payment information.
3. Acceptance of a variety of payment methods
Your customers have their preferred methods of payment. Additionally, if your online store sells high-end items, your customers will more likely want to see payment methods such as Klarna to break up payments or have a buy now, pay later feature. Remove any friction when it comes to customers making and completing their purchases by offering preferred payment methods.
4. Fees
It goes without saying that you do have to spend money to make money. However, what you spend on processing must not destroy your bottom line. How it usually works is that companies will charge you a percentage and a fixed fee for every transaction. Some may even charge a monthly fee for a subscription in lieu of transaction fees. Other extra fees to watch out for include international payments, disputes, and chargebacks.
Choose The Best E-Commerce Payment Processing For Your Business
When it comes to choosing the best e-Commerce payment processing solution, you are not in want of choices. The most important thing to remember is to choose a payment processor that will meet the needs of both your business and your customers.
