Ecommerce Payment Processing Guide for Startups

Your webpage is ready, the products are all in stock, it is time to start selling. But what’s the best way of getting paid? Here, we look at the ins and outs of eCommerce Payment Processing.

These days building a webshop is easy. Most good hosting packages include the functionality to effortlessly build a webshop. However, one area of confusion that still trips people up is the business of payment gateway solutions.

Choosing the right package to manage the payment side of your shop can seem like a minefield. This guide breaks the entire process down to help you choose the best eCommerce payment gateway for your startup.

eCommerce Payments – How they work

Luckily, we mere mortals don’t need to know too much about this.

eCommerce payments are a complex matter, but this complexity is simplified for the end-users by means of a payment processing processor.

At its heart, the online buying procedure is simple, and once everything is set up, the entire procedure is almost entirely hands-off. Of course, this doesn’t include ensuring the customer receives the product or service they ordered.

Typically, the entire financial procedure for any web sales can be summarised in a few simple steps.

  1. Sales – A visitor to your site loves your product and decides to buy one. They add it to their basket and then head to the checkout.
  2. Payment Options – At this point, the customer is presented with the payment options; these can vary depending on the gateway provider. In most instances, these will include standard choices like debit or credit card, PayPal etc., but some will include options like cryptocurrencies.
  3. Payment is collected – Once a customer pays, the payment is placed into a Merchant Account (more about this below), and from there, it is transferred into your bank account after a pre-arranged period. The duration of this period is agreed with the eCommerce payment gateway.

There are three main elements involved in the processing of payments; although there are some grey areas between the three, a summary of them is below.

The three main elements of eCommerce Payment Processing

Buying online has never been simpler or more secure. The entire process is handled by three main elements: 

Payment Gateway and Payment Processor

The first two elements involved in the collection of eCommerce payments are often a source of confusion and referred to interchangeably, but they perform very different tasks in the process.

Although this is a simplified description, the concept of online payments and how the first two elements involved facilitate them can be summarised by describing their role in every online transaction.

  • Payment Gateway – The Payment Gateway provides the link between the website and the Payment Processor. Once the customer buys a product from the website, the Payment Gateway secures the data and sends it to the Payment Processor.
  • Payment Processor – The payment processor is responsible for verifying that there are sufficient funds in the customer’s account and depositing the money in your Merchant Account.

While, theoretically, it is possible to manage the process of payments in-house, for most online vendors, this isn’t a feasible or desirable option.

Merchant Account

Anyone who accepts electronic payment for products or services should use a merchant account. This is one of the areas of complexity that is hidden from the end-user.

In essence, the role of the merchant account is to work in conjunction with the payment processor and act as a “holding account” for your customer’s funds, although this is very much a simplified description.

When considering merchant accounts, there are two possible routes to go down.

  1. Personally open up a Merchant Account with a merchant services provider.
  2. Opt for a payment processor solution that provides you with merchant services and an account

Because it is one less thing to worry about, the latter option is a great choice for most startups, although there can be savings to be made in fees and charges if you set up your own merchant account.

However, in most cases, the benefits of going with an “all-in-one” eCommerce payment package outweigh the disadvantages. The benefits of going down this route include:

  • All your sales finances under one umbrella
  • Disputes are easier solved
  • Credit card authorisation is dealt with
  • One customer support contact

Selecting a payment processor

The key to a seamless customer buying experience is down to the key roles played by the payment processor. Ultimately, this will be one of the most important decisions you have to make when setting up an eCommerce shop.

Amongst the roles a payment processor will assume on your behalf are:

  • Enable businesses to accept online payments
  • Act to help settle disputes with customers
  • Provide anti-fraud protection
  • Verify the validity of payments
  • Provide customer support
  • Provide merchant services

There are many payment processors to choose from, so narrowing the choice to find one that suits your circumstances can be tricky. Most eCommerce Payment Processors will offer a standard range of features, but there are some packages that can be more tailored to suit specific needs.

To help narrow the choice, it is best to understand just what specific needs your eCommerce store has; this will give you a better idea of what features are relevant when making your selection.

Amongst the aspects to be considered are: 

  • Likely product markets (national, international, etc.)
  • The average cost of sales
  • Are your products physical or digital
  • Are your services/goods customisable
  • Do their services integrate with your web hosting platform
  • What fees are charged
  • How quickly do you receive your money
  • Do they offer a checkout page that is easily integrated into your site
  • How good is their customer support
  • Are they compliant with Payment Card Industry (PCI) standards and have strong anti-fraud procedures

Once you have the answer to these questions, you will be in a far stronger position to make an informed choice when selecting an eCommerce Payment processor.

Read: Cashless Payment solutions

What are the costs involved?

Once again, this can vary widely depending on many factors. Research is again required here, and in most instances, checking the factors listed in the section above will have narrowed the choice down. This should leave you in a position where the cost can be used as a differentiating factor when choosing.

Amongst the common charges that payment processors will apply are: 

  1. Annual fee/startup fee
  2. Transaction fee, this could be a percentage of the sales value, a fixed fee or both.
  3. Settlement charge – This is the charge paid to transfer money from your merchant account to your bank account
  4. Termination fee
  5. Refund charge

These are just a few of the potential charges. Due diligence should be applied when choosing a payment processor provider to avoid suddenly finding yourself subject to hidden charges you weren’t aware existed.

In Summary

These days setting up an eCommerce store is simple and using the correct payment processing solution can simplify it even further.

It all comes down to picking the right solution for your circumstances. This is where the value of understanding your own operation and how you see it panning out in the future is vital. Research is the keyword here.

Once you understand these factors, it is easier to narrow down the field and select a payment processor that will partner you to success.

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