eCommerce Payment Processing: How It Works & Top Solution Providers

Do you run an eCommerce store? Then, you might know how tough it is to keep your business running and maintain a strong revenue stream. And payment processing is one of the important things to consider for eCommerce success.

No matter the type of your eCommerce business model, you might face multi-currency challenges when expanding in overseas markets. Or you might even face payment processing challenges when dealing with only domestic markets – because customers now prefer digital payment methods. A consumer survey conducted by Visa found that over 40% of customers are planning to use only digital payments or are already cashless.

So, you need a robust payment processor to accommodate different digital payment methods. However, choosing the right solution provider can be difficult. But don’t worry because a leading eCommerce development company has got you covered. Here, we will shed light on the basics of eCommerce payment processing, how it works, different payment methods, top payment solutions providers on the market, and how you can choose the perfect one for your business.

What is eCommerce Payment Processing?

eCommerce payment processing involves accepting electronic payments from customers at your online store.

Through the secure transfer of transaction data between clients, sellers, and payment service providers, the process enables the authorization, collection, and settling of payments.

Before diving into how it all works, it’s important to understand three key terms: payment gateway, payment processor, and merchant account.

• Payment gateway: This reads and transmits payment information, such as credit card details, provided by customers to a payment processor.
• Payment processor: Operating behind the scenes, it facilitates transactions by transmitting payment information between you (the merchant), the customer’s bank, and your bank.
• Merchant account: A specific business bank account that gives you access to funds received from credit and debit card payments.

Different eCommerce Payment Methods

Credit Cards

Credit cards remain one of the most popular eCommerce payment methods. They allow consumers to make payments using a line of credit provided by their card issuer. This means that when shoppers use their credit cards at online checkouts, they are borrowing funds to complete their purchase.

The total sum of their transactions is then settled at a later date, usually on a monthly basis. Credit cards offer convenience and flexibility, making them a preferred choice for many online shoppers.

Debit Cards

Debit cards are another highly favored payment option. Unlike credit cards, debit cards deduct funds directly from the customer’s bank account at the time of the transaction.

This immediate deduction ensures that consumers are spending money they already have, which can help with budgeting and avoiding debt. Debit cards are widely accepted and offer a straightforward way for customers to pay for their online purchases.

Digital Wallets

Digital wallets, such as PayPal, Apple Pay, Google Pay, and Amazon Pay, provide a secure and convenient way for customers to store and use their payment information. By storing card details on digital devices, customers can make payments quickly without having to enter their card information each time.

Digital wallets also enhance security by using encryption and tokenization to protect sensitive data, making them a trusted option for online transactions.

Mobile Payments

Mobile payments encompass a variety of methods that utilize smartphones or other mobile devices to facilitate transactions. This category includes digital wallet payments, in-app purchases, QR code scanning, NFC (Near Field Communication) technology, and payments via messaging apps.

Mobile payments offer unparalleled convenience, allowing customers to make purchases on the go and often providing a seamless checkout experience.

Bank Transfers

Bank transfers, also known as electronic funds transfers (EFT), enable customers to move funds directly from their bank account to the merchant’s account. To initiate a bank transfer, consumers need access to online banking or a mobile banking app.

This method is secure and reliable, though it may not be as instantaneous as other payment options. Bank transfers are often used for larger transactions due to their direct and straightforward nature.

Buy Now, Pay Later (BNPL)

Buy Now, Pay Later (BNPL) services are gaining popularity as a flexible payment option. They allow customers to make a purchase and defer the payment, typically splitting it into installments over time. This can be particularly appealing for customers who may not be able to afford the full cost upfront.

Merchants pay fees to BNPL providers to offer this service, which can help increase sales and customer loyalty by providing an accessible payment solution.

Prepaid Cards

Prepaid cards are loaded with a specific amount of money in advance and can be used for online purchases. These cards offer an alternative for customers who do not have a bank account or credit card.

Available in various forms, including gift cards and reloadable cards, prepaid cards are a versatile payment method that can help control spending and provide an additional layer of security.

How Does eCommerce Payment Processing Work?

eCommerce payments are done in seconds, so it might be easy from a customer’s viewpoint. But actually, it involves multiple steps and might get complex if even a single step is not executed properly.

Here’s a step-by-step explanation of the process:

Step 1: Initiating the Payment Gateway

Firstly, you need to integrate a payment gateway in your eCommerce store.

The payment processing journey begins when a customer finalizes their shopping by adding items to their cart and proceeding to the checkout. At this stage, the customer is asked to enter their payment details, which could include credit or debit card information.

Once the customer submits their payment information, your site will activate a payment gateway.

Step 2: Secure Transmission of Payment Details

Upon activation, the payment gateway securely encrypts the customer’s payment information. This encrypted data is then transmitted to the payment processor.

The role of the payment gateway is crucial here as it ensures that all sensitive information is handled securely, eliminating the need for the merchant to manage this technical aspect.

Step 3: Authorization or Rejection of Payments

The payment processor verifies its validity. This involves checking if the customer’s account has sufficient funds or available credit to cover the transaction. The processor also ensures the accuracy and integrity of the submitted data, checking for any discrepancies or signs of fraud.

If everything is in order, the transaction is authorized. Conversely, if there are issues such as insufficient funds, incorrect information, or potential fraud, the payment is rejected.

Step 4: Communication of the Payment Status

Once the payment processor has either authorized or rejected the transaction, it communicates this status back to the payment gateway. The gateway then relays this information to your eCommerce platform, where the customer can view the outcome of their payment attempt.

This immediate feedback loop ensures that the customer is promptly informed about the status of their payment.

Step 5: Crediting the Merchant Account

If the payment is authorized, the payment processor transfers the funds to the merchant’s account. This marks the successful completion of the eCommerce payment process.

You have the necessary funds from the transaction, and the customer’s account will reflect a pending charge for the purchase. With the payment secured, you can proceed to the next steps of order fulfillment and shipping.

Best eCommerce Payment Solutions Providers

With the growing eCommerce market, the payment solutions market is also booming. The eCommerce payment market size is valued at $57.17 billion in 2024, and projected to reach $142.12 billion by 2031.

With this growth, various solution providers are entering the market. When looking for a payment solutions provider, you will find tons of options available on the market today. Even some popular eCommerce platforms are now offering built-in payment systems to help business owners.

If you want a dedicated payment solution with advanced features, here are some options you can consider:

PayPal

PayPal is one of the first and most popular payment solutions providers, boasting a broad global presence, and is widely adopted by eCommerce businesses of all types and sizes. This widespread acceptance makes it a go-to option for many online retailers.

One aspect of PayPal that can lead to some confusion is its dual role as both an eCommerce payment processor and a personal payment platform. Customers can use PayPal to pay using various online methods, including their PayPal balance, and they can also store or send money personally.

While this versatility is beneficial, it can sometimes lead to misunderstandings.

Pros:

• Widely scalable, from small businesses to enterprises
• No monthly fees for lower tiers

Cons:

• Known to erroneously freeze assets, which can temporarily cripple affected small businesses
• Inconsistent features based on geography

Stripe

Stripe is favored by many businesses due to its API, which offers extensive customization and flexibility for accepting credit card payments, setting transaction fees, and managing other payment processing services. It is PCI-compliant and works well internationally, making it a robust option for tech-forward eCommerce stores.

However, not every eCommerce business needs endless customization. For those seeking a turnkey solution, Stripe might not be the best fit.

Pros:

• API availability allows larger and more tech-forward eCommerce stores to customize Stripe’s functionality
• Accepts payments in nearly all currencies and supports Bitcoin transactions

Cons:

• Can be unnecessarily complex, according to some users
• Nickel-and-dime pricing structure
• Fund availability can be slower than other services, depending on setup and location

Square

Square gained prominence with its headphone jack and, later, Lightning port credit card readers, which it provided to small businesses and startups either for free or at a discount. Square maintains a strong market share, especially among small brick-and-mortar retailers and restaurants.

Square’s unique position in the market is bolstered by its support for both in-person and online payments. The platform includes tools for payroll, time management, online invoicing, and other operational needs, making it a comprehensive solution for small businesses.

Pros:

• Ideal for small businesses needing POS, eCommerce payment processing, and other operational tools
• The ability to turn a phone into a POS terminal is invaluable for mobile businesses

Cons:

• Designed primarily for smaller operations, and outgrowing the platform is a possibility
• While basic functionality is fee-free, per-transaction costs can accumulate quickly

Amazon Pay

Amazon Pay might sound like a feature reserved for Amazon sellers, but it is available to a broader range of online eCommerce sellers. By adding Amazon Pay as a payment service provider, businesses can essentially outsource their checkout and payment process to Amazon.

One significant advantage of Amazon Pay is that existing Amazon customers do not need to provide new shipping or credit card information, reducing friction at checkout and potentially lowering cart abandonment rates. This can lead to higher conversion rates, a crucial metric for any online retailer.

Pros:

• Leverages the trust that people have in Amazon as a payment platform
• Generally less expensive than the competition

Cons:

• Requires customers to have an Amazon account
• Businesses are dependent on Amazon for data sharing, feature changes, and other aspects

How to Improve the Payment Processing Experience for Customers?

eCommerce payment processing is not only about having a payment gateway, processor, and merchant account. You need to evaluate the overall process to ensure an engaging eCommerce experience for your customers.

According to Baymard, 25% of online shoppers abandon their carts because they don’t trust the site with their financial information. So, payment processing experience is more important than ever before.

Keep these tips in mind to develop a reliable payment processing experience:

• Expand your checkout options: Giving your customers plenty of choices at checkout makes them more likely to complete their purchases. Offer a variety of payment methods and ensure you can handle transactions in multiple currencies. Don’t forget to provide several shipping options to meet different needs.
• Leverage your data: Your eCommerce payment processing system collects a lot of data. With the right reporting tools, this data can turn into valuable insights. These insights can help you optimize your processes, pinpoint areas for improvement, and spot any suspicious activities.
• Enhance your customer journey: A smooth customer journey is crucial for reducing cart abandonment. Make your checkout process as easy as possible by minimizing the steps and information required to complete a purchase. Offering a one-click checkout can also help.
• Select a scalable payment processing solution: Your business needs can change quickly, especially as you grow. Choosing a scalable payment processor ensures you can handle increased sales and potential fraud threats. Look for a payment processing partner that can adapt to your evolving needs and support your business’s expansion.

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FAQs on eCommerce Payment Processing

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Conclusion

No matter if your online store is well-established or you are just starting out, ensuring a robust payment processing experience is essential. With numerous eCommerce payment companies available, finding the right one is crucial for both you and your customers. While considering your store’s bottom line is important, it’s not the only factor to consider. Evaluate the features you need currently and those you may require as your business expands.

When selecting a payment processing option, prioritize ease of use for both you and your clients. Ensuring that digital transactions are seamless will enhance customer satisfaction and streamline your operations. Look for a solution that offers security, reliability, and scalability to support your business’s growth and evolving needs.

If you need help with your payment processing experience or are facing issues with integrating a payment gateway or processor in your eCommerce store, we are happy to help. With years of experience in the industry, our skilled team can help your business seamlessly accept payments. Contact us today!