eCommerce Payment Processing: Key Components and Steps

Collecting payments from customers might seem like an easy step when running an online business. On most sites, customers merely need to input their payment information and click “Confirm.”

But eCommerce payment processing relies on multiple components working together behind the scenes, and choosing the best method for your business means evaluating several key factors.

Your system needs to be both affordable and secure, allowing customers to feel confident in sharing their financial information online. It also helps if it makes timely deposits into your accounts and assists with tracking sales and customer data. 

Here are a few key things to know about how eCommerce payment systems work to help you decide which methods to offer. 

Main eCommerce payment methods

When running an eCommerce business, you want to make buying a product or service straightforward. To do that, consider how most online shoppers pay for products. 

• Credit cards: According to a Capital One Shopping survey, as many as 81% of all shoppers prefer to pay with credit cards rather than cash. People choose credit cards because they provide strong fraud protections and often offer rewards for spending.

• Debit cards: Debit cards, which are linked directly to bank accounts, are another standard payment method. For merchants, the processing fees are lower when people pay with debit rather than credit cards. 

• Digital currencies: Some websites accept payments like Bitcoin or other digital currencies, but this isn’t a standard method because virtual coins aren’t widely accepted as a form of currency. 
• Alternative payment methods: Other payment methods include Apple Pay, PayPal, and buy-now-pay-later companies like Klarna. Note that these options are less popular and not always available. 

Online businesses that accept multiple payment methods reduce the risk of losing customers who might abandon a transaction if their preferred payment method isn’t available. 

Essential components of eCommerce payment processing

While the systems are designed to operate behind the scenes, once customers enter their payment information, there are three main components within eCommerce payment solutions that facilitate the money-transfer process.

Payment gateways

Payment gateways link your website to the payment processor after collecting information. They’re like old-fashioned telephone operators who connect calls to the recipient. Instead of customers telling the operator who to call, the gateways tell the processor what to transmit. 

When customers are ready to check out, the payment gateway provides a form for entering their details. The gateway then encrypts the data to keep it secure for the company that processes the payment.

Payment processors

Next, processors receive the information from the gateway and then execute the transaction. They collect funds from customer accounts and send them to a merchant account.

Merchant accounts

The merchant account is where the payment processor deposits the funds. These are usually special accounts that can accept money from multiple payment methods. Merchant accounts hold the funds until they’re transferred to the company’s regular business bank account. 

How does eCommerce payment processing work?

Now that you know the three important elements that make eCommerce credit card processing and other payment methods work, here’s an example of payment collection in action when a customer buys something on a website.

1. The customer adds items to a cart and begins the checkout process, choosing a payment method. The customer enters their payment information, such as the details of their credit card, into a form.
2. The payment gateway encrypts the customer’s payment details and sends them to the payment processor. The gateway may record information about the transaction that the business can refer to later. 
3. The payment processor authorizes the payment, confirming that the information is valid and funds are available in the customer’s account. 
4. The payment processor reports back to the gateway about whether or not the transaction went through. This is also reported back to the customer. 
5. Once the payment is authorized, the payment processor transfers the funds from the payment method to the merchant bank account. The business can get to work fulfilling eCommerce orders once it has been paid. 
6. The business can transfer funds from the merchant bank account to the company’s primary bank account.

This process happens seamlessly — the customer is only alerted if their payment fails. And the gateway may also collect information to help with business operations, such as what products are in demand and what eCommerce payment systems are most popular, to help you track trends. 

How to choose the best eCommerce payment processing solution

Here are some key factors to consider when selecting a payment collection method.

• Costs and fees: eCommerce payment processing solutions aren’t free. Compare each one’s setup costs, monthly subscription fees, and fees charged per transaction to make sure you’re getting the best deal.

• Security: No company wants to compromise customer data. That’s a recipe for distrust and disaster for any online seller. Look for a Secure Sockets Layer (SSL) certificate, a special code that encrypts the connection when customers transmit data. 

• Payment Card Industry (PCI) Compliance: There are PCI regulations that card companies require merchants to follow to accept payments. All payment processors should be PCI compliant, so double-check that yours meets these requirements.

• Accepted payment methods: Look for a processor offering a wide selection of accepted methods, such as PayPal, ACH transfers, and eCheck. 

• Tokenization services: If customers will be storing card information, some eCommerce providers use payment tokenization to protect card information. With tokenization, your site stores a random code instead of the card number, which you can then charge in future transactions. This removes friction in the purchasing process, potentially decreasing the number of abandoned shopping carts.

• International payment support: Any company that might do business overseas needs to have a processor that facilitates foreign payments, so look for one that offers minimal fees for international transactions or currency exchanges. 

FAQs

Want to learn more about eCommerce payment processing? Here are the answers to some frequently asked questions. 

What is the best payment processor for eCommerce?

The best payment processor for eCommerce depends on your company’s needs. Many startups like Shopify’s ease of use since it provides an all-in-one payment processing solution. However, others may prefer alternatives such as Square, which excels at collecting online and in-store payments, or QuickBooks, which allows you to integrate payment processing with advanced accounting tools.  

What is the transaction process in eCommerce?

The transaction process in eCommerce occurs when a buyer makes a purchase and exchanges funds with a seller. This usually occurs through a multi-step process in which a payment gateway collects and transmits payment data and a payment processor processes that payment before depositing the funds into a merchant account. 

Which payment method is best for eCommerce?

Customers use many different payment methods for online purchases, but the most common include credit cards, debit cards, and alternative payment services such as PayPal or Apple Pay. 

The best method depends on customer needs. Some customers prefer to store their credit card in PayPal and use it on multiple sites, while others input their card information directly into the payment processing gateways offered by different merchants.

Take your eCommerce business to new heights with Fishbowl

If your business wants to use a single platform for everything from tracking inventory to collecting data to tracking payments, Fishbowl is here to help. 

Fishbowl effortlessly integrates with common payment processing systems, including QuickBooks and Shopify, automatically importing orders and collecting customer details for you. You can even synchronize inventory data using our eCommerce inventory management systems. Book a demo to get started with Fishbowl today.