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Running an e-commerce store isn鈥檛 easy. Customers are experienced in buying products and services online. They know a good online retailer when they use one. And an important part of that experience is the payment process.
In this article, you鈥檒l learn how a payment system works and how to choose one for your e-commerce store.
How a payment system works
A payment system can appear complex. There are lots of processes involved. And the key players all have names you may not have heard of. But the actual process is easy to understand. And the best bit about it is that the process is always the same, whether the customer buys a chocolate bar or a holiday.
Payment systems work slightly differently online than when used at a physical store. These are the key steps for an online payment system:
1. The customer goes to an online store, selects an item, adds it to the shopping cart and clicks 鈥榖uy now鈥.
2. The customer enters their payment details, which are then encrypted by the payment gateway. The payment gateway performs fraud checks before sending the card data to the payment processor.
3. The payment processor authenticates the customer鈥檚 payment details and transfers the transaction information to the customer's card network.
4. The card network takes the transaction information to the customer鈥檚 bank to see if the customer has sufficient funds to complete the transaction. The card network then informs the payment processor whether the transaction has been approved or declined.
5. If it has been approved, the payment processor instructs the bank issuing the customer鈥檚 card to send funds to the merchant鈥檚 bank.
6. Funds from the sale are made available to the merchant. This can happen immediately or after a few business days, depending upon the payment provider and the type of merchant account that the business owner has.
How does a payment gateway work for customers in a physical store? Well, it is very similar. Instead of checking out at a virtual checkout, the customer goes to a physical point-of-sale (POS) terminal. And it is the POS that acts as a payment gateway.
Key players in the payment system
Let鈥檚 look at the key players involved in the payment process. There are six of them:
Merchant - A person or business that is selling something.
Acquiring bank 鈥 The merchant's bank is also known as 鈥榯he acquirer鈥. They are the financial institution where the merchant holds an account and receives payments.
Customer 鈥 A person or business that is buying something.
Issuing bank 鈥 Also known as the 鈥榗ard issuer鈥. This is the customer鈥檚 bank. They are the financial institution that gives the customer鈥檚 payment method, such as a debit or credit card.
Payment gateway - This technology communicates the transaction to the cardholder and the merchant; think of the 鈥榩ayment approved鈥 or 鈥榩ayment declined鈥 message. It securely sends the customer鈥檚 payment information to the payment processor.
Payment processor 鈥 This is the service provider that connects the merchant to the card processing network. They also supply merchants with their merchant鈥檚 bank accounts. The payment processor authenticates the customer's payment data and transfers funds from the issuing bank (customer鈥檚 bank) to the acquiring bank (merchant鈥檚 bank).
When a payment provider operates as an acquirer, gateway, and processor, they offer an end-to-end payment solution called a 鈥榰nified approach鈥.
A unified provider can offer some powerful . The unified provider鈥檚 technology is responsible for managing the entire payment process. This gives them complete control. They are free to design a system that can provide seamless transactions processed faster with more accuracy and minimal downtime. 不良研究所鈥檚 gateway offers 99.999% uptime: our merchants never miss a sale. It also provides complete reporting, giving you full visibility of your payments, including a breakdown of fees and chargeback details.
Why payment gateways are important
Bridging the gap between the customer鈥檚 card and the merchant鈥檚 bank account, the payment gateway is that clever bit of kit that handles the technical side of transferring cardholder information from the merchant to the payment processor. Without it, merchants wouldn鈥檛 be able to receive payment from their customers.
In physical stores, payment gateways are the point-of-sale terminals (POS) a merchant uses to accept a customer鈥檚 payment by card or smartphone. An e-commerce payment gateway is the checkout section of a website, where customers enter their credit or debit card information to pay for the products or services in their basket.
Payment gateways play a crucial role in the payment system. Here are some benefits:
Secure - The payments industry has agreed to a set of security standards known as the 鈥淧ayment Card Industry Data Security Standard鈥, or PCI DSS. All companies that accept, process, store or transmit credit card information must be PCI compliant. Other security initiatives are also in place, such as 3-D Secure.
Fast 鈥 Payments gateways are very efficient, and the authorisation process is quick.
Scalable 鈥 Retailers can scale their businesses without worrying whether the payment gateway can manage more transaction volumes.
Analytics and reporting 鈥 Merchants can track their transactions, review real-time payment data, and receive data analysis on a macro level. This information is useful and can help support decision-making while offering opportunities to optimise their customer鈥檚 payments experience.
Versatile 鈥 Payment gateways can accept a wide variety of payment methods, something that is appreciated by customers who now expect a choice when it comes to payment options.
Easy to set up 鈥 Because it is a software-as-a-service (SaaS) product, payment gateway technology is often very easy to set up. It can be integrated with other systems as required.
Automated recurring billing 鈥 There are usually no up-front costs, and payment is often made on a subscription basis.
Dispute resolution 鈥 Because they take responsibility for fraud detection and monitoring, payment gateways assist in handling customer disputes and chargebacks.
Global - It doesn鈥檛 matter where the payment has come from because payment gateways support international transactions, meaning that merchants can trade internationally straight away.
不良研究所鈥檚 payment gateway platform has the flexibility to deliver solutions tailored to meet the specific needs of Acquirers and Merchants. We operate in 70+ markets with 600,000+ merchants and 100+ acquirers in over 150 supported currencies.
Choosing a payment system for your e-commerce store
There are several things that we think you should consider when using a payment system:
1. On-site and off-site processing
The first thing to consider is whether you want your shoppers to leave your website because you have two choices: on-site or off-site processing.
On-site processing 鈥 An 鈥榠ntegrated payment gateway鈥 is popular with larger businesses where a has configured the checkout experience and payment processing to work through their own system. It provides a consistent that is quick and fully customisable. Because they control the entire process, they can work on issues such as cart abandonment. However, this integration requires complex bespoke development, and the PCI responsibility lies with you because you are handling payments on your website.
Off-site processing 鈥 Also known as a 鈥榟osted payment gateway鈥, this is popular with lower volume businesses who can鈥檛 justify the high up-front cost of on-site processing. When the customer clicks on the payment link, they are taken from your website to a payment processor鈥檚 page to enter their card details before being returned to your website after making the payment. Check you are happy with the design of the processing page and ask what customisation is available. They should be fully PCI compliant, taking one less responsibility from your shoulders. Ask them what reporting is available and discuss the risk of cart abandonment as customers leave your website.
2. Payment methods
Think about how your customers prefer to pay. Are there any new or existing payment methods that you don鈥檛 offer that you could? Debit and credit cards are standard. But what about internet banking and mobile wallets? Consider whether your customers would appreciate support for partial payments such as 鈥榖uy now, pay later鈥 or BNPL. Some BNPL products are designed to help customers buy everyday items, whereas other BNPL products target customers wishing to purchase a high-value item. If you have an international business, you should look for a payment system provider supporting multi-currency processing.
3. End-to-end payment service provider vs. payment gateway
Are you looking for a payment gateway or end-to-end payment provider? An end-to-end payment services provider (PSP) offers鈥痬erchants acquiring鈥痵ervices and payment gateways. This means they have all the tools and technology to take the online customer from initiating a payment to its acceptance or refusal in the shortest possible time. For this reason, end-to-end PSPs are particularly popular with small retailers since they can provide an 鈥榓ll-in-one鈥 solution with just one integration.
4. Pricing options
Every PSP has their own fees and service terms. It is important to understand them so that you can compare them. Fees usually comprise three parts: setup, monthly, and transaction fees. It鈥檚 important to evaluate each payment, taking the percentage or unit cost and calculating how much that would cost your business in a typical month.
5. Security
When they input their card details onto your website, your customers are putting their trust in you. When you talk to them, look for the reassurance you need that they take customer security seriously and that, at the very least, they are 3D secure and level-1 PCI DSS compliant.
6. Customer service
With payments, when things go wrong, they go wrong quickly. So, it is important to consider the type of support you may require in terms of languages spoken, the level of human interaction and when help is available.
Get started with 不良研究所鈥檚 e-commerce payment system
FAQs
What is an end-to-end e-commerce solution?
An e-commerce solution is a technology that helps a business to sell online. An end-to-end e-commerce solution provides everything an e-commerce merchant would need to sell online, such as a website, shopping cart, payment processing system, and inventory management. 不良研究所 call this a 鈥榰nified approach鈥. Unified providers are attractive because they control the entire payment process.
What is a payment gateway in e-commerce?
An e-commerce payment gateway is used by online retail websites. The technology communicates the transaction to the cardholder and the merchant, securely sending the customer鈥檚 payment information to the payment processor.
What is a PSP?
PSP stands for payment service provider. Also known as merchant service providers, they enable merchants to create a simple payment experience for their customers. Most PSPs offer both鈥痬erchants acquiring鈥痵ervices and payment gateways. They have built the technology to do this themselves so that they can take your customers from the initiation of a payment to its acceptance or refusal as quickly as possible.
What is a card network?
This is the payment network to which the customer鈥檚 card (such as Amex, Visa or Mastercard庐) is linked. The payment network connects the acquiring bank and the issuing bank.
Do physical stores use payment gateways?
Physical stores use a point-of-sale (POS) system to act as the payment gateway, doing a similar job to the payment gateway that online stores use at their virtual checkout.
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