eCommerce Credit Card Payment Processing

Today’s consumers expect to be able to pay by credit card almost anywhere they go. Here’s how to get eCommerce credit card processing started.

eCommerce Credit card processing is a necessary aspect of any e-commerce business. Your e-commerce credit card processing service allows money to move from your customers’ accounts to yours, quickly and conveniently. Whether they are purchasing goods or paying a bill, consumers expect the option to do so electronically.

The ease and speed with which electronic payments are made due to complex behind-the-scenes operations. It may not be necessary for buyers and billpayers to understand the process. However, for the business owner receiving the funds, it makes financial sense to have a basic understanding of how online credit card processing works.

First, it’s important to comprehend that e-commerce credit card processing requires three main elements: a customer interface, a merchant account or third-party payment service provider to collect funds, and a payment gateway to approve purchases.

You have options in each area, and the choices you make can affect the rates you pay, the level of customer service you receive, and the overall experience your company provides to customers. That’s why it’s important to understand what’s involved in e-commerce credit card processing before you start accepting online payments and choosing your merchant account or vendor.

credit card processing

Your customer interface needs to make a positive first impression

Whatever your business, you need a mechanism to interact with your customers. If you are selling a product, that mechanism is your website and shopping cart. If you’re a service provider, it’s the electronic invoice you send with a payment link. Either way, this portal helps create an important first impression of your company.

You want your customer interface to be easy, clean to navigate and reflect your brand with your company logo and brand colors. You also want it to be secure, so customers feel comfortable entering their payment information on your site.

Merchant accounts allow you to accept credit card transactions.

When a customer makes a purchase, their money has to go somewhere. E-commerce credit card payment systems are not tied directly to your existing bank account, so the funds will not go directly into your merchant bank account. Instead, you will need to open a merchant account.

A merchant account is a bank account with a merchant acquiring bank that businesses use to accept credit cards and other electronic payments. The merchant acquiring bank acts as an intermediary between the business and the credit card company, facilitating payment authentication and other technical aspects. Once electronic payments are processed and approved, the bank distributes the funds to the merchant’s account.

Since the money is transferred from the merchant’s account to your merchant account before the customer has paid his credit card bill, the merchant account covers those charges. Because of this, a merchant account is considered a line of credit.

If a customer requests a chargeback because they were dissatisfied with the product or service or had problems with their experience, you, as the business owner, are responsible for those charges.

Since a merchant account is considered a line of credit, you may want to apply for a merchant account through your current bank or credit union. You can also save on fees, and gain convenience, by meeting all of your merchant banking needs through a financial services provider.

Most banks will require some or all of the following information on your merchant account application:

  • Business activities.
  • Banking information.
  • Tax returns.
  • Payment model.

They may also perform a business or personal credit check.

Once you are locked in with a merchant account, you may be required to sign a multi-year contract.

Merchant accounts take longer to set up but are likely to end up costing you less in the future, while payment service providers and e-commerce sites are easier to set up but have higher fees.

Many business owners find that having a merchant account is the least expensive option for accepting credit card payments. The merchant’s acquiring bank may charge monthly and per-transaction fees, but it may be less expensive than other options.

If you have a physical store in addition to your online presence, a merchant account may allow you to accept credit card payments at the point of sale, as well as allow customers to complete card-not-present transactions through your website.

Third-party payment processor: a simple solution for accepting online payments

Fortunately, there is an easier way to start accepting online credit card payments. You can choose a third-party payment service provider, such as Square, Stripe, or Paypal.

Some of these services have fixed monthly fees in addition to transaction fees, while others have free plans that only charge transaction fees. Transaction fees generally include a flat fee plus a percentage of each credit card purchase.

You can get started using a third-party payment service without an extensive application or credit check process. It’s quick and easy to choose your e-commerce payment processing provider and get started. Billing is usually monthly, so you won’t be locked into a long-term contract.

However, some customers have complained of sudden account holds or even account closures by the company’s fraud prevention team.

In addition, fees can add up quickly, especially if you are paying a flat monthly fee, a flat fee per transaction, and a percentage of each sale. Despite this, the simplicity of these systems leads many business owners to start accepting credit card payments with this model and possibly switch to a merchant account as their sales volume grows.

E-commerce platform: one-stop shopping and e-commerce payment processing

If you use an e-commerce platform such as eBay, Etsy, or Shopify for your online business, you don’t have to worry about setting up a merchant account or choosing an e-commerce payment provider system.

These platforms have built-in payment processors and most accept major credit cards as well as alternative payments such as gift cards.

To get started, you will create your store and activate your payments. You can choose to create an e-commerce website from scratch or implement e-commerce capability on your existing website. Regardless, you will need your employee identification number (EIN) and banking information for setup.

Most of these sites charge a monthly fee plus transaction fees to cover online payment processing.

Other options for accepting online payments

Service providers and contractors often choose to accept or receive payments without using credit cards. ACH (automated clearing house) processing allows customers to pay directly through their bank account. This convenient and secure means of accepting payments can carry lower fees than debit or credit card payments and is more convenient and secure than writing a check.

Overseen by the National Automated Clearing House Association, this payment method withdraws money directly from your customer’s bank account and deposits it into their business bank account after they have provided their bank account number, routing number, and authorization.

Enabling ACH payments can help avoid late payments for recurring customers, which helps improve your business cash flow, not to mention a predictable stream of recurring revenue.

Similarly, you can set up acceptance of monthly recurring ACH, debit, or credit card payments by setting up a subscription billing plan. Some e-commerce payment processors, including Paypal, allow this option through their payment platform.

The Payment Gateway: How Credit Card Transactions Are Approved

Whichever type of service you choose, there is another element of card-not-present e-commerce credit card transactions that you should be aware of, which is the payment gateway.

A payment gateway is a software application that communicates with the credit card company to obtain an authorization or denial of a transaction. Think of it as a virtual credit card machine, minus the magnetic stripe or chip reader. This lower level of security is one reason why transaction fees for e-commerce are often higher than for sales when the card is physically present.

The payment gateway encrypts customer information, an important aspect of the gateway functionality, and forwards it to the credit card company. The credit card company verifies that the consumer has available credit, holds the funds, and sends a message back that the sale has been approved. This is what happens behind the scenes for a few seconds before your customer receives that “thank you for your order” message on their screen.

The funds are now in the merchant’s account and will move into your account on a predetermined schedule, usually once a day. The number of funds coming into your account will be decreased by various fees.

If you are using a payment service provider, you can set the time frame for transferring funds or transfer funds to your connected bank account manually whenever you wish.

Choosing your credit card payment mechanism for e-commerce

As you can see, there are advantages and disadvantages to each type of payment system. Merchant accounts require more time to set up, but will likely end up costing you less in the future, while payment service providers and e-commerce sites are easier to set up but have higher fees.

Understanding how credit card transactions work can help you make a more informed decision.

Here are some questions to research about the various options in e-commerce credit card processing companies and methods. Discovering the answers to these questions can help you find the best e-commerce credit card processing solution for your business.

What features does this service offer?
How much can I expect to pay in fees based on my transaction volume?

  • What level of customer service can I expect to receive?
  • E-commerce credit card processing is complicated, but that shouldn’t stop you
  • from doing business online.

Armed with the knowledge about how credit card processing works, you can make a more informed decision about the most economical and effective way to accept credit card payments from your online customers and provide a seamless experience for your shoppers or customers.