E-Commerce Payment Methods
E-commerce is big and getting bigger. In 2023, mobile e-commerce sales, in particular, are expected to top $415 billion, making up 6% of all retail sales. By 2025, mobile sales could be as much as $710 billion.
To reach today’s shoppers, your business must accept online payment methods, from credit cards to digital wallets. Learn more about e-commerce payment options and what your company can do to increase the number of payment methods it accepts and the number of customers it can reach.
What Is E-Commerce Payment Processing?
E-commerce payment processing is what allows a business to accept electronic payments. The process of paying online is usually over in what seems to be only a few seconds, but payment information actually makes a fairly long and detailed journey from submission to approval.
E-Commerce vs. Traditional Payment Processing
E-commerce payment systems differ from traditional payment processing methods in a few ways. With traditional payment processing, a merchant connects a third-party payment gateway to the checkout process. The customer needs to visit a separate page to provide their payment details. They are then redirected back to the checkout page of the merchant.
E-commerce payment processing removes the intermediary, as it integrates payment processing into your website. It’s perceived as more secure and trustworthy by the customer, as they aren’t being taken to an unknown third party. Integrating e-commerce payment processing into your retail website helps build trust with your shoppers, which can lead to more sales.
How Does E-commerce Payment Processing Work?
Several parties are involved in the online payment process. Most of the work happens behind the scenes and moves quickly, so a customer may not realize their payment information has to go through several steps before it’s approved and the sale is complete.
1. Customer Inputs Payment Information
The e-commerce payment process begins when a shopper inputs their payment information during checkout. They may use a credit or debit card or a digital wallet such as Apple Pay, Google Pay or PayPal. The customer inputs their payment information into the checkout page on your site. The data is then encrypted and sent over a payment gateway to a processor.
2. Information Reaches Payment Processor
Once the processor receives the payment information, it reaches out to the bank connected to the debit or credit card. The bank confirms that the customer has enough funding to cover the transaction. If all is well, the bank approves the transaction. If there isn’t enough money in the account or on the credit line or the bank suspects fraud, it declines the transaction.
3. Transaction Is Accepted or Declined
From there, the payment processor lets the payment gateway know if the transaction was accepted or declined. The payment gateway then shares that information with your website. If the bank approved the transaction, the sale is complete and the customer gets an order confirmation. If the bank declined the transaction, the customer receives an error message and is asked to try again or seek help.
4. Approved Transactions Go Through
After the transaction is approved and complete, the total amount is deducted from the customer’s bank account or credit line and sent to your merchant account.
Who’s Who in E-Commerce Payments
There are several participants in the e-commerce process. Take a closer look at what each party does and their roles.
A payment processor is the service provider your business uses to accept credit cards and other digital payment methods. It facilitates the e-commerce transaction by sending payment data to the customer’s credit card or bank and your merchant account.
A payment gateway is necessary if your business wants to accept payments online. It’s a platform that connects your website to a merchant service provider, enabling data transfer between the payment processor, issuing and receiving banks, and your website. When a customer’s bank or credit card approves or declines a transaction, the information is sent to your website through the payment gateway.
After a customer’s bank or credit card authorizes an e-commerce transaction, the money needs a place to go. The funds are deposited into your merchant account.
A merchant account is separate from your business’s bank account. To get a merchant account, you need to have a relationship with a merchant services provider, which provides software and hardware for e-commerce sales. Some banks offer merchant accounts, but before choosing a provider, you should consider factors like:
- Hardware and software costs
- Quality of customer support
- Contract length and other terms
Once you’ve opened a merchant account, you can link it to your business’s bank accounts. You can transfer any funds in your merchant account to your business checking or savings, usually after a day or two.
What Are the Types of Global Payment Methods?
E-commerce payments take place over the internet, but the payment methods vary considerably. Several e-commerce payment methods exist, and the available options are evolving.
The payment method a customer is likely to choose depends largely on the options available and their preferences. To facilitate the payment process and reduce the chance of turning a customer away, consider accepting as many payment types as possible.
Details From Physical Cards
Types of e-commerce payment methods with physical cards include:
- Credit cards: Credit cards have 16-digit numbers assigned to them, plus an expiration date and security code. When a customer uses a credit card to pay, the sale amount is deducted from their credit line. If they have enough remaining on their credit line, the issuing bank typically authorizes the transaction.
- Debit cards: Like credit cards, debit cards have 16-digit account numbers, an expiration date and a security code. They’re connected to a customer’s bank account, typically their checking account. When a customer pays with their debit card, the funds are pulled from their bank account.
- Prepaid cards: Prepaid cards work similarly to debit cards but aren’t connected to a bank account. Instead, a person purchases a card and “loads” a certain amount of money onto it. Every time they use the card, the purchase amount gets deducted from the amount loaded onto it. Some prepaid cards are reloadable, while others aren’t, like gift cards. If there aren’t enough funds on the card, the transaction gets declined.
Payment With Account Information
In the digital age, customers can also use account details or securely stored card information to make purchases online. These are digital payment options like:
- Digital wallets: Digital wallets “store” customers’ credit and debit card information. Examples include Apple Pay and Google Pay. The wallets can be used on any device, including a smartphone, laptop or tablet. They’re designed to make paying for purchases more convenient and secure because they encrypt and tokenize payment information.
- Online payment services: Sites like PayPal or Venmo connect to a customer’s bank account. Shoppers log in to the payment platform at online checkout instead of needing their bank account details.
- Bank transfers: A bank transfer, or an automated clearinghouse (ACH) transfer, pulls money directly from a customer’s bank account. To perform the transfer, the customer needs to provide their bank’s routing number and account number. They can usually use a checking or savings account.
- EChecks: EChecks are often confused with ACH payments, but the two methods differ. ECheck is a form of ACH, but it’s not ACH itself. When paying by eCheck, a customer provides information that would be found on a paper check and authorizes the payment. It does take slightly longer to receive funds from an eCheck, but it processes as quickly as ACH.
Other E-Commerce Payment Methods
Other payment methods include:
- Buy now, pay later: Customers split the cost of purchases into installments with this method. Typically, buy now, pay later programs are offered through a third party, which collects the payments from the customer and may charge them interest.
- Cash on delivery: Cash on delivery (COD) is a relatively old-school payment method that’s still popular in some parts of the world, often in places with a large unbanked population or where credit or debit card use is uncommon. With COD, a customer orders a product or service and pays in cash when the item arrives at their home or the service is performed.
What to Look for in an E-Commerce Payment System
Make it easier to choose among your many e-commerce payment system options by knowing what to look for. Because each business has different needs, a payments platform that’s right for one store or merchant may not be right for you.
Keep an eye out for these qualities when choosing your payment system.
The payment solution you choose should be secure. Security can take several forms, so look for the following features:
- Tokenization: Tokenization turns sensitive credit card and other payment data into randomly generated tokens. On their own, the tokens have no value, so if they are intercepted by a third party, the third party can’t use them elsewhere.
- Hosted payment pages: Holding on to customers’ sensitive payment information puts you and them at risk. Hosted payment pages mean that your company doesn’t store payment details on its site and that any payment information is kept secure.
- End-to-end encryption: Encryption transforms data into strings of gibberish, making it worthless if intercepted. Look for a payment system that uses Payment Card Industry (PCI) validated, end-to-end encryption.
2. Ability to Accept Different Payment Types
The more payment types you can accept, the wider your customer base. Choose a payment system that lets you accept credit and debit cards, digital wallets, eChecks and other payment methods.
3. Costs and Fees
All payment processors charge fees for using their services, but the fees vary. Before deciding to work with a payment system, review the costs associated with it and the fees it charges. Typical fees include:
- Monthly subscription fee
- Transaction charges, which can be a flat fee or a percentage of the purchase amount
- Setup fees
4. International Payments
When you sell online, you may have customers from all over. To accommodate people living in countries other than yours, you may want to look for a payment system that lets you accept payments in other currencies.
Why Work With CSG Forte?
CSG Forte lets you manage your payment operations from a single location. Our complete payments solution lets you accept any payment method, from cards to digital wallets to ACH. Our solution goes beyond online sales, allowing you to accept payments in person and over the phone.
We also have several pricing structures available. Choosing the pricing model that works best for your business, based on your sales volume and transactions.
Contact Us Today to Get Started
If you sell online, you need a payment system that’s secure, affordable and flexible. Contact CSG Forte to learn more about our complete payment solution or to sign up for an account.