+ Beginner's guide to ecommerce payment processing. | Inovio
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Beginner's guide to ecommerce payment processing.

The internet is increasingly becoming the first choice of consumers when it comes to purchasing products. In many cases, they may look at and touch items at a physical store, only to walk away and consummate the sale online. As more merchants come to recognize that this is the way of the world today, they are augmenting their physical presence with an online retail footprint, a type of business model known as ecommerce.

Why is ecommerce so popular?

The chief attribute of ecommerce is the convenience it brings to purchasing, particularly now that shipping and delivery can be accomplished within a day or two. Customers can peruse your offerings day or night and initiate their purchase from anywhere on their laptop or even their phone. Payments are fast, easy, and secure and can be made via credit or debit cards, bank transfers, and even gift cards.

The role of the merchant account.

From the customer’s perspective, just a few seconds elapse between the pressing of an online “submit order” button and the confirmation of a purchase. However, a great deal occurs behind the scenes when it comes to your merchant account. Different from your business banking account, your merchant account is the holding place for your customers’ payments after they have been confirmed by their banks. Your merchant account should be versatile, allowing for payments from online, mobile and, brick-and-mortar point of sale solutions.

Before being granted this type of account, your business will need to submit various pieces of documentation and undergo an underwriting process to assess the financial risk of partnering with you. Expect to be asked to submit information about your financial history, length of business operations, and your business principal’s personal credit score, as well as any other companies you may be involved with. Depending on your business and your particular needs, there are several types of merchant accounts, some of which contain all of the features you need to accept customer payments.

Payment gateways explained.

As a retailer, the less contact you have with sensitive credit card information, the better. A payment gateway is the software architecture that connects to your website, takes all of the necessary payment details, encrypts them for maximum security, and transmits them to the payment processor. Basically, you can think of your payment gateway as the software equivalent of a card reader at a brick-and-mortar store. While you certainly can obtain one of your own, you do not necessarily need to do so. Small businesses in particular may find that an aggregated service that contains accounts from several merchants is less expensive yet equally effective.

There are several different types of payment gateways, including:

  • Hosted checkout gateways. These send customers to the payment service provider’s page for processing and then return them to your site to complete the procedure. 
  • Self-hosted gateways. In this instance, the entire transaction is conducted on your site, with the data the customer provides being sent to the gateway’s URL for secure processing.
  • API-hosted gateways. Again, customers never leave your page. The payment is processed via an Application Programming Interface (API), which you can easily customize.
  • Local bank integration gateways. The customer is redirected to the bank’s website for submission of payment information and subsequently returned to the merchant’s page. This processing structure is run directly by the payment gateway itself.

Each type of gateway has its pros and cons. Determine which features you require and how much control you want to have over the customer’s payment experience to decide which is best for you.

What happens behind the scenes.

Customers may not need to know the details of what transpires once they provide their card information, but it is in your best interests as a merchant to understand the intricacies. It goes like this:

  • The authenticity of the payment is verified.
  • The payment processor sends a request to the issuing bank to authorize the payment amount.
  • Depending on whether sufficient funds exist, the issuer sends notification of confirmation or declination to the payment processor.
  • Money is sent to your acquiring bank.
  • Funds are deposited in your merchant account, which could take up to a few days.

In order to safeguard the transacted information, all communications are encrypted. Furthermore, the players involved are required to abide by Payment Card Industry Data Security Standards (PCI DSS).

Types of payments.

The beauty of ecommerce is that it allows buyers to make their purchases using a wide variety of payment types. These include the following major ones:

  • Credit cards. Not surprisingly, they are the most common payment method for ecommerce payments.
  • ACH transfers or echecks. This type of electronic funds transfer uses the Automated Clearing House (ACH) network for payment processing. To use it, a customer provides their check and bank account routing numbers just as they would with a standard paper check. The information is processed quickly, allowing for funds to be placed in a merchant’s account much sooner than they would with a standard check.

Thanks to PCI DSS requirements, consumers can be assured that their account information and identities will not be compromised.

Online security issues.

Although cybercriminals are endlessly creative in devising new ways to steal information, the card industry continues to take every possible action to protect both buyers and sellers. This is particularly important because physical cards are not present during online purchases. To increase safeguards, the card networks have begun to implement additional security measures.

One of the most popular of these is 3D Secure, which enhances the security of the authorization process by also strengthening authentication for the acquiring bank, the issuing bank, and the domain that handles the customer’s data throughout the transaction. Customers recognize that 3D Secure is in place when they are redirected to an external site owned by the credit card network where their account is authenticated.

Digital wallets allow customers to input and save all sensitive information and credentials electronically for later use in online purchasing. Then, when the time comes to consummate the sale, they only need to enter a pre-chosen password.

These new types of security protocols and methods of payment illustrate one undeniable fact: ecommerce is alive and well. This constantly evolving way of doing business is providing consumers with a convenient and increasingly safe way to procure goods and services. In these turbulent times, when virtual interactions are becoming the norm, ecommerce is making it possible for retailers to shore up and expand their operations.

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