Modern Retail

Payment Processing 101: Managing your e-commerce transactions

Payment Processing

Establishing a digital presence across multiple marketplaces and channels is becoming more important than ever for businesses during the pandemic. But as more businesses become reliant on digital platforms, establishing trust with new-to-brand customers can become challenging. Trust remains a vital component in the success of online transactions. Research data has shown that over 1 in 5 customers state they did not complete a purchase because they did not trust a website or could not find sufficient payment methods available. Because of this, selecting a flexible payment processor is an ideal method for enhancing the customer checkout experience, minimising purchase friction, and reducing abandoned carts. In other words, payment processing will directly impact conversions and is an integral part of successfully and scaling businesses online.

Understanding the basics of online payments

Prior to setting payment processing systems, take the time to familiarise yourself with the systems and concepts. Although sometimes used interchangeably, the terms payment gateway and payment processor have different meanings. Payment processors are also referred to as payment service providers and act as a conduit between a seller’s bank and the customer’s bank. These processors allow sellers to receive money from customers through establishing a merchant account that will hold pending transactions until they are final.

On the other hand, payment gateways are software used for securely processing online payments. A payment gateway is created to encrypt data, streamline checkouts, and improve the overall customer experience. A gateway integrates with multiple e-commerce platforms to facilitate various payment types and manage multiple payment systems. The other features facilitated by payment gateways often include temporary payment information storage, API integration, encryption services, and reconciliation reports. Both systems work together to support the purchase process. The gateway acts as the courier between the payment website and the processor, and the processor then verifying customer funds and depositing money into the merchant’s account. In most instances, payment processors will now offer gateway services to make it easier to manage payments from one platform.

The popular types of online payment

As consumer purchasing habits constantly changing, the payments industry has changed along with those customers. Most marketplaces and websites will now provide a plethora of payment options for customers such as debit or credit cards, direct debits, alternative payment providers like PayPal, Apple Pay, Google Pay and Klarna, or even digital cryptocurrency as a form of payment. In certain instances, companies can also choose to offer ACH and invoicing.

Considerations when selecting your payment processor

Following the collection and transfer of data on a website, the payment processor will perform most of its activities. This includes checking credit card information with the relevant company and approving the payment, then transferring the money into the associated account. When reviewing or establishing a new processor system, brands should consider whether their selected provider has the correct features and support to handle the business’ specific requirements.

For instance, the types of payment accepted will likely be the most defining feature of the system. Visa and Mastercard payments are accepted globally, whereas American Express, Discover, or even newer payment types like Klarna and Clearpay are less prominently available. Providing consumers with a plethora of payment choices that cover as many financial options as possible will increase the likelihood of them completing their purchase instead of abandoning the basket. Companies that accept, process, store, or transmit any card information must also be compliant with the Payment Card Industry Data Security Standard (PCD DSS). Therefore, any payment processors integrated with your systems should at least comply with the minimum requirements.

Online businesses will often discover that the charges for payment processing systems will vary depending on the capabilities and available options. Most commonly, providers will set a percentage-based charge coupled with a fixed-fee cost per transaction, but there’s also a variety offering monthly subscriptions instead. It’s important to consider how additional fees like international payments, chargebacks, disputes, and refunds are factored into pricing to be prepared for handling a variety of customer requests.

For brands interested in facilitating a smooth experience for repeat purchases and returning customers, it can be valuable to check whether the payment processor supports tokenisation for storing sensitive details. This will also provide additional protection from hackers for the brand and the customers.

Selecting the right payment systems for your business

Customer shopping purchases can frequently change and as payment options continue to evolve the offerings that processors offer will vary. Choosing a payment provider can become challenging even after extensive research into the available options on the market.

Discover how your customers prefer to pay

To start with, consider how do customers pay your business? The type of preferred payment method will vary depending on the customer, ranging from credit and debit cards to bank transfers, e-checks and third-party processors. Geographic location will also factor into how customers prefer to pay, therefore, brands should consider whether they will require platforms for those markets, like WeChat Pay or Alipay helps handle selling in China. Selling cross-border will often mean handling changing payment preferences and supporting multiple currencies. 

Choose the right features when selecting your payment processor

Analyse customer preferences and business requirements to understand what features are required from the payment processor. Factor how the system can connect with other business processes, not just whether it facilitates transactions successfully. Some brands may require transactions to be compiled into batch reports for the Sales and Accounting departments, whereas others may require support with multi-channel selling. In certain instances, separate payment processors or gateways may be required to support the preferred payment methods for international customers.

Understand your integration needs

As a business grows, it may require additional functionality beyond what is offered by the current provider. Does the current software integrate with accounting software or multiple marketplaces? Transferring transaction data manually can cost businesses great amounts of time and resources, therefore it’s essential to examine the integration options and capabilities of a payment provider before opting to use it. Consider the flexibility, integration options, payment options, and other relevant features to avoid choosing a system that doesn’t meet the growing requirement of your business.

Support options can make a difference

Choosing a payment processor that also provides access to customer support when discrepancies arise is vital for businesses selling items high-risk products or items with frequent returns and chargebacks. By setting the correct support systems with fast responses can help customers resolve issues promptly and encourage repeat purchases.

Choose your payment processor wisely 

With a direct effect on customer experiences, conversion rates, and process efficiency, the right payment processor can help businesses enhance their chances of success selling online. Taking the time to understand the complexities of how different processors will integrate with existing systems and support growth will help to find a solution that offers a combination of advanced capabilities, ease of access and implementation, and reasonable costs.

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Stuart Conroy

Stuart Conroy has run Activ8 for 20 years and has operated across multiple channels in Asia, Europe and North America. With an understanding of the latest technology, logistics and outsourcing opportunities, Activ8 provides strategy consulting and hands-on solutions to brands looking to manage risk and scale opportunity in online commerce.

Activ8 utilise their experience of being on the Fast Track 100 on two occasions to help brands navigate the scaling process and operate a risk-averse multichannel strategy.

Having worked in investment banking before starting an ecommerce business as well as creating and working with a number of start-ups, Stuart has a great understanding of the challenges facing businesses of all sizes in the modern, digitally-influenced arenas.