Accepting online payments: the essentials

Allowing your customers the convenience of paying online is crucial to the success of any ecommerce business. Luckily, setting up a payment system is simple once you understand what’s involved.

[Note: This article is the third article in a multi-part series by Chris Dahl providing guidance on setting up an ecommerce business. Read Part 1: Commerce Success Begins With Laying Solid Foundations and Part 2: Commerce partners: who’s right for you?]

Though it seems straightforward from the outside, the complete picture for an online payment is rather complex. A single transaction actually involves more than just you and your customer, and ties together many moving parts governed by strict industry standards.

In a typical setup, you’ll find a merchant account usually held by your bank, and a payment gateway acting as the point-of-sale terminal for your website or application. Each of these play a critical role in moving money from your customer’s account to yours.

What is a merchant account?

Short answer: A bank account with bonus privileges.

Like ordinary bank accounts, a merchant account gives you a place to store incoming funds but what makes them special are the extra provisions for accepting debit and credit card payments, making them essential for conducting business online. When shopping around for a merchant account you’re not just limited to banks; they can be obtained from any institution that has a processing relationship with a credit card company, allowing you to choose from a more varied pool of features and benefits.

One thing to note when applying for a merchant account: it can be lengthy and involved. Your merchant account provider will typically request details about your business model and finances, and possibly your personal credit rating as well.

What is a payment gateway?

A payment gateway is the bridge between your website or application and your merchant account. It contacts the bank or credit company to verify the payee’s card and details, and conducts anti-fraud checks using customer location, transaction history and a variety of other data to ensure the validity of a transaction.

Your needs as an ecommerce business may determine the payment gateway you choose, as different gateways will accept different payment methods. Typically, Visa and MasterCard are accepted by most, if not all payment processors, but only a subset of these will also take American Express, China UnionPay, JCB and Diner’s Club cards. This is important to keep in mind if you plan to sell your products in regions where domestic card brands are widely used.

What is an ‘all in one’ service?

These days, you’ll find a range of ‘all in one’ services on the market where your merchant account, payment processing and payment gateway are all handled by a single provider.

While ‘all-in-one’ services can help you avoid multiple fee sets, it’s important to keep in mind that fees can be misleading. Whether you go with an ‘all in one’ or separate service providers, make sure you’re not locked into a pricing structure that has you paying for what you don’t use. Newer payment processors have done away with old-fashioned contracts and fixed monthly fees, instead charging based on the transactions that actually involve their services.

Pick a payment provider who will grow with you

Imagine where PayPal would be today if they had stuck with Palm Pilot cryptography instead of pivoting into the online payment platform they are today. Or if Apple hadn’t shifted focus toward thoughtfully designed consumer products. Your business could look completely different in just a couple of years.

Most of the time, change happens gradually enough that businesses have time to adapt. Other times, even the events of just one week can be enough to turn whole industries and markets on their heads.

When it comes to your payment provider, make sure you choose one that uses credible, robust and future-proof technology. Remember: you don’t need to be a techie to ask about their best-practice standards and security measures, the online platforms they integrate with, or whether they provide a developer API.

All of these factors ensure you’re dealing with a payment provider who can adapt to an ever-evolving market and is scalable enough to support you as your business grows.

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About the author

By Chris Dahl, Director, Sales & Growth at Pin Payments, an all-in-one payment provider, enabling businesses to accept payments around the world without a traditional gateway or merchant account.