Running an effective and growth-focused ecommerce store requires getting the right tech infrastructure in place, including selecting an ecommerce payment processor.
With a strong ecommerce payment processor, platform, or service provider, you’ll rarely — if ever — have to think about what’s going on with the back end of your sales transactions. Instead, you can stay focused on managing orders, improving customer experience, and growing your ecommerce business.
If you poke around the internet, you’ll find a range of companies offering secure payment processing to ecommerce businesses. Many bundle this service with other tools, and each has its own flavor and fee structure.
In this guide, we’ll show you what you need to know about how ecommerce payment processing works. Plus, we’ll give you our take on eight of the top ecommerce payment processing tools being used by businesses like yours.
What is ecommerce payment processing?
Ecommerce payment processing is everything that happens once an online store accepts payment from a customer. This includes authorizing the online transaction, securely transmitting credit card information, and ensuring the ecommerce merchant receives the funds. This process includes both a payment gateway and a payment processor.
3 essential components of ecommerce payment processing
While most people can (and do) enjoy ecommerce without thinking about what’s going on behind the scenes, it’s helpful as a business owner to have a sense of what goes into ecommerce payment processing.
This working knowledge becomes vital as you work through decisions like which online shopping payment options you’ll offer in your store and which solutions you’ll include in your ecommerce tech stack.
We can break down ecommerce payment processing into three essential components, which provide a basic framework for understanding what goes on when a customer makes an ecommerce purchase.
1) Payment gateways: Verify payment method
The payment gateway is the mechanism that connects your ecommerce website to the online payment processor. It’s a courier of sorts, safely and securely ferrying ecommerce payment information from your website over to the secure payment processor.
Payment gateways look different to the customer depending on how yours is set up. On Shopify or BigCommerce, for example, customers interact with the gateway right from a special input field on your website.
Other payment processors, like PayPal or Stripe, might take your customer to a new page where they input their credit card information.
In any case, the gateway also performs the crucial task of authorizing payments to ensure you receive payment on your end.
It’s also possible to host the transaction yourself on your own server, but it’s a far more complex solution that requires specialized technical expertise. A payment gateway removes the need to have to build out this kind of functionality on your own.
2) Payment processors: Read payment method details
The payment processor is the entity that receives payment information from the payment gateway and then does the technical work with that information.
Your payment processor will verify that a payer has the necessary funds to pay for what they’ve ordered. Then, it will securely execute the transaction, taking funds from the customer at the issuing bank and depositing those funds into your merchant bank account.
This might sound similar to a payment gateway, but they’re performing different tasks and both are required to process payments.
Think of the gateway as a messenger taking information, ensuring it's correct, and delivering it to the processor, who then acts as IT to make sure money goes where it needs to be.
In some cases, the same provider is both the gateway and the processor, but you might also use a different service for each part of the transaction.
3) Merchant accounts: Receive funds
Your merchant account is essentially the business bank account you’ve set up to receive funds for ecommerce payments.
You can also send payments from a bank account, and you may use this one that way, too — but for the purposes of discussing ecommerce payment processing, we’re looking at the merchant account as a place that receives funds.
How does ecommerce payment processing work?
We’ve covered the three main components of ecommerce payment processing, so now we’re ready to walk through everything that happens during a standard transaction. Here’s a step-by-step overview.
1) Open payment gateway after the customer enters their payment information
The process starts when a customer finishes adding items to their shopping cart, begins the checkout process, and enters and submits online payment information. Usually this is credit card or debit card information, though your site may support other forms of payment, from Google and Apple Pay to gift cards to other currencies and even cryptocurrency.
When the customer enters and submits payment information, your ecommerce site or platform opens a payment gateway.
2) Encrypted payment details are sent to the processor
With a secure payment gateway opened, now the online payment information is sent — fully secure and encrypted — to the payment processor. Your chosen payment gateway (or the one chosen by your payment service provider) handles the technical work here, so you don’t have to.
3) Payments are either authorized or rejected
When the payment processor receives the encrypted payment information, the processor checks to see if the information is valid (in other words, whether the customer has funds or credit to back up the transaction, along with whether the information is correct and intact with no mistakes).
If the information is valid, the processor authorizes the transaction. If there’s a problem with the information (ranging from a typo to missing funds or even fraud concerns), the processor denies or rejects the online payment.
4) Payment processor informs the gateway of authorization or refusal
Next, the payment processor lets the payment gateway know whether the transaction has been authorized or refused. Then, the gateway reports back to your site or platform, and the user can see the results there.
5) Payment processor credits the merchant account
If the online payment is authorized, the payment processor credits the merchant account with funds for the transaction. At this point, the ecommerce payment process is complete:
- The merchant has received funds from the customer (or, more specifically, from the customer’s creditor).
- The customer (or creditor) is charged for the purchase and should soon see a pending charge on a credit or debit statement.
- The merchant is ready to proceed to order fulfillment and shipping.
This entire five-step process (along with any subtasks or exceptions encountered along the way) happens typically in just a few seconds. The process — when it works properly — is nearly invisible, both to the customer and to your ecommerce business. You get to focus on growing your business and fulfilling those orders, and your customers enjoy a seamless ecommerce experience.
Factors to consider when choosing an ecommerce payment processing solution
The credit card processing solution you choose has a big impact on your ecommerce store. Part of that is about trust and security — do customers feel safe giving you their credit card number?
It also impacts the customer experience in what types of payments are accepted and if information can be saved for future purchases. And for you, fee pricing will impact your revenue.
Here are the questions you should ask when choosing an ecommerce payment processing solution.
Is the processor compatible with my ecommerce platform?
Whatever payment processor you choose needs to work with your chosen ecommerce partner, whether that’s Shopify, BigCommerce, or another competitor.
Those big providers have many processor options, but smaller ecommerce platforms may have a more limited variety that integrate with their service.
Is the processor secure?
This factor has two components. First, you need to know as the ecommerce merchant that your processor has measures in place for fraud protection and denies suspect transactions. It should also provide encryption for all data.
Second, customers should feel safe and secure, too. They expect a seamless experience with a gateway that blends seamlessly into your site, including your branding. Being sent to another website or an out-of-date interface can make customers feel uneasy.
Is the processor PCI compliant?
Any provider that deals with credit card information must be compliant with the Payment Card Industry Data Security Standard (PCI DSS).
The PCI is the gold standard for credit card transactions and has 12 key requirements for processors, including encryption and other protections, to protect against fraud and theft. Meeting these requirements is mandated by credit card companies.
What types of payment does it accept?
Customers want options when it comes time to pay. It’s standard to accept major credit cards like Visa and Mastercard, but also consider a processor that allows less-accepted credit cards like American Express.
As well, there are newer online payment forms to be considered such as buy-now-pay-later providers like Klarna and Afterpay, or mobile payment options like Apple Pay, or even cryptocurrency like from Bitcoin wallets.
Does it create tokens?
Tokenization a way of securing online payment information. When a customer pays, a token is created that identities their unique information, protecting it from data theft.
The benefit here is also that tokens allow for customer information to be securely saved for a faster checkout the next time they place an order. Faster checkout is always a win and tokenization helps achieve that.
What kind of fees will you pay?
All processors will come with transaction fees, but how that pricing is structured can vary.
Typically, you’ll pay a flat fee plus a percentage for each transaction, though others may charge a flat monthly rate instead. Your ecommerce platform may also have lower, pre-negotiated transaction fees with various payment providers.
You also need to look at what transaction fees you might be hit with for disputed purchases, chargebacks, or credit card payments from different countries with different currencies. You’ll want to compare different providers to find a fee structure that makes the most sense for your ecommerce business.
Best ecommerce online payment solutions (with pros & cons)
The ecommerce payment solutions market is a busy one, with dozens of solutions available to most ecommerce businesses. They range from simple, limited payment systems built into an ecommerce platform (see all the limits on Shopify Payments, for example) to wide-ranging systems with more features (and, perhaps, costs) than make sense for your business right now.
We’ve rounded up eight of the best payment solutions available right now. Below we’ll show you the basics of each ecommerce payment processor or online payment service provider, along with pros and cons for each one.
We’re giving you unbiased, real opinions here: Gorgias works equally well with the big three ecommerce platforms (see how we work with Shopify, Magento, and BigCommerce), and our helpdesk and customer support system can work with just about any payment processor as a result.
PayPal is a household name and one of the earliest successful payment processors, dating all the way back to 1998. Originally a brainchild of eBay, PayPal now exists independently, with its own considerable network of subsidiaries and targeted products.
As one of the first and most popular solutions, PayPal has an impressively wide global footprint and is widely adopted as an online payment platform for ecommerce businesses of all types and sizes.
There can be some confusion surrounding PayPal because the platform is both an ecommerce payment processor (where customers can pay using a variety of online payment methods, including their PayPal balance) and a personal payments platform where customers store or send money.
This doesn’t damage the brand as a payments processor, but it can create customer confusion (for example, prominent PayPal branding could lead users to think they must pay with PayPal when that isn’t the case).
- Widely scalable, from small business to enterprise
- Supported by most other tools/solutions
- No monthly fees for lower tiers
- Known to erroneously freeze assets, temporarily crippling affected small ecommerce businesses in the process
- Inconsistent features based on geography
Checkout Champ is an ecommerce platform that works with Shopify, BigCommerce, WooCommerce, and more. Checkout Champ promises to boost conversion rates by 20% or more, boost average ticket value through one-click upsells, etc. It offers free initial setup and migration from your existing solution and includes a powerful internal ecommerce CRM.
Checkout Champ shines especially well for businesses that sell recurring or subscription-based solutions, and it boasts faster page-load speeds (which matters if 53% of shoppers abandon a slow cart).
- Impressive, wide-ranging feature set includes many marketing- and sales-friendly features
- Promises no or lower fees compared to competing products (but see the hefty monthly subscription below)
- Best for established companies looking for aggressive sales growth
- Aggressive pricing ($300 per month + 1%) may lock out smaller businesses and early-stage startups
- May be more product than many businesses need
Use Gorgias? Check out our integration with CheckoutChamp.
Businesses like Stripe as a payment processing solution because its API gives them ultimate customization and flexibility for accepting credit card payments, setting transaction fees and processing fees, and just about everything else related to payment processing services. It’s also PCI-compliant and works well internationally.
Of course, not every ecommerce business wants endless customization. If you’re looking for a turnkey solution, Stripe might not be the best payment processor choice.
- API availability gives larger and more tech-forward ecommerce stores the ability to customize Stripe’s functionality
- Accepts payments in nearly all currencies (and allows for payment in Bitcoin)
- Unnecessarily complex according to some Stripe users
- Nickel-and-dime pricing structure
- Funds availability can be slower than other services (depending on setup and location)
Square first made a name for itself with its headphone jack (and, later, Lightning port) credit card readers, which it delivered to small businesses and startups for free or deeply discounted. Others (including PayPal) have since copied that business model, but Square retains a strong market share, especially among small brick-and-mortar retailers and restaurants.
Because the company has a point of sale foothold as well, Square is uniquely situated to support both in-person and online payment. The platform also contains payroll and time management tools, online invoicing, and other operations-specific tools.
- Great solution for small businesses that need POS, ecommerce payment processing, and other operational tools
- Original use case (turning your phone into a POS terminal) remains invaluable to mobile businesses
- Clearly built for smaller operations, and outgrowing the platform is a real possibility
- Basic functionality is fee-free, but per-transaction costs can add up quickly
BlueSnap is another globally-focused payment processing solution that charges per-transaction fees but not monthly fees or setup fees. BlueSnap boasts support for several prominent Chinese brands and services, including AliPay and China Union Pay.
One of the big selling points of BlueSnap is the ability to receive online payment in over 100 currencies and pay out in 16 currencies. Businesses with a significant international customer base will benefit from this. It supports virtual terminals, has a payment API, and can handle invoicing and other merchant services.
- No recurring or setup fees
- Reduces backend complexity
- Sandbox mode for testing new implementations
- Pushes quote-based pricing heavily (Note: This isn’t bad if it results in savings, but we dislike the lack of price transparency)
- Reports of outdated, inaccurate, or unavailable documentation
While it might sound like a feature reserved for Amazon sellers, Amazon Pay is a much more broadly available product. Online ecommerce sellers can add Amazon Pay as a payment service provider and essentially outsource the checkout and payments process to Amazon. Companies like EyeBuyDirect, Belkin, and even Samsung offer Amazon Pay.
Existing Amazon customers will love that they don’t have to give you new shipping and credit card information, and you’ll greatly reduce friction at checkout — potentially reducing cart abandonments (recently clocked as high as 81.08% in one survey) and increasing conversion.
- Leverage the trust that people have in Amazon as a payments platform
- Stable and unsurprising, with very few negative reviews on G2
- Less expensive overall than the competition
- Requires customers to have an Amazon account
- Users are at the mercy of Amazon in terms of data sharing, feature changes, etc.
Klarna is a buy now, pay later (BNPL) solution that lets you offer financing options to customers without taking on any financing liability. If you sell higher-ticket items and want to expand your payment methods beyond the conventional, Klarna could be a valuable add-on product.
However, be aware that it isn’t a standalone payment processor. You’ll need another solution that supports Klarna (such as PayPal) if you want to implement Klarna’s real-time BNPL solution in your online store.
- Lets you offer financing without taking on additional risk
- Expands your reach as an online business, allowing you to reach customers that might not otherwise be able to afford your products
- Not a standalone ecommerce solution
- May be a bit consumer-hostile
Similar to Klarna, Sezzle is a bolt-on product in the buy now, pay later space. With Sezzle, your customers can split purchases into four payments spread over six weeks. The payments are interest free — as long as customers pay on time.
Financing services like this aren’t the right choice or look for every brand. But if you’re looking to add financing options to your ecommerce presence and don’t want to take on risk or liability, Sezzle is worth considering.
- Offer financing without incurring risk
- Reach customers with your products that may have previously been priced out of your market
- Not a full-service or standalone ecommerce product
- May not offer the image you’re aiming for as a brand
How your ecommerce payment processor impacts the customer experience
Payment processing isn’t just a backend concern for ecommerce business owners — it also deeply impacts the customer experience.
Retailers like Amazon have made one-click checkout the expected standard, with credit card information saved and ready to go. According to Salecycle, 26% of customers will abandon a cart due to a long or complex checkout and your payment process is a huge part of that.
Ecommerce platforms have made it easier than ever to provide a faster payment experience. Jewelry brand Jaxxon, for example, uses Shopify and is able to provide one-click checkout through ShopPay, Amazon Pay, PayPal, and GooglePay, as well as a traditional option to enter credit card information.
The customer sees these options as soon as they go to checkout:
Think of your payment processor not just as a barrier to getting money into your merchant account, but as a way to a barrier to conversion that will impact your revenue.