Credit Card Processing Essentials for E-Commerce Business

Being able to accept credit card payments online securely is a key part of running an e-commerce store, especially if you want to sell goods beyond the borders of your home city or country. Business owners who are just starting to research credit card processing will benefit from understanding the different types of credit card processing companies, options for accepting payments online and different fee structures charged for card processing services.

The Two Main Kinds of Credit Card Processing Companies

The first thing you need to know is that all credit card processing companies are not equal. Some facilitate payments through a dedicated merchant account that is linked solely with your business. Aggregate payment service providers—like PayPal, Stripe and Block (formerly Square)—bundle credit card transactions from several different businesses together.

When choosing the kind of merchant account provider (dedicated or aggregate) that would best suit your online business, ask yourself the following questions:

	Dedicated Merchant Account	Aggregate Merchant Account
Is your business just a hobby?	No	Yes
Is your business seasonal?	Yes, but monthly fees may still apply	Yes
Is your business registered with your local chamber of commerce?	Yes	Yes
Do you process credit card transactions all year round?	Yes	Yes
Do you process a high number of transactions each month?	Yes	Sales caps may apply
Do you need advanced features like recurring billing and customer databases?	Yes	No
Do you need a monthly merchant statement?	Yes	No

In general, a dedicated or traditional merchant account is best for serious e-commerce businesses that have a business license and sell goods online all year round. An aggregate merchant account is best for seasonal and hobby businesses that aren’t registered with the local chamber of commerce or that only process the occasional transaction.

There Are Different Ways to Accept Payment on Your E-Commerce Website

Just as there are different kinds of credit card processing companies, there are different ways to integrate a payment gateway on your website. Each integration method has advantages and disadvantages and it’s important to be familiar with the way each works before going ahead.

External “Hosted” Payment Gateway

Aggregate payment service providers offer an all-in-one hosted payment gateway for debit and credit card processing with a simple click-button formula that you can copy and paste into your website’s code. Once you’ve added the code, customers simply click on a button to pay for their purchases and you start earning money on your site.

Pros

• It’s ready to use in minutes.
• No card data is stored on your website (i.e. You don’t need to worry about PCI compliance.)
• There are no monthly fees.

Cons

• Customers are taken off your website to complete the transaction.
• Paying off-site creates more opportunities for cart abandonment.
• There is no opportunity for checkout branding or personalisation.

Best For…

A hosted click-button payment gateway is generally best for hobbyists and bloggers who accept donations or make an occasional sale.

API-Integrated “Non-Hosted” Checkout

An API (application programming interface) payment gateway is one that is integrated into your existing e-commerce website via a plug-and-play module developed by a merchant account provider. Customers stay on your website to complete the transaction and your checkout can be personalised to your taste.

When provided by a credit card processing company, transactions that pass through the gateway are securely encrypted. However, you will still need to take care of PCI compliance if you save any card details on your site.

Pros

• An API-hosted solution facilitates a seamless customer payment experience.
• The checkout carries your own branding.
• You can collect customer data for repeat orders, loyalty points and email marketing.
• The gateway is usually up and running in a few hours to a couple of days.
• You have full customer support from the payment processor and its technical support team.

Cons

• You need a dedicated merchant account to use an API-integrated gateway.
• You may need to pay monthly fees for credit card processing with a dedicated merchant account.

Best For…

An API-integrated payment gateway is best for small, medium and large businesses that process credit card payments all year round.

Native “Self-Hosted” Checkout

The third option is to build your own payment gateway from the ground up. Like an API module, customers will check out on your website and the checkout will have your own branding. Unlike an API-hosted gateway, you will need to arrange for your own merchant account with an acquiring bank. You will also need to provide your own encryption, fraud and chargeback protection.

Pros

• You won’t pay payment processor fees.
• A self-hosted payment gateway provides a seamless payment experience for the customer.
• You can add your own branding.
• You can customise your payment options.

Cons

• You will need to develop the code from scratch.
• You will need to liaise with the acquiring bank and card networks yourself.
• You will need to take care of encryption, fraud protection and chargeback mitigation.
• You’re on your own if anything goes wrong.

Best For…

A native payment gateway is best for very large businesses and corporations that have their own in-house development team that can build the gateway and resolve technical issues as they occur.

There Are Costs Involved in Credit Card Processing

No matter which kind of credit card processor or payment gateway you choose, there are always fees charged for the credit card transaction process. For online transactions, you will pay:

• An assessment fee to the card network
• An interchange fee to the customer’s card-issuing bank
• A markup fee to your payment processor (unless you build your own payment gateway)

Of these, the assessment and interchange fees are non-negotiable and vary according to the transaction type (card present, card-not-present), the merchant’s industry and the kind of card (credit, debit, rewards) being used.

The markup fee is set by the payment processor and usually consists of a fixed fee and a percentage fee. For example, a payment processor might charge €0.50 + 1% for each transaction on top of the assessment and interchange fees.

Pricing Structure

The pricing structure varies between credit card processors, and it’s important as a merchant to look for one that works well for your business model. The most common pricing structures are:

• Interchange plus: You pay the exact assessment and interchange fees plus a consistent markup to the credit card processor. This is generally the most cost-effective option for merchants, depending on the processor’s markup.

• Tiered: The credit card processor groups the assessment and interchange fees into “tiers” and you pay the rate established for the respective tier plus the processor’s markup. This is generally less favourable to merchants than interchange plus because you’ll pay the highest rate within each tier.

• Flat rate: You pay the same per-transaction fees and percentage fees for every transaction. This is generally the most expensive pricing structure as you’ll pay the highest rate every time. However, flat-rate pricing plans often come without monthly fees and you always know how much a given transaction will cost.

In general, an interchange plus pricing structure is preferable for large businesses with a high volume of transactions. A flat rate plan is best for small businesses that want to pay for what they use (and forgo the monthly fees). A tiered pricing model may be advantageous for small businesses that would otherwise pay a flat fee, as it will allow them to save money on some transactions.

Other Kinds of Fees

In addition to processing fees, credit card processors charge other kinds of fees. These can include:

• Setup fees
• Monthly fees
• PCI-compliance fees
• Merchant statement fees
• Chargeback fees
• An early termination fee
• Other incidental fees, such as cross-border fees

When comparing credit card processing services, take a close look at the fine print regarding fees and have a legal expert go over them, too. Many businesses can negotiate lower markup fees if they can guarantee a high minimum monthly processing volume.

Other Features to Look For in a Payment Processor

Aside from the type of payment processor, integration method and fee structure, there are a few other things to look for in a credit card processing company.

Speed of Settlement

After processing a payment through your payment gateway, it usually takes a couple of days to see the money in your business bank account. That’s because authorised card transactions need to be authenticated—which usually happens in batches—and the money transferred from the card issuing bank to your acquiring bank.

Payment processors also vary in the time it takes to settle your payout—minus fees—into your business banking account. Dedicated merchant providers generally deposit the funds into your bank account in one or two business days (as soon as the acquiring bank has received the funds), whereas aggregators like PayPal can take up to a week to transfer your funds unless you pay the fee for an instant transfer.

Fraud and Chargeback Protection

Payment fraud cost e-commerce merchants €39 billion in 2022 and 65% of merchants surveyed reported an increase in chargebacks in 2022. Even if your ecommerce business is not yet well known, you’re still at risk of being hacked into or becoming the victim of payment fraud. When comparing payment processors, look for one that offers round-the-clock, adjustable fraud protection and blocks credit card chargebacks before they go through.

Alternative Payment Methods

Debit and credit card transactions make up the bulk of online payments, with credit cards being used for 42% of online payments and debit cards being used for 28% of online payments worldwide as of March 2017. However, in addition to debit and credit cards (including international cards), your payment gateway will need to be able to handle alternative payment methods to capture the maximum number of online sales.

When choosing a credit card processor, find out if they also support:

• Mobile payments
• QR code payments
• Electronic funds transfers (direct deposits/direct credits)
• Cheques
• Mail Order/Telephone Order (MOTO)
• Buy now pay later

The more alternative payment methods a payment processing company accepts, the higher the number of potential sales.

Other Merchant Services

Being able to accept payments is vital for e-commerce and having a suite of merchant services to back you up is even better. In addition to payment processing, look for a credit card payment processor that offers:

• Sales reports
• Detailed analytics
• Recurring billing
• Customer database management
• Loyalty program management
• 24/7 customer support

The more merchant services a payment processor offers, the more tools you’ll have at your disposition to help you make solid business decisions. Over time, the processor should help you earn far more than you pay in card processing fees.

How to Open an Account and Start Accepting Payments

To start processing card payments, first buy a domain and create your online store. This could be an independent website created with GoDaddy™, WordPress or Wix or a shopping cart website like Shopify or BigCommerce.

Once you’ve purchased a domain, built your website and added beautiful product photography with product descriptions, add your payment gateway by opening an account with a merchant aggregator and adding click-button code or by applying for a merchant account with a merchant services provider and adding the provider’s API-hosted module once you’re approved.

Before taking your checkout live, perform some mock transactions (if available) or process a minimal payment. If everything is running smoothly, you can publish your updated website and start making sales.

Accepting Credit Card Payments Can Help You Earn More

Processing online payments isn’t free—or instant—but it will allow you to dramatically increase your sales. Before choosing a provider, take your time to compare several options, along with their fee structures and merchant services, and choose the option that’s the best fit for you.

Once your payment services provider has reviewed your documentation and approved your account, make sure the checkout is operating smoothly and stay in touch with the company while you get any issues straightened out. Then, you can focus on marketing your business and providing excellent customer service, and your payment provider will take care of the rest.