how does ecommerce payment work
In eCommerce, B2C is the more well-known category that is preferred by the majority of the private consumers. B2C or business to consumer is popularly known as online retail or online shopping. The increasing demand for online shopping is expected to reach a $1.92 trillion sales at the end of this year, 2016. In the US alone, statistics show that there are over 211 million online shoppers who had in one time browsed products, compared prices, or bought a thing or two from an online retail store. With these data, security for every sale that is transacted from your ecommerce store is a critical component and must always be given utmost attention.
For an ecommerce store owner, increasing sales and building a bigger customer base are two of the core projections, which are always included in the monthly and annual reporting. Profit is always at the center of an ecommerce store. Moving forward, one thing is certain – your ecommerce store will be handling a lot of payment transactions. And each of these payment transactions is at risk of being compromised, unless you have installed the latest security technology for payment processing. Since not all payment processing platforms or payment gateways are created equal, knowing the ins-and-out of how the process functions from start to finish is crucial:
- Overall Payment Processing Workflow
- Entities involved in the Process
- Security Mechanism and Limitations
- Bookkeeping Details
- Failures and Conditions
- Back-end System Integration and API
Every successful ecommerce store owner knows this by heart, and at least the developer of the website store. You should too! If you’re already running a brick and mortar business, your POS hardware is already providing this very same process. Online payment in your ecommerce store works the same way. And you should consider payment processing as a backbone of your ecommerce business – without it, your customers will not be able to place orders on your site.
Entities involved in the process:
- Your website store – Your ecommerce store should be equipped with a payment gateway or any payment processing platform (more on payment gateways below) that accepts major payment methods such as credit and debit cards.
- Your customer – Your customer can choose whether to use a credit card or a debit card. However, there are still others who shy away from using any credit or debit card and prefer to use other methods such as Paypal or Bitcoins. This is partly due to the fact that there’s a security risk involved in credit cards.
- Issuing Bank – This is the bank where your customer’s funds originated.
- Acquiring Bank – Your bank where the payments that you received from your customers are acquired.
- Credit Card Companies – Visa, Mastercard, Discover, and American Express are among the major credit card brands in the US. Debit cards are also issued under these brands.
- Payment Gateway – To make each payment transaction easy, fast, and convenient for both you and your customers, payment gateway facilitates all communication between the issuing bank and the acquiring bank. Once a payment transaction is made, the payment gate either receives a decline or accepted response from the issuing bank. Sensitive data pass through this channel so choosing which payment gateway for your ecommerce store is crucial.
Here’s an overview on what happens when an ecommerce payment is made:
- Your customer makes a purchase on your checkout page and inputs payment information.
- This sensitive information are all submitted to the payment gateway.
- The payment gateway then secures all the information by applying encryptions. And it then forwards the payment request through a series of approved processors and networks.
- This encrypted data is then forwarded to the credit card company that issued the customer’s card and then the credit card company looks for the bank where the card was issued.
- Authorization is then acquired from the issuing bank, and whether the payment should be accepted or declined, depending on the status of the payment information given by the customer.
- The response – accepted or declined – is then transmitted back to your customer and the payment transaction on your checkout page is completed.
Customer makes a purchase and enters credit card details
Payment gateway receives the information and applies encryption
Credit Card Company then forwards the request to the issuing bank
Issuing bank checks the customer’s information and issues a response
Customer receives either an accepted or declined payment transaction
Completed payment transaction on your ecommerce store
A fast and reliable payment gateway should be able to handle all this flurry of activities in about 2-3 seconds. At the end of the day, the issuing bank can then transfer the approved funds from the payment transaction to your merchant’s bank with the provided details of the customer.
Choosing a Payment Gateway
There are plenty of payment solutions that you can choose now. Before making a final say for your payment gateway, let’s do a brief quiz and make sure that the payment gateway provides solid answers to these questions:
- Is it highly-secure? Is the payment gateway PCI – Compliant? If it is, is it a PCI DDS level 1 compliant? Is it a trusted company in the industry? How safe is it and has it been breached before?
- Is it reliable? It is available 24/7 and has a back-up system in place, running all the time?
- Is it easy and convenient to use? Can this service be easily integrated in my system and has flexibility to be use quickly?
- Does this payment gateway provide accessible technical support and resources and can it meet with my growing ecommerce needs?
- Does this service handle and connect multiple channels of payments so my customers can pay on my website, on their mobiles, or on major ecommerce marketplaces?
- Does it offer customizable reporting options for merchants to manage their growing ecommerce business?
You should consider this information as an integral part in order to grow your business, and in order to protect your customers from any fraudulent activities. You should offer your customers a safe and convenient way to make payments.
Always keep in mind three things: ease of use, security, and reliability. These are things needed in order for your ecommerce store to earn high remarks from your growing customer base as you enter into the fast growing world of ecommerce payments.