As the economy becomes increasingly digital, having an online store that can accept online payments has shifted from a luxury to a competitive necessity for businesses of all sizes. Whether you’re running a local boutique or managing a growing eCommerce business, the ability to seamlessly process payments online is essential for ensuring customer satisfaction and maintaining a feasible bottom line.
In this article by Payment Nerds, we provide a deep look into everything involved in accepting online payments. As a trusted payment processing service that has provided numerous companies with tailored payment solutions, we know how increasingly vital online payments are for businesses. Let’s highlight everything you need to know so you can get started on accepting online payments.
The Importance of Accepting Online Payments
There are many reasons to accept payments online — it makes transactions easier and more convenient for customers, expands the number of sales channels your business has, and potentially increases your revenue. Additionally, accepting payments online can have significant impacts on your business. Here are a few to consider:
Meeting Consumer Expectations
Today’s shoppers value speed and convenience from the moment they start browsing your shop to the checkout line webpage. These characteristics can greatly influence where they shop. By accepting online payments, you’re allowing customers to pay from anywhere, at any time, and in many ways at once. This creates a more fulfilling customer experience, which can help foster brand loyalty.
Expanding Market Reach
When your business can accept online payments, its market extends far beyond local customers. These payments open the door to national and international markets, enabling you to scale your operations and serve a more global customer base. By working with a reliable payment service provider, you’ll be able to obtain tools like payment gateways that allow your business to handle multiple currencies and payment methods, making it easier to cater to customers worldwide.
Staying Competitive
Businesses that fail to offer online payment options are more likely to fall behind. Companies that accept fewer forms of online payment can lose a massive number of potential sales. For example, consider how digital wallets account for 30% of all POS payments in 2023 and are the fastest-growing electronic payment method[1]. This convenience can ensure your business stays in line with your competitors or even allow you to exceed them.
Those are just a few ways online payments are valuable for a business. Ensure your business’s future by working with payment service providers like Payment Nerds. We’ll help you put together the best in-store and online payment systems possible.
How Accepting Payments Online Works
Now that you know why accepting online payments is important, it’s time to discuss how online payment works from beginning to end. There are several steps, and many key players work together to complete a transaction and transfer funds securely from the customer to the business. Here’s a breakdown of the key stages:
Customer Initiates a Transaction
The first step is when a customer provides their payment details at checkout. This could be through an electronic payment method, such as a debit or credit card, or it could also be done using a digital wallet on your smartphone, usually by using apps such as Apple Pay or Google Pay[2].
Some businesses also allow direct transfers from your bank account, often through an Automated Clearing House (ACH) payment. ACH transfers require you to provide your bank account information and can be faster and more convenient in certain cases.
Payment Gateway Transmits Information
The business’s payment gateway acts as a middleman between the customer and the business. It encrypts the customer’s payment details and securely sends them to the payment processor[2]. The gateway is similar to a cash register — it stores vulnerable payment information and protects cash flow while it moves between parties.
Payment Processor Validates the Transaction
Next, the trusted payment processor — such as Payment Nerds — will take the encrypted data from the gateway and contact the customer’s bank or card network (like Visa or Mastercard) to validate the transaction[2]. The bank or card issuer will check to see if the payment details match the customer’s account and ensure the account has sufficient funds or credit available. The bank or network will then respond once they confirm the customer’s payment details.
Authorization or Decline
Next, the issuer either approves or declines the transaction based on whether the account has enough funds or credit to cover the purchase. They will also check if there are signs of the transaction being fraudulent. For example, if the transaction occurs in a distant location from the customer’s billing address, that may be enough of a red flag to decline the transaction. Either response is sent back to the payment gateway and then displayed to the customer[2]
Transaction Settlement
If the payment is authorized, the funds are reserved in the customer’s account and transferred to the merchant’s bank account through the payment processor. The processor may then hold the funds temporarily in the business’s merchant account until the transaction has been fully processed and authorized. This usually takes 1-2 business days, but some processors may perform instant settlements for an additional fee.
Notification and Confirmation
Both the customer and the business receive confirmation that the payment has been successfully processed[2]. The customer typically gets a receipt via email or on the website, and businesses receive a notification in their dashboard or accounting system. Once that’s done, the online payment is officially completed and repeats simultaneously with every customer transaction.
Benefits of Accepting Online Payments
Accepting online payments provides several tangible benefits for businesses that should be considered. Here is a brief list of clear advantages:
Greater Chance for Higher Sales and Revenue
Online payments simplify the buying process, reducing barriers to purchase. Customers are far more likely to make a transaction when they can pay quickly and easily. Additionally, online payment gateways with features like one-click checkout can support customers’ impulse to purchase and reduce the likelihood of abandoned carts. As a result, your business will see more completed purchases and higher revenue[3].
Faster Payment Processing
Traditional payment methods like checks or bank transfers take days or even weeks to process. Online payments, however, can settle within minutes or hours, improving cash flow and enabling quicker reinvestment into your business[3].
Enhanced Security
Modern payment platforms include advanced security features such as encryption, tokenization, and fraud detection. Compliance with standards like PCI DSS (Payment Card Industry Data Security Standard) protects your customers’ sensitive information, reducing the likelihood of chargebacks and ensuring your company has a trustworthy reputation[4].
Integration With Other Tools
Online payment systems often integrate with accounting software, customer relationship management (CRM) tools, and inventory management systems. These integrations help streamline business operations and reduce manual work and human error[4].
Better Customer Insights
Certain online payment platforms also provide analytics tools that showcase vital data about customer purchasing habits and sales trends. This data can inform marketing strategies, help identify top-selling products, and uncover opportunities to cross-sell or upsell.
6 Steps To Setting Up Online Payments for Your Business
Setting up a system that allows you to accept online payments may seem complicated, but breaking it down into steps shows how simple the process really is. Here’s how it works:
1. Choose a Payment Processor
A payment processor handles the transaction between your customer’s bank and your business account. Some well-known payment processors include Payment Nerds, PayPal, and Square. When looking for the right online merchant services provider for your business, consider the following[3]:
- Fees: Every payment processor charges fees for its services. Payment processing fees are charged for every transaction your business processes. There’s also often a monthly fee for access to a processor’s network and services like customer support and fraud protection.
- Integration Capabilities: The payment processor you choose should be able to connect with your website or eCommerce platform. They should also have dedicated integrations that allow their software to connect with other systems, such as your CRM or accounting software platforms.
- Customer Support: Great providers, like Payment Nerds, provide robust customer support to help you handle potential issues with your online payment systems, such as glitches in your website’s payment gateway.
2. Set Up a Merchant Account
Once you’ve selected an online merchant services provider, you should then create a merchant account. Merchant accounts are a type of bank account that allows businesses to accept credit or debit card payments.
To ensure you get accepted, provide all relevant business information, including your tax ID or employer identification number (EIN), as well as your business registration certificate[3]. Once you get accepted, make sure you agree with all terms and fees associated with the account.
3. Implement a Payment Gateway
After that, you’ll work with your payment processor and online merchant services provider to implement the tools and systems that come with your account. One should be an online payment gateway, which ensures a safe transaction of payment details between your business and your payment processor[3].
4. Integrate Payment Options on Your Website
Once you have a payment gateway set up, it’s time to ensure your website or app supports the payment methods your customers prefer. With the help of your online merchant services’ support team, you should add the correct plugins or APIs to integrate the payment gateway with your website.
At Payment Nerds, we ensure you enjoy seamless customization and compatibility for your site and round-the-clock support for any issues you may have.
5. Test Your Payment System
Finally, before launching your site with new integrations and payment gateway, test your payment system with help from your online merchant services. Practice performing several different types of transactions to ensure they work seamlessly.
Take the perspective of both your business and a potential customer, seeing if the transaction runs smoothly with as few hurdles as possible between browsing and checkout. Also, make sure customers receive payment confirmation emails or text messages. After enough testing, you should be ready to accept payments online.
6. Monitor and Optimize
Once you’ve launched your site for online shoppers, review payment analytics regularly to identify potential issues or opportunities. Address common challenges like high transaction fees or fraud risks to improve customer satisfaction and reduce costs.
Types of Popular Payment Methods Online
Offering the right payment options ensures convenience for your customers and increases your chances of closing sales. Here are some of the most popular online payment methods:
Credit and Debit Cards
Cards remain the most widely used online payment method. Major providers like Visa, Mastercard, and American Express process billions of transactions annually. Accepting debit and credit card payments from them means you’ll indirectly gain a high sense of customer trust and easier integration with your payment gateways.
However, the downside is that you’ll have to pay processing fees to both your payment processor and the card networks.
ACH Payments
Automated Clearing House (ACH) payments are a great alternative for businesses looking to reduce card transaction fees. These are rarely used for common purchases but are often used for recurring payments like subscriptions[5].
Digital Wallets
Digital wallet platforms like Apple Pay, Google Pay, and PayPal are growing in popularity due to their convenience. They allow users to store payment information securely and check out with a single click[5]. However, because of their electronic nature, they are prone to potential data breaches from malicious hackers.
Accepting online payments from digital wallets should involve a heavy emphasis on protecting your and your customer’s data, which is why Payment Nerds provides advanced security as part of our payment processing platform.
Buy Now, Pay Later (BNPL)
Buy Now, Pay Later allows customers to make financed purchases and pay for the total cost over time. This type of online payment service is especially attractive among younger customers and those who are more quality-focused. BNPL allows buyers to split their payments into manageable installments, often with little to no interest.
Cryptocurrency
Although it is unusual, accepting online payments via cryptocurrency can be a unique selling point for tech-savvy businesses. Certain platforms allow businesses to accept Bitcoin, Ethereum, and more.
Challenges in Accepting Online Payments
While accepting payments online opens up countless opportunities, it also comes with challenges. Here are some common issues businesses face and how to address them.
High Transaction Fees
Every payment processor charges several fees along with additional charges for cross-border payments or currency conversions. For small businesses, these costs add up quickly. Some solutions you can make to fix these issues include:
- Negotiating with your online merchant services provider to receive fewer processing fees or high volume discounts.
- Offer alternative payment methods with fewer fees, such as ACH Payments.
Payment Disputes & Chargebacks
Chargebacks occur when a customer disputes a transaction, resulting in a reversal of the payment. Chargebacks are expensive for businesses, as they often come with heavy fees. Plus, if you have a higher-than-average chargeback frequency, you can hurt your reputation with payment processors. Some possible ways to resolve the issue of chargebacks include:
- Clearly communicate your refund and return policies.
- Use fraud detection tools like address verification services (AVS) and CVV matching to reduce the risk of disputes.
Risk of Fraudulent Payments
Online payments come with an inherent risk of fraud, including stolen credit card use and phishing scams. Fraud not only results in financial losses but can also damage customer trust.
This is why it is necessary to only use PCI DSS-compliant gateways, SSL encryption, and tokenization. Additionally, many processors like Payment Nerds offer fraud-prevention features that flag suspicious activity.
Integration Issues with Your eCommerce Platform
Some payment gateways don’t integrate seamlessly with all eCommerce platforms. This can lead to technical glitches that can frustrate customers. To ensure this doesn’t happen from the outset, follow these steps when first picking your payment processor:
- Research Compatibility: Ensure the payment gateway you choose works with your website or app.
- Test Thoroughly: Conduct end-to-end testing to confirm all systems work together smoothly.
- Consider Third-Party Plugins: Use integration tools or APIs to bridge gaps.
Conclusion
Accepting online payments is more than just a convenience — it’s a strategic move that can propel your business forward. The benefits are clear, from improving cash flow to expanding your customer base. By following these steps and leveraging the right tools, you can create a seamless and secure payment experience that meets customer expectations and drives growth.
Ready to streamline your eCommerce payment process? Contact Payment Nerds and explore our range of solutions that are customized to fit your industry and business needs. Let us help make online payments work for you.
Sources
- Fit Small Business. “50 Payment Trends & Statistics to Know (2024 Edition).” Accessed on November 21, 2024.
- TechnologyAdvice. “How to Accept Payments Online.” Accessed on November 21, 2024.
- USA Today. “How to accept payments online in 2024.” Accessed on November 21, 2024.
- Forbes. “Digital Payments: The Benefits, How To Use Them In Your Business And What To Look For In A Provider.” Accessed on November 21, 2024.
- Forbes. “4 Ways To Accept Payments Online.” Accessed on November 21, 2024.