The rise of eCommerce has transformed the way companies and their customers interact and made online payment processing a cornerstone for modern businesses.
With consumers increasingly favoring digital payments and online shopping, it’s important to understand online credit card processing, its benefits, and how it works.
In this Payment Nerds article, we’re going to discuss all these details about online credit card processing and how you can find the best online credit card payment processor for your business.
What is Online Credit Card Processing?
Online credit card processing enables businesses to accept payments and handle transactions from anywhere through digital platforms like websites, mobile apps, or virtual terminals[1].
It also involves transferring payment data securely between the customer, the business, and financial institutions to complete a transaction.
When customers initiate an online payment, their credit card information is encrypted and sent through a payment gateway. Similar to a POS system within a physical store, a payment gateway is an intermediary between your eCommerce store and payment processor.
Why is It Important?
There are numerous reasons why online credit card processing is a vital aspect of many businesses and their operations. Here are a few to consider
Customer Expectation
Today’s customers expect more businesses to provide online shopping experiences[2]. Inevitably, processing online credit card transactions is necessary to meet your customers’ expectations.
Improved Cash Flow
Online payments are typically processed faster than checks or cash deposits. Whether your business is qualified or high-risk, a solid online credit card payment processor will ensure a steady and predictable cash flow.
Advanced Security
With the integration of technologies like tokenization and data encryption, online credit card processing offers advanced security measures to protect both businesses and customers from fraud.
5 Benefits of Online Credit Card Payments
While online credit card processing and point-of-sale (POS) systems serve the same purpose in processing payments, online credit card payments differ significantly in their application and benefits. Here are five specific reasons your company will enjoy reliable online payment processing:
- Convenience and Flexibility
Online credit card processing allows customers to make purchases anytime, anywhere. This is especially important in today’s fast-paced world, where consumers require convenient ways to shop for what they need. - Lower Overhead Costs
Unlike traditional POS systems that require hardware and maintenance, online processing relies on software solutions that are often more cost-effective and easier to manage. - Wider Market Access
With online payment processing, businesses can reach customers worldwide without needing physical storefronts or additional infrastructure. Whether you’re selling products to customers in another state or another country, online credit card processing helps make it possible. - Enhanced Reporting and Analytics
Many online payment systems offer robust sales analytics and reporting features similar to those of POS systems. These help businesses analyze customer behavior, track sales trends, and make informed decisions for improved sales and business operations. - Contactless Transactions
In a post-pandemic world, there has been a growing demand for contactless payment methods. Online credit card payments fulfill this need without requiring face-to-face interaction, making transactions more seamless and simple than ever before.
How Processing Online Credit Card Payments Work
The mechanics behind online credit card payments might seem complex, but the process is designed to be streamlined and fully secure. Here’s a list of steps for how the process works:
- Customer Initiates Payment: The process begins when a customer enters their credit card details into an online checkout form or virtual terminal[1].
- Data Encryption: The payment gateway encrypts the customer’s data, ensuring it is securely transmitted.
- Authorization Request: The payment gateway sends the encrypted data to the acquiring bank, which communicates with the credit card networks and the issuing bank[1].
- Approval or Denial: The issuing bank checks the cardholder’s account for sufficient funds or credit, and either approves or declines the transaction. They also check with the credit card network to valide the cardholder’s information and ensure they haven’t reached their credit limit[1].
- Transaction Settlement: Once approved, the funds are transferred from the customer’s account to the merchant’s account, completing the payment process.
This authorization process takes seconds, enabling businesses to provide customers with a smooth and efficient payment experience. Additionally, the overall transaction approval process takes several days before the business receives the total funds from its sales.
Setting Up Your Business to Accept Credit Card Payments Online
To start accepting online credit card payments, businesses need a few essential components:
- Select a Payment Processor: Select a reliable merchant service or payment processor that will provide you with a secure payment gateway, process transactions, and handle the secure transfer of payment data.
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Open a Merchant Account: A merchant account is a specialized bank account that temporarily holds funds from credit card transactions before transferring them to your main business account. Some payment service providers bundle this with their service offerings.
- Ensure PCI Compliance: PCI DSS (Payment Card Industry Data Security Standard) compliance is mandatory for businesses accepting online credit card payments. Using a payment processor with a strong track record of following PCI-DSS ensures all customer data is handled securely, minimizing the risk of fraud.
- Integrate Payment Solutions: Integrate your payment gateway with your website or eCommerce platform. Many platforms, like Shopify or WooCommerce, offer seamless integrations for popular payment processors. Processors like Payment Nerds will provide you with excellent payment gateways.
- Set Up Additional Tools: Make sure your chosen credit card processing service implements valuable tools. For example, Payment Nerds provides sales analytics dashboards and invoice automation. These tools allow you to follow customer trends, perform efficient inventory management, and automate your online billing process.
You can also reduce the risk of fraudulent transactions by including prevention tools like address verification systems (AVS), CVV checks, and multi-factor authentication.
- Test Your System: Before going live, test your payment system to ensure it functions smoothly and provides a positive user experience.
Choosing the Right Online Credit Card Payment Processor
Selecting the right online credit card payment processor is an important business decision. A good processor ensures seamless transactions, secure data handling, and a positive customer experience. With so many options available, how do you know which one is the best fit for your business? Here’s a guide to help you make an informed decision:
Understand Your Business Needs
Start by assessing your business needs and specifications. This can be done by assessing your current transaction volume and average transaction size. You should consider whether you are seeking to process payments within your local area or internationally across various countries[3]. You may also consider which credit card networks you want to accept. Lastly, you should also consider when you expect your business to scale up, as that may be a vital factor later on.
Evaluate Fees and Pricing Structures
Payment processors charge various fees, which can add up quickly. When researching various merchant services and payment processors, compare their pricing structures and fees. For example, most, if not all, processors charge transaction fees and a monthly fee for access to their platform[3].
Calculate these prices to see which one is most cost-effective for your business. For example, some payment processors work better for low-volume businesses, while others provide discounts for companies with high-volume operations.
Prioritize Security Features
Beyond price, you should also emphasize payment processors with a good track record of providing secure payments. Fraud and risk prevention are critical when processing payments online.
Review the processor’s track record in PCI DSS compliance to ensure the best measures for both. You should also confirm that they perform encryption and tokenization when handling payment and customers’ personal data.
They should also utilize advanced fraud detection tools such as an AVS or address verification service, which involves matching a customer’s online purchase location to the billing address from their cardholder details.
Check for Integration and Usability
A solid payment processor can seamlessly integrate with nearly every element of your website or e-commerce platform[3]. Their payment gateway platform should be compatible and easy to implement. At the very least, they should provide 24/7 development support, as Payment Nerds does for all our partners. Overall, an online credit card payment processor should easily fit into your existing systems.
Fitting within the criteria means you’ll easily find several strong candidates for your business. We can assure you that Payment Nerds will be among them, as we are an eCommerce payment processing service that is immensely experienced in providing expertly crafted payment gateways and rapid online payment processing services.
Conclusion
Online credit card processing is no longer an optional aspect of business. It is a massive and still-growing market you’ll have to tap into, especially if your company is starting up or working toward becoming an eCommerece brand.
By offering seamless, secure, and flexible payment solutions, Payment Nerds helps companies meet customer expectations, expand their market reach, and ensure their business’s success. Whether you’re a small startup or an established company, contact us today, and we’ll help you start implementing online credit card processing as a step toward future-proofing your operations.
Sources
- [1] The Ecomm Manager. “Ecommerce Credit Card Processing Guide: How To Set Up & Accept Cards.” Accessed November 19, 2024.
- [2] Forbes. “35 E-Commerce Statistics of 2024.” Accessed November 19, 2024.
- [3] U.S. Chamber of Commerce. “E-Commerce Credit Card Processing: The Ultimate Guide to Accepting Payments” Accessed November 19, 2024.