One of the world’s most popular payment processors that you’ll have heard of is PayPal. You may have also heard of other options like Stripe or Square. There are many options that may provide advantages or disadvantages for your business.
In this guide, I’ll explain what a payment processor is, how to choose a one for your eCommerce store and more.
Let’s get started.
What is a payment processor?
A payment processor is a service provided by a company that processes a customer’s debit or credit card on your behalf, for your website, and deposits the funds into your bank account.
There was a time when you had to have what’s known as a merchant account, and for some payment gateways like Authorize.net, that’s still true.
Although nowadays most online payment systems only need you to have a normal checking/current account to use them.
So what’s the lifecycle of a payment processor?
Here’s the scenario. A customer comes to your site and loves what you sell! They excitedly proceed through the checkout and enter their card details. The payment processor then verifies the card and requests the customer’s bank to give the funds to the payment processor.
The bank then says sure! Or the user doesn’t have the funds and the transaction declines.
Assuming the transaction is authorized then the funds are deposited into your account with the payment gateway.
You can then withdraw those funds directly to your own bank account.
What to Consider when choosing an eCommerce online payment system?
This is the biggest one, does the payment service provider you want to use work with your eCommerce platform? Most have integrations with the big players in the eCommerce world such as:
- Easy Digtal Downloads
And many more. The simplest way to see if there’s an integration available is to Google your eCommerce platform plus the name of the payment processor you want to use. E.g: WooCommerce PayPal.
This should never be overlooked as the service provider stores your customer’s card details they need to meet certain industry standards to be considered an accredited payment gateway.
Known as PCI compliance all major payment processors easily meet these requirements but it’s still critical to check if you’re looking at a smaller less well-known company.
Hosted or Integrated Payment Gateways?
There are two primary types: hosted and integrated. Hosted gateways redirect your users to a securely hosted page to make the payment.
Integrated payment processors keep the user on your website to complete the payment process.
Finally, some online payment systems like Stripe show a modal window on your site for the customer to complete their purchase.
Often deciding is more of a case of branding as it’s often (although not always) easier to brand an integrated payment processor than a hosted one. A hosted processor may also offer peace of mind to some customers who may trust PayPal or a Stripe modal more than a strange website’s direct credit card forms.
Payment Processor Fees
Things to consider when evaluating fee structures include:
- Discounts — do they offer fee discounts for higher volume sellers?
- Small purchases — if you sell digital products under $10, then fixed fees can quickly add up, so check if they offer special tiers for accounts that only sell cheap digital-only items.
- Overseas transaction fees — most payment processors charge different fees for transactions coming from other countries. In addition, they often offer some of the worst exchange rates around. So if you handle a lot of overseas transactions be sure to shop around.
How much support do you need? Are you happy with basic email support or do you like to be able to phone up an account manager and discuss a problem live?
Nearly every payment processor accounts for both types of customers but often phone support is restricted to higher volume accounts.
If this is critically important to you make sure you qualify for phone support before signing up.
Some of the best payment processors offer built-in fraud prevention and detection systems, one of the main examples of this is Stripe’s Radar system which includes cross-referencing the IP address of the customer with the card’s registered address (e.g, the customer is in America, but the card is registered to England) among many other points and assigns it a risk fraud score.
Best of all, the risk fraud score for declining the transaction is configurable and if a transaction gets declined you can go into your Stripe dashboard and approve it at a later date.
Fraud protection can save you thousands of dollars in lost transactions and chargeback fees that could otherwise prove costly to your business.
Recurring billing support
If you currently sell subscription-based products or plan to in the future always make sure the gateway you pick can support recurring billing, otherwise it’ll be a costly and time-consuming exercise down the line to switch to an alternative payment processor.
Country support and product support
Two often-overlooked factors are:
- Does this processor support my country? While some handle payments from any country in the world many only support specific countries for selling. Check if you are able to register as a seller before deciding.
- Does the payment gateway support your product line? Many restrict what can be sold through them either due to a high possibility of fraud or chargebacks. Check they support your product line before starting the integration process.
Payment processors are a critical part of any eCommerce website, after all you need customers to be able to pay for products right?
Which one you go for is a personal choice and remember you can always use more than one on the same site (like PayPal and Stripe).
Regardless of which you choose, remember security is always the most important part.
What’s your favorite payment processor? Had any great experiences that mean you always use them? Let us know in the Commerce Journey Facebook group!