Planet

How to pick a payment system for your e-commerce store

Running an e-commerce store isn’t easy. Customers are experienced in buying products and services online. They know a good online retailer when they use one. And an important part of that experience is the payment process. 

In this article, you’ll learn how a payment system works and how to choose one for your e-commerce store.  

How a payment system works 

A payment system can appear complex. There are lots of processes involved. And the key players all have names you may not have heard of. But the actual process is easy to understand. And the best bit about it is that the process is always the same, whether the customer buys a chocolate bar or a holiday.  

Payment systems work slightly differently online than when used at a physical store. These are the key steps for an online payment system: 

1. The customer goes to an online store, selects an item, adds it to the shopping cart and clicks ‘buy now’. 

2. The customer enters their payment details, which are then encrypted by the payment gateway. The payment gateway performs fraud checks before sending the card data to the payment processor. 

3. The payment processor authenticates the customer’s payment details and transfers the transaction information to the customer's card network.  

4. The card network takes the transaction information to the customer’s bank to see if the customer has sufficient funds to complete the transaction. The card network then informs the payment processor whether the transaction has been approved or declined.  

5. If it has been approved, the payment processor instructs the bank issuing the customer’s card to send funds to the merchant’s bank. 

6. Funds from the sale are made available to the merchant. This can happen immediately or after a few business days, depending upon the payment provider and the type of merchant account that the business owner has. 

How does a payment gateway work for customers in a physical store? Well, it is very similar. Instead of checking out at a virtual checkout, the customer goes to a physical point-of-sale (POS) terminal. And it is the POS that acts as a payment gateway.  

Learn more:
Setting up a payment gateway

Key players in the payment system 

Let’s look at the key players involved in the payment process. There are six of them: 

  • Merchant - A person or business that is selling something.  

  • Acquiring bank – The merchant's bank is also known as ‘the acquirer’. They are the financial institution where the merchant holds an account and receives payments. 

  • Customer – A person or business that is buying something. 

  • Issuing bank – Also known as the ‘card issuer’. This is the customer’s bank. They are the financial institution that gives the customer’s payment method, such as a debit or credit card.   

  • Payment gateway - This technology communicates the transaction to the cardholder and the merchant; think of the ‘payment approved’ or ‘payment declined’ message. It securely sends the customer’s payment information to the payment processor.  

  • Payment processor – This is the service provider that connects the merchant to the card processing network. They also supply merchants with their merchant’s bank accounts. The payment processor authenticates the customer's payment data and transfers funds from the issuing bank (customer’s bank) to the acquiring bank (merchant’s bank).   

When a payment provider operates as an acquirer, gateway, and processor, they offer an end-to-end payment solution called a ‘unified approach’.  

A unified provider can offer some powerful advantages to e-commerce stores. The unified provider’s technology is responsible for managing the entire payment process. This gives them complete control. They are free to design a system that can provide seamless transactions processed faster with more accuracy and minimal downtime. Planet’s gateway offers 99.999% uptime: our merchants never miss a sale. It also provides complete reporting, giving you full visibility of your payments, including a breakdown of fees and chargeback details.  

Learn more:
- What is an acquiring bank and why is it so important?
- How to set up end-to-end payments

Why payment gateways are important  

Bridging the gap between the customer’s card and the merchant’s bank account, the payment gateway is that clever bit of kit that handles the technical side of transferring cardholder information from the merchant to the payment processor. Without it, merchants wouldn’t be able to receive payment from their customers.  

In physical stores, payment gateways are the point-of-sale terminals (POS) a merchant uses to accept a customer’s payment by card or smartphone. An e-commerce payment gateway is the checkout section of a website, where customers enter their credit or debit card information to pay for the products or services in their basket.  

Payment gateways play a crucial role in the payment system. Here are some benefits: 

  • Secure - The payments industry has agreed to a set of security standards known as the “Payment Card Industry Data Security Standard”, or PCI DSS. All companies that accept, process, store or transmit credit card information must be PCI compliant. Other security initiatives are also in place, such as 3-D Secure. 

  • Fast – Payments gateways are very efficient, and the authorisation process is quick. 

  • Scalable – Retailers can scale their businesses without worrying whether the payment gateway can manage more transaction volumes.  

  • Analytics and reporting – Merchants can track their transactions, review real-time payment data, and receive data analysis on a macro level. This information is useful and can help support decision-making while offering opportunities to optimise their customer’s payments experience. 

  • Versatile – Payment gateways can accept a wide variety of payment methods, something that is appreciated by customers who now expect a choice when it comes to payment options. 

  • Easy to set up – Because it is a software-as-a-service (SaaS) product, payment gateway technology is often very easy to set up. It can be integrated with other systems as required. 

  • Automated recurring billing – There are usually no up-front costs, and payment is often made on a subscription basis. 

  • Dispute resolution – Because they take responsibility for fraud detection and monitoring, payment gateways assist in handling customer disputes and chargebacks. 

  • Global - It doesn’t matter where the payment has come from because payment gateways support international transactions, meaning that merchants can trade internationally straight away.  

Planet’s payment gateway platform has the flexibility to deliver solutions tailored to meet the specific needs of Acquirers and Merchants. We operate in 70+ markets with 600,000+ merchants and 100+ acquirers in over 150 supported currencies. 

Learn more:
How to choose a payment gateway

Choosing a payment system for your e-commerce store 

There are several things that we think you should consider when using a payment system: 

1. On-site and off-site processing 

The first thing to consider is whether you want your shoppers to leave your website because you have two choices: on-site or off-site processing. 

On-site processing – An ‘integrated payment gateway’ is popular with larger businesses where a development team has configured the checkout experience and payment processing to work through their own system. It provides a consistent customer journey that is quick and fully customisable. Because they control the entire process, they can work on issues such as cart abandonment. However, this integration requires complex bespoke development, and the PCI responsibility lies with you because you are handling payments on your website. 

Off-site processing – Also known as a ‘hosted payment gateway’, this is popular with lower volume businesses who can’t justify the high up-front cost of on-site processing. When the customer clicks on the payment link, they are taken from your website to a payment processor’s page to enter their card details before being returned to your website after making the payment. Check you are happy with the design of the processing page and ask what customisation is available. They should be fully PCI compliant, taking one less responsibility from your shoulders. Ask them what reporting is available and discuss the risk of cart abandonment as customers leave your website.   

Learn more:
What is a payment processor?

2. Payment methods 

Think about how your customers prefer to pay. Are there any new or existing payment methods that you don’t offer that you could? Debit and credit cards are standard. But what about internet banking and mobile wallets? Consider whether your customers would appreciate support for partial payments such as ‘buy now, pay later’ or BNPL. Some BNPL products are designed to help customers buy everyday items, whereas other BNPL products target customers wishing to purchase a high-value item. If you have an international business, you should look for a payment system provider supporting multi-currency processing.  

Learn more:
Alipay+: Connecting you to over a billion customers

3. End-to-end payment service provider vs. payment gateway 

Are you looking for a payment gateway or end-to-end payment provider? An end-to-end payment services provider (PSP) offers merchants acquiring services and payment gateways. This means they have all the tools and technology to take the online customer from initiating a payment to its acceptance or refusal in the shortest possible time. For this reason, end-to-end PSPs are particularly popular with small retailers since they can provide an ‘all-in-one’ solution with just one integration. 

4. Pricing options 

Every PSP has their own fees and service terms. It is important to understand them so that you can compare them. Fees usually comprise three parts: setup, monthly, and transaction fees. It’s important to evaluate each payment, taking the percentage or unit cost and calculating how much that would cost your business in a typical month.  

5. Security 

When they input their card details onto your website, your customers are putting their trust in you. When you talk to them, look for the reassurance you need that they take customer security seriously and that, at the very least, they are 3D secure and level-1 PCI DSS compliant.  

6. Customer service  

With payments, when things go wrong, they go wrong quickly. So, it is important to consider the type of support you may require in terms of languages spoken, the level of human interaction and when help is available.  

FAQs

What is an end-to-end e-commerce solution? 

An e-commerce solution is a technology that helps a business to sell online. An end-to-end e-commerce solution provides everything an e-commerce merchant would need to sell online, such as a website, shopping cart, payment processing system, and inventory management. Planet call this a ‘unified approach’. Unified providers are attractive because they control the entire payment process. 

What is a payment gateway in e-commerce? 

An e-commerce payment gateway is used by online retail websites. The technology communicates the transaction to the cardholder and the merchant, securely sending the customer’s payment information to the payment processor. 

What is a PSP? 

PSP stands for payment service provider. Also known as merchant service providers, they enable merchants to create a simple payment experience for their customers. Most PSPs offer both merchants acquiring services and payment gateways. They have built the technology to do this themselves so that they can take your customers from the initiation of a payment to its acceptance or refusal as quickly as possible.  

What is a card network? 

This is the payment network to which the customer’s card (such as Amex, Visa or Mastercard®) is linked. The payment network connects the acquiring bank and the issuing bank. 

Do physical stores use payment gateways? 

Physical stores use a point-of-sale (POS) system to act as the payment gateway, doing a similar job to the payment gateway that online stores use at their virtual checkout.  

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