Ecommerce Payment Processing 101: A

Beginner’s Guide for Small Businesses

Opening your ecommerce store is exciting. You’ve created and sourced your products, you’ve built an
awesome website, and now it’s time for one of the most important steps — getting paid.

Understanding how ecommerce payment processing works is a crucial part of opening an online
business. But let’s be honest, if you’re not a financial wizard or very technical, you might find the whole
concept of ecommerce credit card processing complex and hard to navigate. The good news is that
we’re here to break it down for you.

In this blog, you’ll learn how gateways and payment processors work together, and we’ll share some
examples of payment solutions you can use when setting up your BigCommerce store.
Online Payment Methods
Before we get into how payment processing works, let’s review some of the di erent payments methods
customers prefer for online purchases:

Credit Cards: One of the most popular and straightforward ways to pay both o line and online.

Direct Debit: Customers can enter their bank account details, making this the equivalent of
paying in cash or by check.

Alternative Payments Methods: This includes wallets, like PayPal, Amazon Pay, Google Pay and
Apple Pay, and buy-now-pay-later solutions, like A irm, A erpay, Klarna and Sezzle.

Digital Currency: A very small number of people do pay with Bitcoin or another cryptocurrency.

There are a few other options you can give your customers for paying online during the checkout
process, such as ACH and invoicing. However, as you can see from the chart below, credit cards,
alternative payments and direct debit are the ones most people prefer.

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Growing your high-volume or established business?
Start your 15-day free trial, schedule a demo or give us a call at 1-866-581-4549.
Three Elements of Ecommerce Payment Processing
Now that we know what types of payments you can choose to o er on your online store, it’s time to talk
about payment processing. While there’s definitely more to it than this, an easy way to summarize the
concept is to quickly define each of the elements:

1. Payment gateways: act as the courier between your ecommerce website where the customer
enters their payment information and your payment processor

2. Payment processors: take the information from the gateway, verify that the customer has the
funds, and deposit the money in your merchant account

3. Merchant accounts: receive the funds once they are processed

Sometimes people use the words gateway and processor interchangeably even though, technically, they
do di erent things, making it extra confusing.

Additionally, payment service providers (PSP), also called merchant service providers (MSP), can
manage the complete end-to-end process, from the technical connections to depositing funds. (We’ll
provide some example PSPs that BigCommerce merchants can use below.)

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How Do Ecommerce Payment Processors, Gateways and
Merchant Accounts Work Together?
Now that we’ve explained each element, let’s review the steps for a standard transaction to see how the
payment systems work together once the customer is finished adding items to their shopping cart:

Step 1. The customer enters their credit or debit information at checkout.

Step 2. The payment gateway secures the data and sends it to the payment processor.

Step 3. The payment processor checks with the credit card network to ensure that the customer has the
funds to cover the purchase.

Step 4. The customer’s credit card issuing bank either accepts or rejects the payment request.

Step 5. The payment processor then sends the results (approved or denied) through the payment
gateway, so the customer can view on the merchant’s website if the transaction was approved.

Step 6. The payment processor issues the funds to either the merchant account or the merchant’s bank.

What’s sometimes most surprising is that the whole process takes place in a matter of seconds — even
though a lot of things are happening.

Let’s go into more detail about how payment gateways work on your BigCommerce store to collect and
secure your customer’s payment information.

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Collecting Information with Ecommerce Payment Gateways
As we stated above, the main role of the payment gateway is to connect the customer’s payment
information with the financial institutions that are actually processing the payment. For small business
owners, there’s four main options for collecting payment details on your BigCommerce store — some
more customizable than others.

1. Hosted widgets.

In this scenario, you use an HTML component to display information on your checkout page. And there
are two types of hosted widgets you can use:

Embedded iFrame components: The content displayed on your checkout page is hosted outside
of BigCommerce; therefore, you can’t control the look and feel.

DIV components: The content displayed on your checkout is hosted inside BigCommerce and can
be dynamically generated by javascript.

2. Hosted fields.

Using hosted fields is another solution to keep your customer on your checkout page while providing an
extra layer of security for their credit card information.

With this option, the form fields are hosted outside of BigCommerce but displayed on the checkout
page. The gateway tokenizes the shopper’s credit card information once it’s entered into the fields, and
then the token is passed to the payment processor. This way BigCommerce doesn’t handle the raw
credit card data.

3. Native hosted component.

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For this option, the customer remains on the page and the fields are rendered by BigCommerce on
checkout. Then, BigCommerce uses a server-to-server (direct) API integration to connect with the PSP.
You can make this work with PSPs like Authorize.net and Cybersource.

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Important Considerations for Ecommerce Payment Processors
Once you’ve collected and transferred the data, it’s time for the payment processor to actually process
the payment. This is where the majority of the activities happen, from checking with the credit card
company and authorizing the payment to transferring the money into your account.

Here’s some general things to know about your payment processor:

1. They should be PCI compliant.

Any company that accepts, processes, stores or transmits credit card information must be compliant
with the Payment Card Industry Data Security Standard (PCI DSS). This means that you and your
payment processor must comply with these requirements.

When reviewing payment processors, make sure you ask them about their approach to PCI compliance.
You can learn more about how to achieve PCI compliance from Jon C. Marsella, the Founder and CEO of
Jasper.

BigCommerce stores come standard with Level 1 PCI compliance, so you’re covered if you’re working
with one of our Partners listed in your Control Panel.

2. They should create tokens for sensitive payment information.

We touched on this above, but it’s worth explaining how it works in more detail. Essentially, to secure
your customer’s payment information — especially if you allow customers to save their payment
information to use for repeat purchases or recurring billing— your payment processor should use
tokenization.

How this works is that the moment the credit or debit card information is captured, the processor
converts the account numbers into a token that it can use to identify the specific customer. By doing
this, you’re protecting yourself and your customers from hackers that might attempt to steal sensitive
payment information.

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Depending on your BigCommerce plan and the payment service provider you choose, you can enable
stored payment methods for your customers. To learn more about how this works for BigCommerce
merchants, visit our knowledge base.

3. The payment methods they accept.

This is probably the most important feature of your payment processor — at least to your customers.
Does it allow you to accept the payment methods your customers want to use?

For instance, while Visa and Mastercard are widely accepted all over the world, it’s a very di erent story
for American Express and Discover. Additionally, if your store sells more expensive items, customers
might prefer an option, like Klarna, to break up the payments or buy now, pay later. You want to give
customers as many options as possible to ensure they complete their purchase.

4. How much they charge in fees.

Now, this is probably the thing you care about most. As a small business, you don’t want to get trapped
into paying astronomical fees for your payment processor, but sometimes the fees can be di icult to
understand.

Typically though, companies will charge a percentage, as well as a fixed fee per transaction. However,
some may charge a monthly fee for a subscription instead of transaction fees. There are also extra fees
you might be required to pay for things like chargebacks, disputes and international payments.

Knowing your number of transactions can help you estimate your costs and find the right type of
payment processor for your ecommerce business. If you’re a BigCommerce merchant, you can take
advantage of our pre-negotiated rates with PayPal powered by Braintree.

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Do You Need an Ecommerce Merchant Account?
Between the heightened complexity and modernization of ecommerce, some businesses are
recognizing the need for ecommerce merchant accounts to help tailor their o erings to consumers’
expectations.

If you manage payments digitally — and if you’re here, you probably do or plan to — an ecommerce
merchant account can help you o er the right digital payment options for your customers.

Merchant accounts can also help you manage and reduce the fees associated with various payment
gateways.

Finally, ecommerce merchant accounts are focused on making their services very secure and now use
the highest grade encryption when processing payment. This helps you ensure you’re o ering
customers the most accurate and secure environment for them to complete their card transactions.

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6 Examples of Ecommerce Payment Solutions
At this point, you should have a better understanding of payment gateways, payment processors,
merchant accounts — and how they all work together. Now, we can review some examples of PSPs that
o er payment processing services, as well as gateways and merchant accounts.

1. PayPal.

PayPal is built on powerful technology that lets you easily accept credit and debit cards, o er PayPal to
your customers, and extend buy now, pay later options, including Pay in 4 and PayPal Credit through
your online store. Through PayPal, you can also enable payment through Facebook, Pinterest and
Instagram.

2. Stripe.

In addition to o ering fast, easy and secure payment acceptance, Stripe works with Google Pay, Apple
Pay, and Masterpass to o er your customers even more payment options on cart and checkout pages.
Stripe is PCI-certified and accepts international transactions from customers worldwide, ranging from
Germany to Japan.

3. Square.

Square enables you to sell online and in-person with two-way inventory sync and provides a robust
suite of tools to help you grow your business and improve your operations, including payroll and time
management, employee-specific access management, customer engagement, and online invoices.

4. BlueSnap

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BlueSnap is a single global platform to accept payments from anywhere and on any device, o ering
global payment processing and multi-currency support — supports over 100 currencies and shoppers
can select from 16 di erent payout currencies — in just one account.With BlueSnap, merchants can
accept major credit card payments, as well as regional cards like China Union Pay. You’ll also get world-
class security and detailed analytics and reporting.

5. Amazon Pay.

Amazon Pay simplifies checkout for hundreds of millions of Amazon customers by enabling them to use
payment and shipping information stored in their Amazon accounts. According to Amazon, some
merchants who use Amazon Pay have experienced increased conversion, reduced cart abandonment
and faster checkouts. Amazon Pay o ers fraud detection technology and also o ers Amazon’s A-to-Z
Guarantee on qualified orders. And mobile checkout takes just a few taps.

6. Klarna

With Klarna you can o er no-liability financing options at checkout, including build-in fraud protection.
BigCommerce merchant PlayBetter partnered with Klarna to o er customers alternative payment
solutions with high-ticket items like SkyTrak, a golf simulator unit that costs about $2,000.

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 “Having Klarna available at checkout and o ering
our customers the ability to pay over time with
little or no interest has been extremely helpful in
reducing cart abandonment and increasing
conversion.” — Chris Regan, Director of Customer
Happiness

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Conclusion
Now that you understand the available options to accept payments through your ecommerce platform,
you’re well equipped to make decisions about which one(s) you’ll select.

Whether you’re just starting out or a fully established business, payments are a core component of your
success. There’s no shortage of options for you to choose from — but you need a payment processor that
addresses your specific needs as well as those of your customers. The price you’ll pay as the merchant is
important, but it’s not the only factor. Consider all the features you need for your business right now, as
well as what you might like to have as you start to scale.

Whatever processing solution you choose, make sure it enables online transactions that are easy for
both you and your customers.

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