While in-person payments continue to evolve, including newer options like tap to pay and other contactless payment methods, many businesses operate entirely online. Even legacy brands that have accepted money in person for decades are now accepting online payments, too.

In 2021, retail ecommerce sales totaled approximately $5.2 trillion globally, a number that’s expected to grow 56% to $8.1 trillion by 2026. It’s important for businesses to have a robust online payment processing system in place.

Below we’ll cover the benefits of accepting online payments, the different types of payment methods available, how to choose an online payment provider, and how to set up online payment processing. Whether you’re a small business owner or a decision-maker at a larger company, this guide will provide the information you need to accept online payments quickly, securely, and efficiently, and scale these processes as your business grows.

What’s in this article?

• Types of online payment methods
  
• Components of online payment processing
  
• Benefits of accepting online payments
  
• How to accept payments online
  
• How to choose an online payment provider
  

Types of online payment methods

Businesses can choose from a wide variety of online payment methods, each with its own benefits and drawbacks. It’s important to consider your target audience’s preferences, the functionality of your primary sales channels, and the cost and security implications of each method. You’ll likely decide to offer more than one or two payment methods, since online customers prefer to have a variety of options.

Here are some of the most common types of online payment methods:

• Credit and debit cards
  Credit and debit card payments accounted for 34% of global online transactions in 2021. They offer convenience, speed, and security, and they are accepted by most online businesses.

• Digital wallets
  Digital wallets, also known as e-wallets, are online accounts that store and manage payment information. Popular digital wallets include PayPal, Apple Pay, and Google Wallet. In 2021, digital wallets overtook credit and debit cards as the most popular ecommerce payment method globally, accounting for nearly half of all transactions.

• Bank transfers
  Bank transfers move funds directly from customer bank accounts to a business’s bank account. This method can be slower and less convenient than other payment methods, but it is often preferred by customers who do not have a credit or debit card, or who want to avoid credit card fees.

• Cryptocurrencies
  While cryptocurrencies are still relatively new, businesses that accept cryptocurrency payments could have a competitive edge and attract customers who prefer this payment method. According to a Statista report, the global value of cryptocurrency customer payments is expected to reach $1.4 trillion by 2024. This is a significant increase from an estimated $590 billion in 2020, but still represents only a small fraction of the overall online payments market, as cryptocurrency payments are not yet widely adopted by customers.

• Mobile payments
  Customers can pay for goods and services using their mobile devices, usually through a mobile app or digital wallet. Mobile payments are fast, convenient, and increasingly popular as more people use smartphones for online shopping.

Components of online payment processing

Online payment processing involves several components that work together to securely process and authorize transactions. These components include:

• Payment gateway
  A payment gateway is a secure online portal that connects the business’s website or mobile app to the payment processor. It captures and encrypts the customer’s payment information and sends it to the payment processor for authorization.

• Payment processor
  The payment processor verifies a customer’s payment information and authorizes the transaction. It communicates with the payment gateway and the customer’s bank or card issuer to ensure that the transaction is valid and authorized.

• Merchant account
  A merchant account is a specific bank account that is required for businesses that want to accept and process credit and debit card payments. Merchant accounts are exclusively used to hold transaction funds, which are then deposited into the business’s primary business bank account, where the business can access and use them. The payment processor or acquiring bank usually sets up merchant accounts.

• Acquiring bank
  The acquiring bank is the bank that delivers the transaction funds to the business’s bank account, and it often provides the merchant account. It’s responsible for managing the financial aspects of the transaction, including fees and chargebacks.

• Security measures
  Online payment processing systems include several security measures to protect both the business and the customer from fraud and unauthorized transactions. These measures may include SSL encryption, tokenization, and two-factor authentication, among others.

Benefits of accepting online payments

For many companies, accepting online payments is necessary to stay competitive and provide a positive customer experience. By offering convenient and secure payment options, businesses can reach new markets, attract new customers, increase revenue, and streamline their operations.

Accepting online payments can provide numerous benefits for businesses, including:

• Improved convenience for customers
  By accepting online payments, businesses can offer a more convenient way to pay for goods and services—allowing customers to make payments from anywhere, at any time, without having to visit a physical retail store or send a check through the mail. This flexible payment functionality reduces friction in the customer experience, which benefits businesses by boosting revenue, improving customer satisfaction, driving loyalty, and increasing customer lifetime value.

• Increased sales and revenue
  Accepting online payments can help businesses expand their customer base, grow into new markets, and increase sales by removing barriers to purchase. With more payment options available, customers are more likely to complete their transactions, resulting in higher conversion rates and revenue for the business.

• Reduced risk of fraud and chargebacks
  Online payment processing systems are designed with security features that reduce the risk of fraud and chargebacks. By using a secure payment gateway and payment processor, businesses can protect themselves and their customers from unauthorized transactions and fraudulent activities. For example, Stripe Radar uses machine learning that’s trained using data from millions of global companies to detect and block fraud for both in-person and online payments.

• Streamlined accounting and reporting processes
  Online payment processing can be a powerful time-saver for businesses, with simplified accounting and reporting processes and automated transaction records and reports. Online payment processing providers like Stripe not only reduce the internal workload of businesses, but also gather, synthesize, and report on payment and customer metrics in actionable ways.

How to accept payments online

Accepting online payments might seem daunting for businesses that are new to ecommerce or digital payments, but with the right tools and strategies, it can be surprisingly simple.

Here are the steps businesses can take to start accepting online payments:

1. Choose a payment processor

The first step is to choose a payment processor that meets the business’s needs. Businesses should consider factors such as pricing, features, security, and customer support when selecting a payment processor.

Providers like Stripe take a comprehensive approach, helping businesses easily build a unified payments, billing, and omnichannel commerce ecosystem that encompasses more than just payment processing. This approach is becoming more popular as businesses move away from piecemeal payments infrastructure, which is not only more complicated and prone to inefficiencies and security risks, but typically wastes time and resources compared to a unified approach.

2. Set up a merchant account

If a business’s payment processing provider also offers the functionality of a merchant account, like Stripe does, then that business won’t need to open its own merchant account to start accepting online payments.

Otherwise, businesses will need to set up a merchant account with their payment processor or acquiring bank. This account will allow the business to receive funds from transactions and manage its finances. The application process typically involves providing business and banking information, as well as undergoing a credit check.

3. Integrate a payment gateway

Once the merchant account is set up, businesses will need to integrate the payment gateway into their website or mobile app. This involves adding code snippets or plugins that connect the payment gateway to the business’s platform. Most payment processing providers, including Stripe, offer flexible integrations for a wide range of use cases.

4. Test and launch

Before launching online payments, businesses should thoroughly test their payment processing system to ensure that everything is functioning properly. This includes making test transactions, checking for errors, and verifying that funds are being settled into the correct bank account. Once everything is working as expected, businesses can launch online payments and start accepting transactions.

5. Optimize and monitor

Finally, businesses should continually monitor their online payment processing systems to improve performance and prevent fraud. This includes tracking performance analytics and using the data to inform optimization and growth strategies. This could also include implementing additional security measures, analyzing transaction data, and refining the checkout process to reduce cart abandonment rates.

How to choose an online payment provider

Payment processors need to stay up-to-date on the ever-evolving, highly complex, ultra-competitive world of online payments, and it’s important for businesses of all shapes and sizes to choose a payment provider that meets their unique needs.

Early-stage startups, emerging brands, or brands that are newly expanding their ecommerce footprint might have resource constraints that preclude building an in-house payment-processing setup. Larger businesses and established ecommerce platforms might have more resources, but at the scale they do business, each mistake and operational inefficiency costs more—and each improvement could significantly increase revenue.

With so many providers in the market, it can be difficult to know where to start. Here are a few key factors to consider when evaluating your options:

• Value
  Payment providers typically charge a percentage of each transaction as well as a flat fee per transaction. Businesses should compare fees across different providers to determine who provides the most value—this isn’t necessarily the provider with the lowest fees. Consider which features are most valuable to your business and which features each provider offers. Then do a more nuanced calculation of overall benefit versus total cost.

• Security and monitoring
  Payment processing involves sensitive customer information, so security is a top concern. Businesses should look for payment providers that offer strong security features such as encryption, transaction monitoring, fraud prevention, and chargeback protection. Providers should also continually refine how they handle fraud detection and prevention—which is constantly changing—and how they flag suspicious transactions or customer behavior.

• Customer support
  Inevitably, businesses may run into issues with payment processing, so responsive and helpful customer support is important. Businesses should look for payment providers that offer 24/7 support and multiple contact channels.

• Integrations and ease of implementation
  Businesses should choose a payment provider that integrates easily with their website or mobile app. This will make the payment process smoother for customers and reduce the risk of errors or technical issues. Look for a provider, like Stripe, that offers an expansive and flexible set of payment solutions that can be integrated with minimal effort.

• Payment methods
  Payment providers may offer a variety of payment methods, including credit cards, debit cards, digital wallets, and bank transfers. Businesses should consider which payment methods are most popular with their target audience and choose a payment provider that supports those methods.

• Reputation
  Finally, businesses should research the reputation of the payment providers they are considering. They should look for providers that are executing online payments in an elevated way, with a history of reliable service and positive reviews from customers—particularly other businesses in their industry, at a similar stage, with needs that resemble their own. For example, an ecommerce platform might get inspiration from Stripe customer Shopify.