As more and more businesses transition to online sales, ecommerce payments have become an important aspect of their digital strategy. For example, according to a recent report, global ecommerce sales are expected to total $5.9 trillion worldwide in 2023. Additionally, out of total global retail sales in 2023, it’s expected that 20.8% will come from online purchases. The continued rise of ecommerce raises the bar for businesses and demands they create a strong ecommerce payments strategy that caters to their customers’ needs and preferences.

However, navigating the complex world of ecommerce payments can be daunting. From choosing the right payment methods to ensuring secure payment processing and compliance with industry regulations, there are many factors businesses need to consider. And with a growing number of payment providers and platforms to choose from, it can be challenging to determine which one is the best fit for your business.

Below, we’ll explore the different types of ecommerce payment methods, how ecommerce payment processing works, factors to consider when choosing ecommerce payment methods, and best practices for maintaining and refining your ecommerce payments. Whether you’re a brand-new ecommerce business or simply looking to improve your payments strategy to grow and expand into new markets, here’s what you need to know about ecommerce payments to help you succeed.

What’s in this article?

• What is ecommerce?
  
• What are ecommerce payment methods?
  
• How ecommerce payment processing works
  
• How to choose an ecommerce payments provider
  
• Tips and best practices for ecommerce payments
  

What is ecommerce?

Ecommerce—a term derived from “electronic commerce”—refers to the buying and selling of goods and services online. It involves a variety of online transaction types, including online shopping, electronic payments, online auctions, and more. Ecommerce has become increasingly popular in recent years, with more consumers and businesses turning to online transactions for everything from consumer goods to B2B software subscriptions.

What are ecommerce payment methods?

There are multiple ways customers can pay for goods and services when shopping online. Ecommerce payment methods range from traditional options, such as credit and debit cards, to newer and alternative payment methods, such as digital wallets; mobile payments; buy now, pay later (BNPL) options; and cryptocurrency.

Offering a variety of payment options to accommodate your customers’ needs and preferences is necessary to create a competitive and conversion-optimized ecommerce presence. With a growing number of payment providers and platforms available, businesses must carefully consider their options when choosing a suitable ecommerce payment method. For more information on ecommerce payment methods, including tips on how to choose the best payment methods for your business, see our guide.

How ecommerce payment processing works

Ecommerce payment processing involves several distinct elements, including payment gateways, payment processors, merchant accounts, security and fraud prevention measures, and regulatory compliance. These elements work together to ensure that online payments are processed securely and efficiently. Businesses can mitigate the complexity of the ecommerce payment process and limit the strain on internal teams by working with a payment processing provider like Stripe, whose payment solutions consolidate and automate many parts of this process.

The key components of ecommerce payment processing include:

• Payment gateway
  A payment gateway is a software application that connects the online store’s website to the payment processor’s system. It allows the customer to enter their payment information securely and facilitates the transfer of payment data to the payment processor.

• Payment processor
  A payment processor is a third-party service provider that facilitates the authorization, processing, and settlement of online payments. It works with the customer’s bank or credit card issuer to verify and authorize the payment and settles the payment with the merchant’s bank account.

• Merchant account
  A merchant account is a type of bank account that allows businesses to accept credit and debit card payments. Usually, a merchant services provider or bank will provide this account, which is required for businesses that process online payments.

• Security and fraud prevention
  Ecommerce payment processing involves sensitive payment data that must be protected from unauthorized access and fraud. As the volume of ecommerce payments rises globally, the need for robust fraud detection and prevention measures only increases. To this end, payment processors typically implement security measures, such as encryption and tokenization, to protect payment data and prevent fraudulent transactions.

• Compliance
  Ecommerce payment processing is subject to various regulatory requirements, such as the Payment Card Industry Data Security Standard (PCI DSS), which sets standards for the handling of payment data. Payment processors must ensure that they comply with these requirements to maintain the security and integrity of online payments.

The components of ecommerce payment processing can work together in different ways, depending on how a business sets them up. For example, one business could choose to work with a combination of third-party providers and homegrown tools to piece together a payment processing system. Other businesses might partner with a comprehensive payments provider like Stripe, which offers the functionality of a payment gateway, merchant account, and payment processor, with built-in fraud detection and prevention.

Ecommerce payment processing: step-by-step

Ecommerce payment processing involves several parties, including the customer, the online store, the payment gateway, and the payment processor. When first laid out, the step-by-step process can seem complicated, but every part is designed to ensure that payments are authorized, approved, and settled securely and as quickly as possible.

Here’s a breakdown of the steps involved in ecommerce payment processing:

• Customer places order
  The customer browses an online store, selects the products they wish to purchase, and proceeds to check out.

• Customer enters payment information
  At checkout, the customer enters their payment information, such as credit or debit card details, into the payment gateway provided by the online store.

• Payment authorization
  The payment gateway sends the payment information to the payment processor, which verifies the information with the customer’s bank or credit card issuer to ensure that the payment can be authorized.

• Payment approval
  If the payment information is verified and authorized, the payment processor sends an approval message to the payment gateway, which then notifies the online store that the payment has been approved.

• Order confirmation
  Once the payment has been approved, the online store confirms the customer’s order and sends a confirmation message to the customer.

• Settlement
  The payment processor settles the payment with the merchant’s bank account, usually within a few business days.

• Payment reconciliation
  The online store reconciles the payment with the order and ensures that the payment matches the order amount.

How to choose an ecommerce payments provider

When choosing the right ecommerce payments provider for your business, take your time to consider all the options since these payment features are essential to ensuring a smooth and secure checkout experience for your customers.

We have a comprehensive guide on how to choose an ecommerce payments provider, but here are a few factors to consider:

• Identify your payment needs
  Consider what payment methods you want to offer, whether you need to support recurring payments or subscriptions, and whether you need to accept payments in multiple currencies.

• Consider all the markets you currently operate in—and where you want to grow
  Businesses that operate in only one country might have simpler payment needs than a larger ecommerce company that conducts business globally. From currencies and local payment methods to international compliance considerations, you’ll want to make sure you work with a payments provider that can accommodate your needs in every market.

• Check for security and compliance
  Businesses that accept credit card payments must comply with PCI DSS to protect customer payment data from fraud and theft. This means using encryption and other security measures to protect customer data. Working with a payments provider like Stripe ensures that your ecommerce platform remains PCI-compliant and may help you avoid penalties or fines.

• Evaluate ease of integration
  From billing support to hosted payment pages to embedded checkouts, make sure to understand how to onboard and integrate your new ecommerce solutions into your current digital storefront. A provider like Stripe offers customizable integrations and flexible APIs to give you the most tailored experience.

• Consider customer support
  It’s important to work with a payments provider that offers responsive customer support via phone, email, or chat—or all three.

Tips and best practices for ecommerce payments

For ecommerce businesses, every strategy should focus on the same thing: how to increase conversion and sales. In addition to choosing the right payments processing provider, there are certain tips and best practices businesses can follow to provide an intuitive, secure, and conversion-friendly payments experience for their customers, while minimizing the risk of fraud and chargebacks.

Here are some tips and best practices for businesses to follow when it comes to ecommerce payments:

• Offer a variety of payment options
  To cater to the diverse needs and preferences of your customers, it’s important to offer a variety of payment options—and to leverage your historical payments data and customer research to ensure you’re offering the right payment methods. For example, if you sell furniture at a higher price point, buy now, pay later might be a necessary payment method for your customers.

• Use a reliable payment gateway and merchant account
  The viability of any ecommerce business depends on having a payment gateway and merchant account that is reliable, secure, and easy to use.

• Optimize the checkout process
  The checkout process is an important moment in the ecommerce experience. A complicated or lengthy checkout process can lead to cart abandonment and lost sales. Refine the checkout process by minimizing the number of steps and fields, offering a guest checkout option, and providing clear instructions and feedback.

• Clearly communicate payment policies
  To avoid confusion or disputes, it’s important to clearly communicate your payment policies to customers. This can include information on accepted payment methods, payment processing times, refunds and returns policies, and any fees or charges associated with payments. Offering clear refund and return policies—and a customer service team that’s easy to contact—is also a powerful way to minimize chargebacks.

• Monitor for fraud and chargebacks
  Monitoring chargebacks should be an active part of your internal payment practices. Fraudulent transactions and chargebacks can be costly for businesses, so it’s important to monitor for any suspicious activity and take proactive steps to prevent fraud. Implement fraud detection tools, use address verification and card security code checks, and respond promptly to any chargeback disputes. It’s also helpful to track trends in fraud and chargebacks: Are there certain seasons when you notice spikes? Are there certain channels where sales are generating a higher frequency of chargebacks? Identifying these trends can help you better understand where you might need to take additional action.

• Continuously improve the payment experience
  Finally, it’s important to continuously evaluate and improve the payments experience for customers. Solicit feedback from customers, track key metrics such as conversion rates and transaction times, and implement improvements based on customer feedback and data insights.

To learn more about how Stripe powers payments for ecommerce businesses—from startups to global platforms—get started here.