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Introduction to E-Commerce Payment Systems

E-commerce is probably the only industry that grows almost a quarter each year, according to a study by BigCommerce. People love to shop online and prefer this way of shopping. The global crisis can hardly be a major factor in this trend. In 2022, people not only love to shop online but are also forced to do so due to the coronavirus. In any event, businesses from any industry that establish an eCommerce presence are future-proof and protect themselves against lockdowns. One of the ways to achieve that is to use electronic payment systems.

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The Definition

An E-payment system is a system that allows your customers to pay for products and services online. This complex mechanism works with the purchaser, merchant, purchaser’s bank, merchant’s bank, payment processor, and payment gateway.

Types of Electronic Payment Systems

Depending on the electronic payment method, E-payment systems can be divided into

  • Cash Payment Systems that include Direct Debit and E-Checks.
  • Credit Payment Systems that include Credit Cards and E-Wallets.

Undoubtedly, cash will be around for a long time — but according to WorldPay, the global part of E-payment transactions that includes credit cards, debit cards, and mobile wallets, will have increased to 83% by 2022. Here is some additional information from Infopulse on how the total transaction value of digital payments will grow.

Total Transaction Value in Digital Payments

These statistics illustrate why you should pay attention to how electronic payment processing is organized in your business, and show what you can do to improve it. Let’s talk about it!

How the E-Payment System Can Help Your Business to Earn More

Every case is unique and outcomes can differ. However, using the best electronic payment system solution available can benefit any business to a certain extent. Here’s how:

Revenue Opportunities

This is probably the biggest point of them all — E-Payment Systems are providing customers with a variety of options to pay, which opens up more opportunities to collect revenue. The easier and more diverse purchasing options that are available, the more likely it is your revenue flow will increase.

Automated Processes

When electronic payment processing is performed automatically, there is no room for human error. It saves a lot of time and effort for the business and allows one to organize recurring payments as subscription programs.

Greater Flexibility

You can easily offer special promotions and discounts or make a quick price change in accordance with your latest marketing insights in order to make as many deals as you can.

Improved Security

At first glance, using an electronic payment system in E-commerce seems like a weak point in terms of security, but you will also get access to the latest technology to protect your transactions as much as possible. Also, E-commerce fraud detection and prevention standards are very high in these systems. With the right approach, these security technologies could serve as a cost-saver by detecting fraudulent transactions.

Engaging a New Audience

You can make your business available to a new audience by accepting payments from all over the world or by including certain E-Commerce payment methods that are popular in your target regions.

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6 Ways in Which E-Payment Systems Improve the Customer Experience

“Customers don’t expect you to be perfect. They do expect you to fix things when they go wrong.”

– Donald Porter, British Airways

Now, let’s take a look at the benefits from your customer’s perspective:

Simplified Process

Solutions like Amazon 1-Click Ordering, where all the customer needs to do is push one button to buy or use Apple Pay (where a smartphone needs to be placed against the sensor) create a whole new level of convenience. If your business supports these types of solutions, you will make it much easier for your customers to buy your products or services.

Eliminating Repetitiveness

If your system still requires customers to enter their personal information each time that they make a purchase, you can optimize this process. For example, by introducing an option that allows clients to save payment information and not have to re-enter it for the next order. You can also introduce the auto-pay approach the way Spotify and Amazon Prime have done, to ask your customers for the required information just once— when they get registered.

Instant Notifications

Using an electronic payment system in E-commerce allows customers to get instant notifications on whether a transaction has been completed and when they receive the products.

Minimizing Human Contact

When you set up your electronic payment system to provide a customer with all the essential functions like balance, credit information, or transaction history without the need to contact your team members, it creates an additional layer of convenience. If the customer needs to contact your business, you can launch a chatbot (a great example of using Machine Learning in Finance and E-Commerce) which is available 24/7 to show your clients how much you value their time.

Providing Various Options

This is not only a revenue driver, but also a way to improve the customer experience. Let your clients choose between credit cards, bank transactions, or maybe even cryptocurrencies and they will pay you with loyalty and respect!

Security

Having these multiple options, however, creates a problem — your business is now vulnerable to hackers. But if you use a third-party service to verify PCI compliance and make sure you are doing everything to protect customer information, you can build a reputation as a secure business. This will help build a strong brand image in the long run and make it easy for your clients to recommend your business to others because they will feel safe making purchases.

How Does Electronic Payment Processing Work?

We have discussed the importance and benefits of having a modern electronic payment system. Now, let’s delve into specifics. Whether you run a marketplace, own a big E-commerce business, or represent any other industry online, you need a payment solution that will help you and your customers get all the above benefits.

To accept and process E-payments online, businesses need an E-payment gateway. This is a service that is used for both online and brick-and-mortar stores and enables transactions between buyers and sellers. A gateway is protected with security protocols and encryption to provide the safest transactions possible between all the parties involved. The gateway you choose also defines the currencies your business can accept, the cost of the transaction fees, and the speed of your transactions.

Payment Gateway in Action

The role of an E-payment gateway in payment processing is very sophisticated. It includes several tasks that must be executed in mere seconds. Let’s take a closer look at payment processing:

  1. After the buyer enters all the required information and pushes a button to finalize the purchase, the data is sent to a seller’s web server through an SSL connection.
  2. The seller’s web server receives this data and forwards it to the payment gateway via a different encrypted SSL channel.
  3. The gateway sends data to the payment processor that can convey information between the seller’s web server and payment gateway.
  4. The payment processor passes the information to a card network (for example, Visa or Mastercard) to verify the transaction.
  5. After that network receives the data, they decide whether to accept or deny it. When the decision is made, the issuer bank sends back a code to the payment processor.
  6. The payment processor shares the status of the transaction with the payment gateway, and the payment gateway forwards it back to the seller’s web server.
  7. The buyer receives a message about the acceptance or denial of their purchase transaction through the interface of the E-commerce payment system.
  8. In most instances, the issuer bank transfers money to the seller’s account the next day.

Now that we have explained the process, it’s time to decide how to integrate the gateway to provide payments for an E-commerce website.

Choosing the Best Way to Integrate an E-Payment Gateway

There are three methods to integrate a payment gateway. The best fit will depend on the size of your business.

Small business owners will probably prefer the Hosted Payment Gateway method if they are fine with processing the payment externally. Like in the previous case, no PCI compliance is required, as all the processing is handled by the service provider. This method is simple and fast to integrate. However, the drawbacks here are quite significant —you can’t control a hosted gateway. To make a payment, customers must leave your website — this is not good in terms of conversion and marketing in general. Additionally, some buyers may be suspicious about going to third-party websites, which weakens your brand image.

On the other hand, integration is easy — all you need to do is add JavaScript code that will serve as your “Buy” button and direct the customer to the third-party website to make a transaction.

Businesses of any size can use the Direct Post method. After the purchase, the data instantly reaches the gateway and processor. You don’t need to have PCI compliance, because your platform will be used only for shopping, and none of the money transaction details will be on your server. With this approach, you will have room for branding and customization options. Also, a customer won’t leave your website for the purchase. The downside is that Direct Post is not the best method in terms of security. To integrate this way, the vendor must make an API connection between a payment gateway and the shopping cart on your website for transferring the information.

If you have a medium to large sized business, your brand image and user experience are crucial factors in your revenue and potential growth. That’s why the integrated method can work best here. This approach will keep your customer on your website the whole time and you will have complete control over the payment process. You will be able to adjust and customize the payment system just the way you want. The main drawback is because you need to support a payment system yourself, this could become very expensive. You will store the financial information of your customers, so you need to obtain PCI compliance to even be able to do that. If you have any custom features in mind, they may be quite difficult to implement. You need a team of experts to successfully execute the integration and add APIs to your server. While vendors offer detailed guides on this process, it is better to find the right team to perform it.

The Importance of Having PCI DSS Compliance and How to Get It

Among the aforementioned approaches, only the integrated method requires a business to be PCI DSS compliant. Payment Card Industry Data Security Standard (PCI DSS) was first introduced over 15 years ago. Presently, it is mandatory for anyone who wants to process card payments. There is no other option other than to be PCI-compliant if you want to work with credit card transactions on your server. Obtaining compliance looks like this:

  • First, you should determine your level of compliance. There are four of them and they are defined by the volumes of secure transactions your business has handled. All transactions should be made through Visa, MasterCard, American Express, or Discover — the four original creators of the security standard.
  • Then you should learn about PCI requirements via the PCI Self-Assessment Questionnaire. Currently, there are a dozen of them.
  • After that, you must take a test called the Attestation of Compliance (AOC). Choose the one that is most suitable for your business from the available categories.
  • The next step is the External Vulnerability Scan procedure. There are many approved vendors for this. You can learn about them here.
  • The last step is sending all the documents you have obtained during the process to the acquirer bank and card associations.

Picking the Most Suitable Electronic Payment System

Currently, there are hundreds of payment solutions available for business owners. How do you decide which is the best one for your business? Here are some tips that can help you make a decision.

Learn About the Reputation

The first move is to learn about the history and reputation of a specific payment solution. With market leaders, it is quite easy, because of all the positives and negatives are simple to find. But if you need some special payment system that is not so well-known, you should spend some time reading the reviews.

Compare Fees

The pricing structure can be very different, and you should be aware of the hidden costs. Rigorously study the setup fees, monthly fees, and transaction fees to know the final price. Also, there could be some additional services or plugins that you could use in the future when you decide to grow your business.

Ensure Security

As we have discussed earlier, this is one of the most important factors for making an informed decision. The solution must ensure PCI DSS compliance to effectively protect the transaction data and customer information — this is standard. Of course, if the payment solution provider offers something else, like, for instance, Fraud Detection with ML, this is only a plus!

Make Sure the System Supports the Payment Methods You Need

Undoubtedly, there are leading payment methods like PayPal, E-wallets, or debit cards, but that doesn’t mean you should limit your business to them. Sure, your gateway must support the main payment methods available in your area. But also keep in mind your potential international growth and think about the possibility of implementing multi-currency support.

Think About Merchant Account Possibilities

A merchant account is opened with the acquiring bank the merchant wants to use for transaction processing. Some payment gateway providers offer that account as part of their service, so you should evaluate this option if you don’t already have one.

Top 5 E-Commerce Payment Systems to Choose From

Amongst the impressive variety of the available payment gateway providers, here are the five most popular options that are also available in the majority of countries.

 PayPalAmazon PayStripe2CheckOutAuthorize.net
Payment Methods
PayPal, Apple Pay, Android Pay, Venmo, Bitcoin
Amazon PayAliPay, Apple Pay, Android Pay, Bitcoin, WeChat, ACH, EPSPayPal, ACH, WebMoney, Payoneer, WeChat, WirePayPal, Apple Pay, E-check, Visa Checkout
Credit/Debit Card Support
Visa, MasterCard, American Express, JCB, AMEX, Diners Club
Visa, MasterCard, American Express, JCB, Diner's, NYCE, STAR, China Union, EuroCardVisa, MasterCard, American Express, AMEXVisa, MasterCard, American Express, JCB, DiscoverVisa, MasterCard, American Express, JCB, Discover
Setup Fee

NoNoNoNo$49
Monthly Fee$30 Payments ProNoNoNo$25 Gateway Fee
Transaction Fee2.9% + $0.302.9% + $0.302.9% + $0.30, ACH/Bitcoin Processing 0.8%3.5% + 0.35%2.9% + $0.30
FeaturesAVS, SSL, CCV, Virtual TerminalAVS, SSL, CCVAVS, SSL, CCV, Virtual TerminalAVS, SSL, CCVAVS, SSL, CCV, Virtual Terminal
Chargeback$20$20 + Taxes$15-$25
Number of Available Countries202+78+25200+20+
International Transaction Fee3.9% + Currency-Based Fee3.9% + $0.303.9% + $0.30--

What Payment Methods Your Business Needs to Support, Depending on Your Target Location

E-Payment Methods

Selling overseas might not be a priority in your strategy, but for online retailers, it’s easy to expand on the global market. Buyers tend to buy items they can’t find in their countries on international websites. Cross-border online purchases are expected to reach $1 trillion this year, so here are the most popular E-payment types your gateway needs to support in certain regions.

The United States and Canada

Cards are popular here, including Visa, American Express, Mastercard, JCB, and Discover. The most popular E-wallet service Apple Pay is a must, but you should consider other options like Android Pay and Visa Checkout. ACH Payments are exclusive to the United States and are popular there. It is also important to have a Bank Transfer option.

Latin America

Although Visa and Mastercard are widely accepted, almost half of customers prefer to buy via local cards like Diners Club or Hipercard. Speaking of E-wallets — Masterpass, PayPal, and Visa Checkout must be enough. Additionally, you must consider Local and USD Bank Transfers and the Brazil-exclusive Boleto Bancario.

Europe

For the European market, be ready to provide the most popular cards and types of E-wallets (the top gateway providers have them). But depending on the region, you must be aware of the local specifics. For example, in Germany, the most popular payment method is Giropay Bank Transfer.

Asia Pacific

The region is a giant market for those, who offer the most common card types as a payment method. In the E-wallets realm, there are two undisputed leaders — Alipay and WeChat Pay; you can’t enter the Asian market without them!

Building a Custom E-Payment Gateway

Yes, there is a large number of solutions available. However, for large-scale businesses, there is a reason for developing a custom payment gateway. If your business has millions of transactions per year, developing your system can quickly become an advantage.

There are three major benefits in doing this:

  1. Saving on fees and sign-up costs.
  2. Full flexibility to customize a solution.
  3. The option to offer your custom gateway as a separate product.

Among the drawbacks, you will have to deal with the settlement reports yourself, and the system will require a significant time to launch. But the biggest concern is the price of the development and certification. The cost of the development of a custom E-commerce payment system, according to the market prices, could constitute up to $800,000. You need to have at least $150,000 for the project to cover all expenses.

If you have a big enough business to cover the expenses, here are the steps you need to take to create a custom system:

  • Get registered through your bank as a payment gateway service provider.
  • Contract with multiple banks as payment processors to your system.
  • Develop an API and write matching documentation in accordance with the PCI DSS compliance standards.
  • Implement all the required security measures and fraud protection mechanisms to obtain the PCI DSS certification.
  • Integrate separately the additional payment methods you may need — for example, PayPal.
  • Create a web application that will serve as the admin panel for the system.

Our Experience in Implementing E-Payment Systems on a Marketplace Platform

SPD Group has been developing and expanding a marketplace platform for more than 10 years. This marketplace platform supports more than 20 payment systems. Every payment system we have added opened up some new opportunities for sellers to acquire new clients. The platform’s smaller clients were fine with using payment solutions that existed on a platform, but the large-scale clients preferred to connect with the banks they were partnering with and wished to include their own payment methods.

The need to add some local payment methods was often a reason for the addition of a new payment system. We have experience in integrating the platform with a host of local payment systems from Denmark, the Netherlands, Poland, Greece, the United Kingdom, Norway, Spain, the Philippines, the United Arab Emirates, Canada, and the United States of America. In each case, we have dealt with different challenges while integrating the marketing platform with each of them. As an example, a Polish payment system sometimes required a significant time to accept payment because manual processing was frequently required— but we found the proper solutions for the best user experience even in such cases.

Our platform uses all three payment gateway integration methods — Direct Post, Hosted Payment Gateway method, and Integrated method for different payment systems. Sometimes, it is possible to offer the client two payment gateway integration methods for a single payment system. It was a real technical challenge to make all the possible options work properly on the platform because each of them had a different flow. Hosted Payment Gateway was the most difficult one in terms of user experience as we couldn’t control the process entirely. We had to work on those cases, when payments failed and figure out how to notify clients if payments were delayed.

3-D Secure integration was another obstacle we had to overcome. 3-D Secure is a protocol designed to provide an additional layer to the security of credit and debit card transactions online. Unfortunately, it had some major problems with the mobile user experience. When the client left our platform and moved to a 3-D Secure frame, the frame wasn’t shown correctly on mobile screens. This was an inconvenience that could negatively influence buying decisions. Besides, it also looked suspicious to the user. Although this was beyond the scope of our participation in the project, we did our best to make the 3-D Secure page look good on all mobile devices and as optimized as our platform.

So, what is the best payment system to choose?

Based on SPD Group’s experience, it makes sense to be looking at systems that are growing at a fast pace. You can choose a well-established payment system, but if it doesn’t keep up with the innovations in the Fintech industry your business will ultimately lose customers due to some issues and the resulting customer friction in the payment process. There are a lot of convenient Fintech projects emerging on the market today that make the payment process easier and more flexible for the customer. Don’t miss out on them!

Conclusion

If your business is represented online and your goal is to earn more revenue, build a brand image, and improve the customer experience, it is worth paying attention to improving your payment systems. Using the services from payment gateway providers and adjusting them to your needs can help your business grow even in the most challenging times.

Summary

A third-party payment system, payment processor, or gateway allows your business to receive payments without opening a merchant account with a bank.

The best online payment systems for your business are those that adhere to the latest security standards, support the payment methods you require and provide the best user experience for your customers. It’s hard to pick one among small business or enterprise payment systems because you will need multiple payment options to reach the biggest possible audience.

By introducing a variety of payment options, improving automation enhancing flexibility, and covering new audiences.

The biggest advantage is that your business can cover the global market for specific products by being able to accept payments in multiple currencies. It also elevates the level of security for transactions and improves the overall customer experience.

By protecting customer data from fraudulent activity, minimizing repetitiveness and the need to talk to human experts, and memorizing transaction data.

The most important aspects are security, payment methods, fees, and the available countries.

Further Reading

  1. 7 Top Ecommerce Payment Gateways – https://elogic.co/blog/7-best-magento-2-payment-gateways/
  2. Overview of Payment Processing – https://www.infopulse.com/blog/overview-of-payment-processing-trends-and-top-solutions-for-business/
  3. The emergence of Payment Systems in the Age of Electronic Commerce – http://globip.com/contents/articles/globalinternational-vol2-article2.pdf
  4. 7 Electronic Payment Systems – https://www.medien.ifi.lmu.de/lehre/ws0910/mmn/mmn7.pdf

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