Ecommerce Payment Processing: An Ultimate Guide

ecommerce payment processing

Processing payments is perhaps the most nerve-wracking aspect of running an ecommerce business. Not only does it keep your business’s lights on, but it deals with sensitive customer information. The rewards of selecting a payment processing solution that best fits your and your customers’ needs can be major: operational efficiency, customer retention, increased sales, and more.

What is ecommerce payment processing?

Ecommerce payment processing refers to the system that enables online businesses to accept and process electronic payments for goods and services. It involves the secure transmission of transaction details between customers, merchants, and payment service providers, facilitating the authorization, capture, and settlement of funds. 

Although most customers may believe the ecommerce payment process only takes a few seconds—following the click of a button—in fact, it entails multiple points of communication between multiple players: customer, merchant, payment processor, merchant account service, and both the customer and the merchant’s respective banks.

Ecommerce payment processing vs. traditional payment processing

Traditional payment processing involves an ecommerce merchant’s integration of a third-party payment gateway into the checkout process. Essentially, the customer is redirected to an online payment page on that third party’s own website, which serves as the point at which the customer’s payment details are entered to complete the purchase.

Ecommerce payment processing is integrated into your business’s own site. It’s a one-stop shop that engenders a higher grade of trust between customer and merchant. When customers are redirected to a third-party site in order to complete a transaction, they become less confident in the security of their sensitive financial information and are more likely to abandon their online shopping cart altogether.

In fact, the ecommerce think tank the Baymard Institute found that 18% of users are likely to abandon a checkout flow because they don’t trust a site with their financial information.

How does ecommerce payment processing work?

Many online payments start when the user enters credit or debit card information at the checkout stage, usually by a form embedded in your website or mobile app. Encrypted payment details entered on your website are sent to the processor via the payment gateway.

The processor then notifies the bank that issued the customer’s credit or debit card to ensure there are sufficient funds in the associated account, and the transaction is either authorized or declined.

The payment processor then communicates the authorization or decline back to the payment gateway, and the gateway communicates that information back to the ecommerce merchant’s site. If authorized, the customer receives an order confirmation, usually in the form of an email receipt.

The funds to make the purchase are then deducted from their credit or banking account and transmitted to the merchant’s account.

These are the players in an ecommerce transaction:

Payment processor

A payment processor is a financial services provider, such as a credit card services provider, that facilitates the entire ecommerce transaction chain. The payment processor conveys all transaction data between the customer’s bank or credit card company and the merchant’s account.

Payment gateway

The payment gateway is a technological platform connecting your ecommerce site to a merchant services provider. This facilitates the transfer of data between the payment processor (and by extension, the issuing and receiving banks) and the customer-facing website.

Authorization or decline information is also transmitted back to the ecommerce site via the payment gateway.

Merchant account

A merchant bank account allows an ecommerce merchant to receive electronic payments from customers. This occurs after customer payments have been authorized and settled—meaning the funds from the customers’ credit or debit card institution have been deposited into the merchant account.

The funds are then transferred to the merchant’s own business banking account, usually after one to two business days. In order to obtain a merchant account, businesses must establish a working relationship with a merchant services provider. Such a provider offers hardware and software solutions to enable ecommerce transactions—such as virtual terminals and digital merchant accounts.

What is payment tokenization and why is it important?

Payment tokenization is the process by which customer payment information is saved by your ecommerce business for later use. Storing credit card information directly is not advised, as the information would be readily accessible to hackers in the event of a data breach.

But tokenization offers a way to do this securely. Instead of saving customers’ actual credit card details, your site saves a randomly generated alphanumeric code, which represents and replaces customer information in your system. From then on, your platform uses the token instead of card numbers when actually charging customers.

Tokenization is an especially crucial service for any ecommerce business that offers subscription payment models or allows customers to save payment information for easy repeat checkouts.

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What to consider when choosing an ecommerce processing platform

There are a number of factors any ecommerce business owner should consider before choosing a provider: the strength of security the provider offers; the provider’s ability to process multiple payment methods; where your customers are located; and any associated costs and fees you will incur for using the provider’s service.


In order to securely process payments, your site will need an SSL certificate, or secure sockets layer certificate. An SSL certificate is a code applied to your web server that provides a “layer” of security for online communication and transactions. When a customer’s web browser contacts your business’ website, the SSL certificate encrypts the connection, effectively shielding customer information from prying eyes.

Once you’ve set up an SSL certificate for your site, you’ll want to ensure your ecommerce payment provider is PCI compliant. PCI stands for “payment card industry,” a set of regulations that merchants must follow to accept payments online. Compliance is mandated by credit card companies to ensure the security of credit card transactions passing through your processor.

Accommodating several types of payments

Your best option for ecommerce payment processing will be able to process a variety of payment options—not just a credit and debit card, but PayPal, Venmo, and e-checks too.

Accepting international payments

If your business only sells to the US market, you may not have to consider selecting a payment processor that allows for international transactions. However, if you plan to have customers overseas, you will want to select a service that can facilitate foreign payments.

Your payment gateway will need to be able to support credit and debit cards from various foreign banks, and allow users to convert payments to their country’s currency. The gateway should also offer support for navigating various tax systems.

Costs and fees

Costs associated with using an ecommerce payment processor can be divided into three main components:

  • Set-up costs. Processors will usually charge an initiation fee, ranging between free and $250.
  • Monthly subscription fee. These generally fall between $10 and $50.
  • Transaction fee. Processors will typically charge between 1% and 5% of each transaction on top of a flat fee, usually no more than 25¢.


Selecting the right ecommerce payment processing solution is one of the most important decisions a business owner can make. Consider all of your business and customer needs, alongside your financial circumstances, to identify the best service for you.

Outlining these considerations ahead of time, and comparing them to the features of various services, is a sure way to land on the right choice.

Ecommerce Payment Processing FAQ

Which payment method is best for ecommerce?

The best payment method for ecommerce depends on the type of business, the target market, and the preferences of the customers. Some of the most popular payment methods for ecommerce include credit cards, PayPal, Apple Pay, Google Pay, Amazon Pay, and Stripe. Each of these payment methods provides different benefits and it is important to evaluate which one best meets the needs of your business.

How do I accept payments on ecommerce?

You can accept payments on an ecommerce store through a variety of methods, such as credit and debit cards, PayPal, Apple Pay, Google Pay, and other digital wallets. To use these methods, you'll need to set up a payment gateway, such as Stripe or PayPal, and connect it to your ecommerce store. You'll also need to make sure that you meet all applicable security requirements, such as PCI compliance.

What is extremely essential in e commerce for processing payments?

Secure payment processing is essential for any e-commerce business. This includes using payment gateways, merchant accounts, and payment processing services that are PCI compliant. Using these secure payment solutions ensures that customers’ credit card and other sensitive information is kept safe and secure.

What is API payment processing?

API payment processing is a type of online payment processing that uses application programming interfaces (APIs) to process payments from customers. APIs enable businesses to integrate their payment processing system with their web or mobile applications, allowing customers to pay for products or services with a few clicks or taps. APIs also enable businesses to securely accept payments from customers using various payment types, including credit and debit cards, e-wallets, and bank transfers.