What Is Payment Gateway?: 5 Payment Processing Steps

Joshua Weatherwax
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    So, you've decided you're starting an eCommerce business and even opened a bank account for eCommerce business

    But, none of that matters if you don't understand eCommerce payments and eCommerce payment gateways (see what is payment gateway).

    Knowing how to accept payments online is the bedrock of a business, and eCommerce is no exception to this facet of necessary efficient business systems.

    Read on to learn how eCommerce payments work, what an eCommerce payment gateway is, and the payment processing options available to you.

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    eCommerce Payment

    An eCommerce payment is the transfer of money from a customer to an eCommerce business in return for products or services. This money may come via credit card, ACH, EFT, or another method. This is especially true of B2B payments, which can come in more than seven different ways.

    Though there are many types of eCommerce businesses, they process payments in similar ways.

    How Does eCommerce Payment Work?

    When a customer makes a purchase with an eCommerce business, their payment is made electronically. This payment must go through a few steps before it reaches the seller.

    eCommerce Payment Process

    Here are the steps:

    1. Checkout. The customer goes through the checkout process and enters their payment information.
    2. Information transfer. Their credit card or other payment information is captured by a secure payment gateway. It is then encrypted and sent to the payment processor.
    3. Issuer acceptance. If using a credit card, the payment processor verifies with the issuing bank whether the transaction is legitimate. It's not unusual for the bank to reach out to the customer as well to double-check. This usually happens if the purchase is expensive or through an unknown entity.
    4. Transaction approval. Once the payment is verified by the bank, the payment processor informs the customer of a successful purchase. The information is then passed on to shipping and fulfillment.
    5. Fund transfer. Though the transaction is complete for the customer, the funds don't arrive in the seller's account immediately. Within a few days, the money will be deposited into their eCommerce accounting software and the transaction is officially complete.

    eCommerce Payment Gateway

    An eCommerce payment gateway is a service that processes credit card payments for eCommerce businesses. There are many options for payment gateways, like those that accept ACH payment, but the best share a few additional features.

    These are some things to look for:

    • Data encryption. Though all gateways offer some level of encryption, it's important to invest in one with a solid track record. As more business is done online, more hackers are trying to decrypt the data that is transferred. Look for a gateway that meets PCI compliance requirements. This includes securing data during transfer via TLS and a secure site that uses HTTPS. If your gateway is breached, you can face serious lawsuits and your eCommerce business insurance provider will not be happy.
    • Tax calculation. If you plan on selling to customers outside your state or country, taxes will vary significantly. Let your gateway provider handle those calculations so your web developer doesn't have to. The BlueCart Digital Storefront offers automated tax calculation, so food suppliers can focus on selling their products.
    • Geolocation services. Offering different prices, sales, and events by region is common in eCommerce. A payment gateway with this function makes it much simpler and offers a valuable tool in your marketing efforts.
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    How Payment Gateway Works in eCommerce

    An eCommerce credit card payment gateway is the middleman in a transaction and handles most steps within the payment process. This includes analyzing and transmitting transaction data and authorizing the transfer of funds between a buyer and seller.

    It also ensures that sellers don't fall victim to fraudulent sales by communicating with banks to ensure transactions are legitimate. Data encryption adds a layer of protection on the consumer's end as well.

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    Best Payment Gateway for eCommerce Website

    The best payment gateway for an eCommerce website depends on the industry and target customers. The B2B business model and direct to consumer model have different needs, so look for a gateway that will best serve your particular business.

    Either way, make sure the business you go with understands the eCommerce market and how it differs from traditional business.

    For food and beverage manufacturers and suppliers, the best choice is to use the BlueCart eCommerce. It's an all-in-one online marketplace that lets you sell B2B wholesale, direct to consumers, or both. It offers secure transactions, is built to scale with your business, and doesn't even require setup or monthly fees. It's also the best eCommerce platform for SEO if you're a food supplier.

    Different Types of Payment Systems for eCommerce

    There are three types of eCommerce payment processing services for eCommerce businesses. Each type has pros and cons, so make sure you understand your needs and abilities before investing.

    Fully Off-Site Payments 

    For this type of gateway, customers are redirected off-site during checkout and all information is entered on the third-party's site. This model ensures all data is dealt with by the gateway first and offers small businesses a convenient way to handle their transactions. 

    However, the business has little control over the process and it adds an extra step for customers.

    On-Site Checkout, Off-Site Payments

    This hybrid model has the front-end of the checkout on the seller's site, while the payment process on the backend goes through the gateway. This model offers simplicity for the seller, and they control more of the user experience. 

    However, it. can be prohibitive for smaller businesses to code and issues with the offsite gateway may impact the service.

    Fully On-site Payments

    Large-scale businesses handle all aspects of their transactions on-site through their own servers. The seller has total control over the whole process, but that means they are responsible for any failures or data breaches. This model is also too costly and unwieldy for most small- and medium-sized eCommerce businesses.

    When starting your businesses, try to include the type of payment processing service you intend to use in your eCommerce business plan. It will show investors you've seriously thought things through and give you a roadmap for building site features.

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    B2B Payment System in eCommerce

    For B2B eCommerce companies the types of payment systems are the same, but there are additional features included.

    Here are a few:

    • Creditworthiness assessment. B2B sales have a much higher value, so it's important that they don't fall through. The best B2B payment systems have ways of checking a buyer's creditworthiness to ensure they can pay.
    • Escrow service. Escrow is a method of temporarily holding money in limbo by a third party until a transaction is complete. In a B2B payment system, it ensures the buyer that the seller can fulfill their order to the provided specifications.
    • Integrated reporting. Reporting is valuable to all businesses, but even more so to B2B businesses. In B2B, transactions take longer, have a higher value, and a larger quantity of products must be accounted for. Detailed reports can ensure the customer gets what they ordered, the seller gets paid the correct amount, and that everything is properly accounted for.
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    Hit the Payment Running

    Now that you know all about eCommerce payments and gateways, you can focus on growing your bottom line. An effective and easy-to-use payment gateway can take you from simply having eCommerce business ideas to having a successful business. Pick one that will grow with your business and has the right tools and options for you.

    One other important thing you'll need for the success of your business is an eCommerce business license. It will let you operate without the dangers of getting fines or shut down. It can also protect you from lawsuits and lets customers know you take business seriously. You should also look into picking up some eCommerce books or reading an eCommerce blog to help you better understand current trends and help your business grow.

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