Payments in eCommerce

All eCommerce sites need a set of convenient and secure payment options to complete the sale with enough details captured to allow the bank to safely authorise the payment. And, just as importantly, for you to get paid.

The number of ways of accepting payments on eCommerce sites has increased, and as a result, the implementation of these methods has become much easier.

Payments in eCommerce is an industry of its own. Behind any form of payments mechanism lies a lot of complexity due to the number of banks, credit card companies, VAT and sales tax calculations, and, of course, security.

The good news is that while payment options and payment complexity are increasing, the simplicity of setting up payments on an eCommerce store – and for you to get paid – is incredibly easy to implement.

Payment gateways

A payment gateway processes credit card payments for eCommerce sites. It offers secure encryption of payment, gets approval from the credit card or bank, calculates tax costs like VAT and offers screenings for security reasons. Common payment gateways include PayPal, Stripe, and Square.

The terms ‘payment gateways’ and ‘payment processors’ are used interchangeably, but a payment processor transmits the transaction data to an issuing bank, such as the credit card or debit card number that links to a bank account. The issuing bank then authorises the transfer of funds between the buyer and the eCommerce site.

Popular gateways include:

• PayPal: Processing fees are currently 2.9% with an additional $0.30 per transaction. PayPal has a number of gateway customisations at higher costs.
• Stripe: Stripe processing fees are currently 2.9% and $0.30 per transaction. Stripe has gained a lot of traction in eCommerce businesses.
• Apple Pay: Apple’s payment gateway is focused on mobile payment so that customers can pay using Face ID and Touch ID or use an electronic wallet to handle their payments. Apple Pay’s processing fee is 3%.
• Amazon Pay: Amazon Pay has the benefit of the existing Amazon customer base that makes it viable as a payment gateway option. Amazon Pay currently charges 2.9% on domestic US transactions with an additional $0.30 per transaction. In the United Kingdom, fees vary from 1.4% to 3.4%, with charges increasing as the monthly payment volume decreases.

Within your chosen eCommerce platform, you will be able to choose one of these gateways. Setup is typically very simple: you enable the payment gateway and enter your details. All of the popular gateway integrations have lots of detailed information in the platform help centres on their websites to help with set up. As these payment gateways are fully integrated within your eCommerce store once you are up and running, you can keep a running tab on your revenues within the administration section of your chosen eCommerce platform.

Payment gateways allow you to:

• authorise transactions without actually withdrawing funds from the customer’s account until you approve it
• process refunds to customers
• add different security layers – eg, 3D Secure – to help prevent unauthorised transactions
• offer different currencies (multi-currency) – to allow multiple transactional currencies at the customer checkout
• accept store cards – this allows you to safely and securely store customer credit and debit card details to reduce friction on checkout.

Your eCommerce store can be configured to show prices in different currencies and allow shoppers to check out using their preferred currency. Allowing customers to shop and check out in their local currency is a must-have. Why is this? Ensuring that shoppers know what they are going to pay right throughout their online shopping experience will improve your customer conversions (more in later weeks of the ExpertTrack on this topic) and ultimately increase your revenues. In addition, being able to pay in their local currency helps shoppers avoid currency conversion fees charged by their bank.

eCommerce platforms and payments

The major eCommerce platforms such as Shopify and eCommerce have payment gateways already built into their proposition. Shopify lists over 40 in the UK alone. BigCommerce claims to have over 65 payment gateway integrations available across the globe, including more local payment methods. The store country (ie, where you are based) and your local currency will determine the payment gateways available to you.

This means that as soon as the Shopify or BigCommerce store is connected to the payment gateway, you are ready to accept all major payment methods in multiple currencies. These BigCommerce and Shopify payment mechanisms have higher fees, so eCommerce stores typically move away from BigCommerce and Shopify payment mechanisms when they reach a scale that means creating their own payment gateway becomes cheaper.

Shopify Pay

As noted, Shopify provides a variety of payment platform solutions for taking credit and debit card payments. Only Shopify offers its own proprietary payment processing built into the platform. Shopify Payments is the checkout option in the Shopify platform that gives you the opportunity to take payment from your customers using your choice of payment gateway, eg, PayPal. However, there’s no option to save payment information for the future. Shopify Payments appears on your eCommerce as an unbranded checkout option for your customers.

Shopify Pay (or Shop Pay) is Shopify’s own payment method and checkout solution. This solution manages payment information for a Shopify store using Stripe. Shopify Pay enables faster payments and a better customer experience by allowing customers to save credit card information, add shipping address and billing information for a faster checkout next time. Shop Pay has features like local pickup and delivery options. Shop Pay is a branded button that comes with the Shopify logo. Note that Shopify Pay is not available in every country.

Using Shop Pay means that shoppers do not have to enter their details every time and can authorise their purchase without having to enter all of their details again. For security purposes, shoppers will need to receive a text message that includes a verification code. This six-digit code will allow users to authorise their payment safely.

From a security perspective, customer billing and shipping information stays on Shopify’s servers reducing security and compliance requirements. Shopify Pay also means lower costs on transaction fees and checkout because Shopify charge additional penalty rates on top of the rates going to the payment gateway provider of between 0.5% and 2% of the total transaction volume to encourage you to use Shop Pay. In addition, if customers pay using third-party payment gateways, then you won’t see your payout information in your Shopify admin. Third-party payment providers have their own ways of displaying your payouts. Check with your third-party payment provider to find out how they display payout information.

Chargebacks

With eCommerce stores, you are likely to need to deal with chargebacks or inquiries. When one of your shoppers has an issue with a charge on their credit card, they can contact their bank to dispute the charge if they believe their card has been used on your store without their permission. Their bank then makes a chargeback or inquiry. If the shopper’s bank makes a chargeback, then the bank takes the disputed amount from you right away. The shopper’s bank also takes a chargeback fee from you. If the shopper’s bank makes an inquiry, then they don’t take the disputed amount or a fee right away.

Resolving a chargeback or inquiry happens in a few ways:

• The bank reviews the shopper’s credit card and looks at any evidence and then resolves the chargeback in either your favour or the cardholder’s favour. If the shopper is wrong, you get the disputed amount and the chargeback fee.
• If the shopper wins the chargeback, then the disputed amount is returned to the cardholder.
• As the eCommerce store owner, you can communicate with the shopper (telephone or email) and see if you can resolve the issue. If the shopper agrees that the chargeback isn’t necessary, then the shopper must contact their bank and ask them to drop the chargeback. You will also need to provide evidence that shows that the shopper agreed to drop the chargeback.

Credit and debit card icons

As security and fraud are issues in the world of eCommerce, you can instil trust in your shoppers and browsers by ensuring that you have all the major credit and debit card icons on as many pages of your eCommerce store as possible – in particular the main homepage and the checkout page.

Getting paid and counting the cash

There is usually a delay between when the customer pays for their order and when you receive the payment in your bank account. Every payment from your customers must be processed. Payment gateway providers such as Amazon Pay or PayPal will have their own ways of getting funds from your customer to you. As mentioned, there will be fees associated with using payment gateways, so you will have these deducted.

Getting paid – accounting for eCommerce

When you have sales coming into your store, you will quickly find that the role of bookkeeping and accounting becomes very important. Manually entering data from your eCommerce store is no longer necessary or recommended due to the potential for accounting errors, the time required for manual bookkeeping and issues with accounting reconciliation. The good news is that the major eCommerce platforms have specific marketplaces for applications that are already integrated into the platforms and many of these are easy to set up with just a few clicks.

These marketplaces have specific apps for marketing, design, stock/inventory management, fulfilment and many other elements of an eCommerce store. The first app you should look at when choosing an account package is one that synchronises directly from the eCommerce platform to create sales receipts from orders, and automatically tallies taxes, discounts, refunds, shipping charges and so on to track your finances.

Innovative payment mechanisms

A new innovation in the app marketplaces are “buy now, pay later” (BNPL) applications to help convince shoppers to buy. eCommerce stores are exploring consumer financing and deferred payment options at the checkout, not dissimilar to the financing options offered by many white goods retailers, which allow shoppers to pay after delivery or in instalments. New credit and deferred payment solutions are offering a far shorter, sometime instantaneous, approval time.

The unique selling point of these options is simple – they reduce friction at the point of decision making by the shopper as they can pay at a later date, AND they are the eCommerce retailer first, which means you get cash into your bank account earlier.

Apps such as Klarna or Sezzle let you offer their shoppers:

• three interest-free instalments
• an extra 30 days to pay
• 36 months to pay – interest free.

For example, sportswear brand Gymshark offers Klarna at the checkout. Upon selecting Klarna at the eCommerce store’s checkout, customers are told the following:

• 14 days to pay, no fees
• No account sign-up required

Shoppers are told what their initial payment will be, as well as what amounts are due later on and when. Payment instalments are automatically scheduled, so they don’t need to worry about logging in and paying a bill before a due date. The apps typically cover all fraud and repayment risk as well.

“Buy now, pay later” is especially popular with younger users – shoppers 18 and older that might not have access to traditional lines of credit.

Fraud

A final point in payment is the thorny issue of fraud. In the world of eCommerce, fraud can be a real issue. The use of stolen credits or making fraudulent refund claims have grown a lot in recent years. Fortunately, both the eCommerce platforms, banks and the payment gateways have added many layers of security and proprietary safeguards that help stop fraudulent transactions before they’re completed.

However, you should still be vigilant and watch out very closely for any transactions that look fraudulent and act immediately as they will cost you time, money and aggravation.

If you are concerned about fraud on your eCommerce site, you may wish to upgrade your existing protection to protect from fraudulent transactions using apps from the app marketplaces of BigCommerce and Shopify that offer fraud detection and chargeback guarantees. Visit this article on BigCommerce for examples of such applications.

Finally, ‘buy-now-pay-later’ applications such as Klarna not only offer consumer financing options at checkout but they also deliver zero fraud risk or liability for your eCommerce store.