Payment Processing is one of the most important parts of the e-commerce customer retail experience according to a survey published in February 2023 by the American Customer Satisfaction Index. This translates into internet shoppers now having a very high expectation for payment processing on both desktop and mobile platforms.
Unfortunately for ecommerce retailers, payment processing can be one of the more involved parts of setting up your online store which can easily lead to higher than needed costs. In order to just accept credit and debit cards, an ecommerce retailer needs the following.
- E-commerce Platform – This is where prices are set, items are added to shopping carts by customers, and the integration of the Payment Processor and Payment Gateway allow them to enter payment information (e.g., Shopify, WooCommerce).
- Payment Processor – This is the party that maintains all the backend information. The Payment Processor creates your Merchant Account which shows when payment was accepted, received and what fees were taken out. The Payment Processor sends the net amount received to the retailer’s bank account (e.g., PayPal, Stripe, Square).
- Payment Gateway – This is where the actual payment information is stored and sent to the customer’s credit/debit card issuer. The Payment Gateway receives the payment and puts it into your Merchant Account which is managed by the Payment Processor. Usually the Payment Processor bundles the Payment Gateway with their services, so common examples are PayPal, Stripe and Square.
In terms of cost for the above credit/debit card only payment process, the retailer must calculate the costs for the ecommerce platform (i.e., Shopify or WooCommerce), the Payment Processor and Payment Gateway (i.e., PayPal, Stripe or Square) which include the Mastercard or Visa network fees and interchange fees.
According to recent news reports Mastercard and Visa will be raising these fees in the near future. Visa, Mastercard Plan to Add New Card Fees in the Coming Months – Bloomberg
By taking the time to draw up a strategic plan for your online retail activities and then researching the options available for payment processing, high costs can be avoided. Here are 5 steps that will help keep your costs down.
- Make a list of all the platforms that you want to sell on. Key platforms to consider are your website; social media such as Facebook and Instagram; and marketplaces such as Amazon, eBay and Walmart.
- Make a 2-year monthly forecast of volume (number of transactions and dollars) for each platform.
- For each social media platform and marketplace estimate the payment processing costs. Remember to take out logistics costs and listing costs if possible. This should be the highest payment processing cost that the merchant incurs.
- Evaluate E-commerce Platforms that can support your social media platform and marketplace sales. For example, recent new reports indicate that Shopify will now be supporting Amazon’s “Buy with Prime”.
- Evaluate Payment Processors and Payment Gateways based upon your forecasted website volumes. The Best Credit Card Payment Processing Companies For Small Business
