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The Ultimate Guide to eCommerce Payment Processing

Stephen Hart

Stephen Hart

Founder - Cardswitcher

Former - Chief Financial Officer @ Worldpay

The eCommerce sector in the UK is massive (it’s actually the third-largest online market in the world) and is still recording double-digit growth year-on-year.

Worth hundreds of billions of pounds, it’s no surprise that more and more businesses are expanding into the digital space in an attempt to tap into the ballooning market.

However, taking your business online isn’t all that simple.

Online businesses work in radically different ways to their brick and mortar equivalents and that extends to their payment systems too.

In this article, I’ll look at the methods customers pay online, how businesses can accept those payments and how to best build an online payment system.


How can customers pay online?

There are dozens of ways an online business can accept payment from loads of different payment methods, ranging from the ordinary (invoicing) to the niche (cryptocurrency).

However, when you look at the eCommerce industry as a whole, two payment options dominate the discussion: Credit/debit cards and PayPal.

Here’s a quick overview of them.


Credit/Debit Cards

Unless you’re in a weird niche, the vast majority of your customers will use either a credit card or a debit card to pay online.

The good news is that the vast majority of online payment systems are designed to accept these payments.

With credit and debit card payments, your payment gateway will take a cut for processing the payment and your merchant account will take a cut for accepting the payment. (More on payment gateways and merchant accounts later.)



PayPal is an online payment system that allows users to shop online without entering their payment details into dozens of different websites.

It is a hugely trusted brand and, as Nielson Online Buyer Insights reports, offering it as a payment option can boost customer numbers by 27%.


How do you accept online payments?

In order to accept payments online (using the two most common forms of payment), you need three things: an eCommerce platform, a payment gateway and a merchant account (or a third party payment processor).

And those three elements have to work together perfectly or else you’ll end up with one error message and one frustrated customer.

In the next few sections, I’ll explain what each element is and what part it plays in the whole payment processing process.


What is an eCommerce platform?

An eCommerce platform is the piece of software behind an online business, which handles everything from the website to the shopping cart. Good eCommerce platforms will also manage additional business functions like stock control, delivery management and marketing.

All eCommerce platforms can be roughly divided into two categories: Hosted and self-hosted.

With self-hosted eCommerce platforms, it’s the business owner who has to find hosting, install the system and maintain the platform’s software. If you aren’t technically proficient, self-hosted platforms can be a bit daunting as they require a fair bit of technical work to get up and running. However, to their credit, hosted platforms tend to give you more customisation options and are a good choice for businesses operating at scale.

Hosted platforms, on the other hand, are hosted and maintained by a third-party. Businesses usually pay a subscription fee to the third-party to use the system. Hosted platforms are usually more user-friendly and are geared towards less technical users.

An eCommerce platform alone does not allow you to run an online business. You still need a way to process payments and collect money, which is where payment gateways and merchant accounts come in.


What is a payment gateway?

While payment gateways are super complicated bits of tech, it’s not actually that difficult to explain what they do.

A payment gateway is a service that acts as a secure link between a company’s website, a customer’s card issuer and the seller’s merchant account.

It’s basically the go-between for all parties, taking the transaction info from the merchant and sending it to the issuer and merchant account. Think of it as the online equivalent of a card terminal.


What is a merchant account?

A merchant account is a special category of bank account that allows businesses to accept payments via debit and credit cards. Merchant acquirers who process your card transactions receive payment from Visa, MasterCard, etc on your behalf and deposit these funds into this account.

Getting approved for a merchant account can be problematic for some businesses as the merchant acquirer will perform a credit risk review of your business and 5% of applications are declined due to poor financials, long deposit periods or the trading activity being considered high risk.


How do online payments work?

Now you know about the three players on the merchant's side of online payment — eCommerce platform, payment gateway and merchant account — it's time to look at how the whole payment process works.

If we’re just talking about credit and debit card payments, it’s pretty easy to break a payment down.

Here are the five basic stages of an online payment.

How does a payment gateway work?

  1. Your customer browses your site and finds something they like the look of. They add the product or service to their basket and hit checkout.
  2. Your customer enters their personal information, including their name, address and card numbers.
  3. Your payment gateway secures that information and forwards it to the acquiring bank.
  4. The acquiring bank then forwards the information to the card scheme that has branded the card and then onwards to the issuing bank. If the information matches the issuing bank’s records, the transaction is approved.
  5. The success is reported back to the payment gateway, which, in turn, reports it back to your site.

And just like that, you’ve processed a payment. When it’s time for you to receive the funds for this transaction, the process works in reverse with cash making its way back down the line and into your merchant account.


How do I find the best eCommerce payment system?

Finding the right payment system for your online business can be tricky. The good news is that most merchant accounts will work with most payment gateways, so all you need to do is find a payment gateway they will integrate with your eCommerce platform and then find the most cost-effective merchant account available.

To get started, why not take a look at what our partners have to offer. Just pop in a few details about your business and we’ll find some of the best merchant service deals on the market.

It only takes two minutes to get a quote and could save you up to 40 percent on your card processing fees. So, what are you waiting for?

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Written by:
Stephen Hart

Stephen Hart

Founder - Cardswitcher

Former - Chief Financial Officer @ Worldpay

Stephen brings a wealth of experience honed through years in the financial sector, particularly in the card processing payments industry. His illustrious career spans key roles at PwC, Natwest, and the role of CFO at WorldPay, before going on to found card processing comparison site, CardSwitcher. He is passionate about helping growing businesses to understand the card processing landscape so they can make savvy financial decisions.