Online Payment Processing: A Guide for Digital Businesses

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Did you know that around 45% of new businesses fail during their first five years of being in business? When you're operating a digital business you need to take payments online in order to not miss out on potential sales. We have put together this guide to share all about online payment processing options. 

Read on to learn the ins and outs of taking digital payments.

Cryptocurrency payment gateway

In today's world you want to also offer the option for a potential client to pay you with cryptocurrency. This allows for more people around the world to have the option to make a purchase from you. With a cryptocurrency gateway you can accept digital payments and receive fiat currency in exchange as soon as you receive the payment. 

payment processor

When you opt to use a payment gateway for crypto, the company will take the perceived risk that comes with cryptocurrency payments. The companies' wallet will facilitate the transactions between customers and merchants. 

The way the processing of the payment works is first the customer will opt to make the payment in cryptocurrency while they are checking out. The customer will buy their crypto either through an ATM or via an exchange. You can click this to learn more about cryptocurrency ATMs. 

Once they are checking out with crypto as the option, the customer will pay the amount equal to the currency's fair market value. The payment will instantly be converted into the currency that you desire to have. Then, the money is added to your account via the provider. 

As long as you have your bank account set up, the money is deposited directly into your account.

Advantages

One of the advantages of using a payment gateway for cryptocurrency is that you have someone to contact if there are any payment issues. The reason you have access to deal with payment issues is that using the payment gateway removes the anonymity of the person that is paying. 

Another advantage is that you can accept payments from everywhere around the world. Plus, as an added bonus you receive the funds in your account with your provider, so there is no need to understand cryptocurrency if you don't truly get it. 

Disadvantages

One disadvantage is that cryptocurrencies were originally meant to bypass third parties, but a payment gateway is a third party, so in a sense it is breaking part of the reason that cryptocurrencies were created. Another con is that gateways are companies that provide a service, so you will have to pay larger transaction fees when you use a payment gateway.

One last disadvantage to keep in mind is that if the payment gateway is ever hacked then you will lose funds that are in your account with the company if there is money waiting to be transferred.  

Components of online payment processing

There are a few key pieces of software that work together in order to accept payments online. Without one of these components then the entire system will stop working. 

Payment processor

This is what manages the card transaction process. The payment processor transmits information from the customer's credit card or debit card to the bank of your choice. The processor will deal with any of the issues that come with credit card validity, card limits, and security. 

As long as there are enough funds in the customer's account then the processor will approve the transaction and the payment will go through. This is comparable to a middleman that is handling business between the merchant and the bank. 

Payment gateway

This is almost like an online version of a point of sale device which helps connect the website to the payment processor. If you are doing business overseas then you will need to have an international payment gateway. For those only doing business in the United States, you will only need a payment gateway that processes domestic payments. 

Also, a payment gateway has the ability to connect your own merchant account with issuers of credit cards or even debit cards. In essence, the payment gateway handles the technical side of the transaction to make sure that the payment's from your customer's go to your account. 

Merchant account

This is where a specific type of bank account enables your business to accept online payments. If you don't set up a merchant account then your money has nowhere to go once a customer pays you. Once the funds reach the merchant account then the money is automatically transferred to your bank account in about 1 or 2 working days. 

How does online payment processing work?

Most people do not realize everything that goes into processing a payment for a small business. There are quite a few steps involved in the entire process.

How does online payment processing work

The entities involved include, the business, the customer, the credit card network, the payment processor, the payment gateway, the merchant account, your bank of choice, and the customer's bank.

Once the customer chooses the item to purchase and goes through the steps during the checkout process they will choose the card they want to pay with. After they enter all the card information into the payment page, the card information is transferred into the credit card network. This is where the credit card details are all verified. 

Once the verification is successful, the card network will request authorization to release those funds with the issuing bank from the customer. At this point they will confirm that there is enough money in the account to make sure that nothing is fraudulent. The bank issuing the money will submit a response to the credit card network to let them know if the transaction was approved or not. 

The payment processor will receive the information for the payment processor to request a transfer of funds. The funds are transferred to the merchant account and the money will sit for a couple of days before they are transferred to the business's bank account by the payment processor.  

What to consider when choosing a processing platform?

You want to make sure you choose a platform that is secure and your own site is also secure. Make sure that your site has an SSL certificate. This certificate is a code that is applied to your web server to give it an extra layer of security for online transactions and online communications. 

Once the customer's web browser contacts the website for your business, the SSL certificate encrypts the connection. This is what shields your customer's information from any hackers or prying eyes.

bank card processing

You also want to make sure that the payment provider you choose is PCI (payment card industry) compliant. These are a set of regulations that a merchant has to follow in order to accept any online payments. Credit card companies demand compliance to make sure that the security of credit card transactions passing through the processor are at the highest level possible. 

Something else you need to take into consideration are the payment methods included from the company. Make sure that the most popular eWallets are supported and also the major card networks such as Visa. Master Card, etc. If you're planning on targeting certain geographies then you also want to ask what local payment methods they accept.

For those that are selling subscriptions you want to understand the automatic billing features from the company as well. This is a must-have tool when you are managing subscriptions in order to streamline all the payments and boost your retention strategy. It will also ensure that you do not miss invoicing a customer on a certain month. 

You can opt for either an API hosted, local bank integration, hosted gateway or a self-hosted gateway, depending on the solution you are considering. Ask if there are any integration alternatives that your store has with the payment gateway. The best choice on the integration depends on the technology on your own website and on the dev work that you have available. 

The last thing to take into consideration is the price. This should not be the only leading factor, but you want to make sure you can afford the fees from the company. Make sure that all the fees add up to what you are receiving in return. 

Feeling like an online payment processing pro?

Now that you have learned everything there is to know about choosing the best online payment processing for your needs, you can make an informed decision. 

If our blog post helped you out, there's more where this came from. Keep browsing our business section for more guides and tips. 

About the author 

Peter Keszegh

Most people write this part in the third person but I won't. You're at the right place if you want to start or grow your online business. When I'm not busy scaling up my own or other people' businesses, you'll find me trying out new things and discovering new places. Connect with me on Facebook, just let me know how I can help.

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