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Demystifying eCommerce Payment Processing

With the Covid-19 pandemic, there has been a radical shift in consumer behavior globally. Scheduled lockdowns and norms of social distancing have pushed consumers to adopt online purchases and contactless deliveries. During the pandemic, an upward purchase trend has been seen in categories such as Electronics and accessories (39%), mobile and accessories (12%), Large Appliances (white and brown goods) at 9%. India is galloping towards becoming the second-largest eCommerce market by 2034. An online store has become imperative for sustainability and growth. Irrespective of having your website or a seller account on an eCommerce platform, it is essential to understand the online payment gateway. The following article is a beginner’s guide on what are payment gateways for websites and how to set them up. It gives you a peek into the world of eCommerce payment processing.



Let’s go step by step.


1. Payment modes in eCommerce


Online customers confirm mode of payment. They have a plethora of choices such as credit cards, debit cards, netbanking, etc.


Customers prefer to use card payments for both offline as well as online purchases. Popular eCommerce sites like Amazon and Flipkart have the functionality to store the details of the cards frequently used and provide ease of transaction to the customers.


  • E-wallets

They are virtual wallets that can be used for payments online. Paytm, google pay, Rupay, etc., are some popular choices of customers purchasing online. It does not require entering key details for every transaction and is a preferred choice during mobile transactions.

  • Netbanking

Customers opting for this mode do not require a debit card. By registering for net banking with their bank, they are good to go.

  • Cash on delivery

A trend that is prevalent in online shopping in India is on a decreasing trend due to the need for contactless deliveries. Online retailers are shying away from COD as they have realized that customers opting for COD are more likely to cancel as compared to non-COD customers.


2. Understanding the eCommerce payment processing


An understanding of the payment gateway, payment processors, and eCommerce merchant account is essential to understand eCommerce payment processing. Let’s discuss them in detail:

  • Payment gateway

Payment gateway is an essential part of eCommerce. Businesses must collect payments for the goods sold in a secured manner. All eCommerce platforms offer payment gateway as a part of essential merchant services to their sellers. The payment information passes to the payment processor for verification and authentication through this gateway.

  • Payment processor

A payment processor is an intermediary body between the merchant and various channels used for payment by customers such as banks, credit cards, etc. They verify the availability of funds and facilitate payments from multiple channels into the merchant account.

  • eCommerce merchant account

It is the account that receives the processed payment from the payment processor. As an online businessman, you can choose to have an eCommerce merchant account or partner with a PSP for facilitating online transactions with the customers. By being a seller on an eCommerce platform like Amazon, you do not have to worry about setting up a merchant account. Amazon receives the electronic payments on the seller’s behalf and remits his bank account every 15 days. This happens post balancing the seller’s Amazon account. On your own website for facilitating payment, it is good to partner with PSP ( Payment service providers), who manages the show for you. A popular PSP charges 2% of the transaction fee overpayment of Rs 300000 or 3 months, whichever is earlier from the merchants. There are payment service providers who offer zero platform fees to promote themselves to businesses aspiring to be online. You can add a payment button on your website in less than 5 minutes and start collecting payments online.


3. How the payment system works


The steps in a typical online transaction are:

  1. The customer adds the selected product to the shopping cart.

  2. The customer selects the online mode for payment at the checkout.

  3. The customer adds the details about his credit/debit/ card or the net banking details.

  4. The payment gateway picks up the data and sends it across to the payment processor in a secured manner.

  5. The payment processor authenticates and verifies for the availability of funds leveraging its credit network.

  6. The bank either rejects or accepts the payment on the basis of information and the availability of funds in the customer’s account.

  7. The payment processor reverts with the result to the payment gateway as denied or accepted, and the same is visible to the customer.

  8. The transaction is approved if the bank accepts the payment. In case of denial, the customer gets the option to change the payment mode.

  9. The payment processor for all the approved transactions issues the payment to the eCommerce merchant account or the bank account, as the case may be.


4. Things to look out for


As an online seller picking the right payment processor company is essential. As online purchase requires customers to enter their confidential data hence the security of that data is paramount. Partnering up with vendors that offer enhanced security is a good choice. As payment processors charge a fee for online transactions, an evaluation of cost versus the benefit is equally important. For example, the credit card processing fee for American Express is going to be different from the other credit companies.


Conclusion


For expansion and better reach, it has become imperative for small businesses to have an online presence. If you are an aspiring online seller needing help with your online business or looking for a lucrative exit, Powerhouse91 is an excellent choice. Powerhouse91 understands the efforts required to build a brand and keep in mind while purchasing your online brand. We have a combined experience of 30 years in the eCommerce sector and are well-versed in the challenges faced by small and medium-sized businesses in the Indian scenario. Reach out to us at contact@powerhouse91.com to learn about the services we offer.




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