On one hand, online payments are just another form of card not present
transaction, as covered in chapter 3. When you process payments
online, money goes through the interchange as normal. It also goes
through an acquirer as normal – and if they offer the best rate, you
can continue using the acquirer you use for normal payments.
On the other hand, e-commerce is a big and complicated topic. That’s not to do with payment processing; it’s to do with the e-commerce stack where there are a lot of different companies providing lots of different types of technology which all overlap.
We’re just going to talk about one of those – your e-commerce platform – and how it will work with your payment gateway, and your acquirer or other processor. Just like with EPOS, you should be careful if you’re choosing a solution which does all three of these. It could be a great choice; but they might also be using expensive payments rates to disguise cheaper up-front fees.
Here’s our payment diagram again, adapted for the bits we’re talking
about in this chapter.
You can see the acquirer in the same place as normal, and there are “other processors” which are various but usually take on a role similar to payfacs, passing on a simplified or flat rate to merchants. Stripe is probably the most famous example of this kind of processor, but Stripe are so successful they’ve now got an acquirer license too.
Everything we learned in chapter 1 about the difference between flat and interchange rates applies here.
The payment gateway and e-commerce platform sit away from the main “interchange” diagram.
That’s because the arrows on the diagram represent money being moved around, and neither your e-comm platform nor your payment gateway ever touch your money.
You would pay your e-commerce platform separately. You may also pay your payment gateway company separately, or it may be owned by your processor or acquirer. Either way, all that bit does is send information around, not money.
It just has to let the other parties in the diagram know that a payment has taken place – so they can get on with sending the money.
“you need to pay more for online processing”
some processors charge more for online – but you shouldn’t process online with them
The first part of the stack is called the e-commerce platform.
This is the online equivalent of your EPOS software. It’s the part
of your website designed to sell stuff and the tools which make it
easy for you to assess how to sell more of it.
If you’re a StoreKit customer, you’ll be aware that many of the EPOS software companies do their own e-commerce platforms – such as Vend or Lightspeed. These might be right for you; alternatively, there’s a lot of companies whose first competency was an e-commerce platform – such as WooCommerce, Shopify, Magento, or BigCommerce. These tend to have a much larger share of the market.
Things to consider when choosing an e-commerce platform include business management features, user experience features, ease of use, and price. But one big difference to watch out for is whether a platform is open-source or hosted.
Open Source platforms such as WooCommerce and Magento are free. “Open source” means the code is published and anybody can use it. If you have talented developers, choosing open-source gives you extra flexibility to insert your own ideas and make amendments. They’re also likely to work out cheaper, especially if you expect e-commerce to be a significant portion of your business.
Hosted platforms include Shopify and BigCommerce – and EPOS players such as iZettle, Square, Lightspeed and Vend. These will all charge a monthly bill, and some of them will charge you for their own payment processing as well. “Hosted” refers to the fact that their computers are where all the data is being stored; but for us, it means that there will be a much simpler set-up through a user friendly platform made to be intuitive.
Our advice is to watch out for companies which force you to use their payment processing as part of their broader platform – their rates aren’t very competitive!
|Set Up||Tough - you'll need a developer!||Easier|
|Do they charge for… using the platform ?||No||Yes|
|Is “hosting” (storing the data) included?||No – you’ll need something called a web hosting company||Yes|
|Do they charge for… integrations?||If they have built the integration, yes||Some integrations may be included. Others they will charge for seperately.|
|Do they charge for… processing?||No – and you’ll need to buy this separately elsewhere||They may have preferred processing providers or provider processing themselves. In these instances, they are certainly making money on the processing.|
|Customisable?||The sky is the limit!||Somewhat|
|Examples you might have heard of…|
The Payment Gateway is something you need on your platform to accept payment. It’s the part of a checkout page where a customer securely enters their card details. It’s got one job, which is to send the information which gets entered there to your acquirer or payment processor.
For that reason, a payment gateway is sometimes included with your
payment processing – but it is possible to buy one seperately. The
easiest way to understand the difference is to think about it this
way – your payment gateway never touches the money. They just let
your acquirer or processor know that someone has entered their card
You’re also likely to see see your e-commerce platform offer a payment gateway – and you’ve got to deduce what’s going on here. It could be that they’re describing a processing offer that they’ve got a vested interest in. Or, it could be that it’s just part of a big list of things which will work with the platform, called integrations – in which case it’s either part of a processing offer or a discrete product.
Some companies, like SagePay, offer a payment gateway you can buy on its own
Some companies, like Stripe, offer a Payment Gateway as part of a broader processing offer
Some companies, like Shopify, include a Payment Gateway as part of their e-commerce platform offering. But check whether this is linked to a processing offer too
Often, new online stores think they face a more difficult choice than
they do, because they believe their processor and their payment
gateway are the same thing.
One common scenario is that online payment processing is cheapest through an acquirer – which is where some online shop owners get into a muddle. Acquirers typically have low technology competency and either don’t make a payment gateway, or make a cruddy one which loses customers on the check-out.
For that reason, lots of merchants turn to online processors with more expensive pricing. This is what you’re likely to find when you first start searching for payment gateways. Even companies which do sell payment gateways discretely are keen to upsell you into their processing offers.
You need a payment gateway. But remember – it is possible to buy a gateway discretely without paying processing fees on it. That’s actually what we do for our own online shop.
There’s no reason online processing should be more expensive than in-store payments. The same thing is happening, with the same companies.
There are a few different factors to consider when choosing your payment
First, will it work with my platform and my payment processor? This one’s a dealbreaker. All big platforms should have plenty of Payment Gateway integrations – but you need to choose from that list, or it won’t work.
After that, you can consider the UX of entering card details. This sounds trivial – but “abandonment rates” are very sensitive to these end-of-checkout details! This will translate to real money made or lost at the checkout.
Does it support PayPal? There’s PayPal, and in the future there may be other P2P cash apps, like Venmo.
Do they have a good reputation for preventing fraud? E-commerce is very prone to chargebacks (covered in C3 in detail) and your provider here will affect how well fraud is detected.
What foreign cards/currencies does it support? This is an obvious one – but if you’re expecting buyers on the continent, this will help.
THE ACQUIRER OR PROCESSOR
Not at all.
At this point, payment processing becomes much the same as it is for all card transactions. You should certainly ask your acquirer to give you a better processing rate if you’re expecting greater volumes because you’re setting up an online store.
For acquirers, the bidding process is much the same as described in chapter 5. Make sure you get several acquirers involved, make sure you play them off against each other. Make sure you invest time in fully understanding the quote, and do use the form we’ve created to help homogeonise the quotes you get. If you’re renegotiating with your current acquirer, follow the process we’ve set out in chapter 8.
One important thing to remember is that you shouldn’t be really paying CNP fees – which stand for card not present, and are covered in chapter 3, because it’s possible to negotiate rates without them. The acquirer doesn’t do any extra work.
It’s difficult to come up with a neat flowchart for when to choose
an acquirer and when to choose an alternative processor, like we
could for payfacs in chapter one. That’s because in e-commerce,
there’s more different kinds of processors, and it’s harder to
generalise in the way you can for payfacs.
But the assumptions made in that chapter generally hold true. If you want flexibility, you expect to take a low volume on card, and your indiviual card transaction sizes are lower, you’re likely to suit a fixed rate which is more likely to be available through an online processor.
If you’re prepared to hunker down into a longer term contract, and you process a little more, an acquirer is likely to be cheaper – with interchange fees.
The important thing to remember is that if you’re setting up an online shop, you’re going to expect your payment processing costs per transaction to go down because you’re processing more. It can be easy to forget that you can always cut a deal in payments – that’s what we can help you with!
There’s a lot of different payment products to explore! Most of
these are outside of the core requirements of e-commerce, but here’s
two further groups – and there are many more. Klarna and Divido are
loans companies, which enable some people to pay in installments.
You’ll receive the full amount at the time of payment; Klarna will
front the money; and your customer will pay Klarna back the loan
they’ve taken back, with interest.
Or, if you expect to process a lot of European payments, there’s some niche bank-to-bank transfer mechanisms on the continent which do bypass the card system described throughout this guide. These work online and include companies such as GoCardless.!