8
E-Commerce 101



This is the final chapter of our payments guide – about e-commerce. The final frontier!

I. How is E-Commerce different?

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.

ONLINE PROCESSING: WHERE DOES THE MONEY GO?

Card Network (VISA, Mastercard)Customer BankAcquirer Your CustomerOther ProcessorYour Business Bank AccountYouThe InterchangeE-comm platform Payment GatewayHi everyone. I’d like to confirm that someone has given me their card details…

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.

MYTH

“you need to pay more for online processing”

FACT

some processors charge more for online – but you shouldn’t process online with them

PART 1

THE
PLATFORM

  • Acquirer
  • Other Processor
  • Payment Gateway
  • The Platform

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!

Open SourceHosted
Set UpTough - you'll need a developer!Easier
Do they charge for… using the platform ?NoYes
Is “hosting” (storing the data) included?No – you’ll need something called a web hosting companyYes
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…WooCommerce, Magento and PrestaShopBigCommerce, Shopify, Vend

II. The Payment Gateway

  • Acquirer
  • Other Processor
  • Payment Gateway
  • The Platform

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.

Here’s what a payment gateway looks like:

Form with credit card option selected and inputs for card type, card number, expiry and card code.

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 details.

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

  • Acquirer
  • Other Processor
  • Payment Gateway
  • The Platform

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

WHAT’S THE BIG DEAL ABOUT BUYING A PAYMENT GATEWAY SEPERATELY?

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.

What should I look for in a Payment Gateway?

There are a few different factors to consider when choosing your payment gateway.

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.

Payment Gateways you might have heard of… eWay, Amazon Pay, sage Pay, stripe, PayPal

PART 3:
THE ACQUIRER OR PROCESSOR

  • Acquirer
  • Other Processor
  • Payment Gateway
  • The Platform

Do acquirers work differently in e-commerce?

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.

PART 4:
ANYBODY ELSE?

When is an acquirer or an alternative payment processor right for me?

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!

Other Payment Products

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.!

V. What's next?

1
Understand Card Fees In 5 Minutes
Learn what you’re looking at when you read your payments bills.
3
Other ways of taking payments
Accept cards over the phone and by invoice.
5
Acquirers (+ISOs) WorldPay First Data Bluebird
When would an acquirer be better?
6
Card Networks, The Interchange and all that
The academic view: how do payment actually work?
7
When Can I Negotiate?
How to get on better rates than your mates
8
E-Commerce 101
Ready for the next frontier?
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