Ecommerce Payment Processing Explained: Methods, Gateways & Best Practices

Ecommerce payment processing explained for modern businesses

If you’re an ecommerce company or online-first business processing digital transactions at scale, you’re probably thinking about payment processing solutions. Payment processing is the backbone of your business; it’s not only how you receive payments from customers, but it’s where your customers decide to trust you with their hard-earned cash.

Payment processing involves online and digital platforms where customers can authorize payments. There are a lot of options out there for payment processing, and choosing the right fit can be daunting. Let’s walk you through those options and share our take on why Slash is the best fit to manage your payouts.

What is ecommerce payment processing?

Think of ecommerce payment processing as the intermediary running between your customer’s wallet and your bank account. It’s the system that lets you receive and accept payments from your customers’ credit and debit cards, bank accounts, or digital wallets like Apple Pay or PayPal.

If your payment processor works, it means money will move to your merchant account, then your bank account in seconds. If your payment processor is not functioning properly, this can result in upset customers and missed payments, which is detrimental to your business. Fortunately, this guide will help you determine which processor is best for your business and what will effectively facilitate customer payments on your site.

Before diving deeper, here’s a helpful overview of the key terms you’ll encounter when dealing with payment processing:

• Payment processor: Refers to the engine or software moving money between customers (wallets, bank accounts) and merchants (merchant accounts, merchant bank accounts).
• Merchant account: An intermediary account that holds customer funds before they hit your business’s bank account.
• Payment gateway: The secure point where payment data enters the system. This refers to the process where customers input their credit card information, bank account number, or other wallet data, which is then encrypted, authorized, and sent through payment processors by payment gateways.
• Issuing bank: The bank or financial institution that provides your customer with their credit or debit card or other payment method.
• Transaction fees: The costs charged by payment processors or banks each time a customer makes a payment. Transaction fees can be applied per transaction and vary depending on the payment method used (e.g., card fees, ACH, and wire transfer fees).

Common ecommerce payment methods

The most common ecommerce payment methods are how your customers prefer to pay you, so the processors and payment solutions you choose should be equipped to handle these payment types:

Credit and Debit Cards

Credit and debit cards are familiar online payment methods, with credit card processing being widely accepted for popular networks, Visa, Mastercard, and Amex. Many customers expect credit card payments as an acceptable payment method, so finding payment processing options that can accept this form of payment is helpful for your ecommerce business.

Pros: Widespread acceptance, trusted by customers, and credit card companies often support fraud protection features.

Cons: Potential transaction fees and necessary steps to ensure PCI compliance (Payment Card Industry Data Security Standard, protecting cardholders from potential fraud). Physical card payments require you to purchase physical card readers (irrelevant for strictly online stores). Subject to card chargebacks upon card company disputes.

Digital Wallets

Digital wallets include common payment methods like Apple Pay, Google Pay, or PayPal. These digital wallets virtually store credit and debit info on customers’ phones or devices. This option makes initiating mobile payments fairly easy, with built-in one-click or face ID enabling fast transactions.

Pros: Fast checkouts, ease of use for phone and digitally native customers.

Cons: Similar to cards in that you’ll often need to connect with transaction fees and processing fees as well as PCI compliance standards. You must also ensure that your payment processor supports wallet integrations.

ACH Transfers

ACH or bank transfers are more common for business transactions or recurring payments like subscriptions. Because ACH transfers are processed in batches, they often face slow bank processing speeds.

Pros: Transaction fees are often lower than with credit card processing or wire transfers.

Cons: Settlements are processed by banks in batches, meaning the process may be slower than other payment methods. Also subject to ACH chargebacks, giving customers the ability to dispute transactions which can create added risk for merchants.

Buy Now, Pay Later (BNPL)

Customers may not be able to pay in full right away. Solutions like Klarna or Afterpay let customers pay by splitting purchases into installments that are then processed by BNPL third parties like Klarna. This has little effect on merchants, however, and you, the merchant, will still get paid upfront.

Pros: Fewer limits for your customers to pay.

Cons: May include higher processing fees than other methods of payment.

Crypto Payments

Crypto payments are still fairly niche, but are growing. Platforms like BitPay let customers pay in Bitcoin or stablecoins. Stablecoins are especially appealing since they hold value like USD (avoiding Bitcoin’s volatility) and give international consumers another buying opportunity that minimizes high foreign exchange fees.

Pros: Appealing to crypto-native customers (a potentially growing consumer base). Potential global reach without traditional bank delays and high foreign exchange fees.

Cons: Converting to fiat (USD or non-digital money) requires additional steps, and not every merchant account supports this option. Your payment processor must be equipped with support for crypto wallets or integrate with crypto payment platforms.

While it may seem appealing to accept as many payment methods as possible, this can add extra strain on your accounting, operations, and risk management teams. Ensuring that you have the bandwidth to accept various payment methods is key, and this can be facilitated by platforms like Slash, which offer a range of financial tools for managing payouts from payment gateways. This makes it easier for you to expand your processing, gateway, and customer payment options, all while maintaining clear oversight and control of your financial stack.

How ecommerce payment processing works

It may seem like payment processing is an instant, simple process, but in reality, it’s a fairly complicated payment system, bringing together customers, merchant accounts, and bank accounts. Meaning numerous fees and intermediate players to be aware of. Let’s walk through the process to give a better sense of how the money your ecommerce business receives is initiated, processed, and settled before being finally received by you:

1. Initiating a Payment

The first step in the online payment process is on the customer’s end. Your customer chooses a payment method (credit card, debit card, PayPal, Apple Pay, or another payment option made available to them), enters the relevant payment information through a checkout form or point of sale system, and presses submit! This initiates the payment process.

2. Secure Transmissions

The payment gateway, or point of sale (pos system), in which your customer initiates the payment process, encrypts the customer’s payment information and passes it to the payment processor.

3. Bank Clearance

Once payment information is sent, the payment processor checks with the issuing bank. For credit card purchases, the issuing bank confirms that the purchase fits within the customer’s credit limit; for ACH transfers or debit card payments, the bank verifies that funds are available. The bank will either approve or deny the payments. If approved, the transaction moves forward to settlement.

4. Settlement

If using a merchant account or a specific account type for accepting digital payments, payments will be held temporarily before being moved into your business bank account, from which you have access to the funds and can incorporate them into your cash flow.

Each step of the payment process can involve fees: interchange fees from issuing banks, assessment fees from card networks, processing and gateway fees from providers, and even merchant account charges. Understanding your payment system and how these costs are factored into each transaction keeps you aware of where payments are allocated before they land in your account.

Top ecommerce payment processors

Several payment processor platforms stand out for ecommerce businesses, helping you accept a variety of payment methods. Here are some of the biggest players in payment processing for ecommerce businesses right now:

• Stripe. Stripe supports API integrations, a variety of payment options (cards, BNPL, multiple currencies), and offers fraud and dispute handling tools. Their standard usage fees include 2.9% plus $0.30 fixed fee per successful domestic (US) card transaction.
• PayPal. A familiar name among consumers, PayPal offers a number of features, including integration with Venmo and APIs. For standard domestic card and debit card transactions, a 2.99% fee plus a $0.09 fixed fee applies.
• Klarna. Klarna offers customers the option to pay in four interest-free installments, without affecting the merchant's (your) ability to receive payments. Klarna’s fees vary, but reports suggest it may be up to 5.99% plus a $0.30 fixed fee per domestic card transaction.
• Square. Square makes it easy to accept payments with card reader services, touting the ability for online stores to accept payments with “just your computer.” Square has no monthly fees but a 2.6% plus $0.15 fixed fee per domestic card transaction.

How to choose the right ecommerce payment gateway

While a payment processor moves the money, a payment gateway is the tool that securely collects your customer’s payment details at checkout and hands them off for authorization. Choosing the right gateway matters for ensuring your customer’s checkout is smooth, secure, and fast.

When evaluating gateways, here’s what to keep in mind:

• Security & PCI compliance. Your gateway should encrypt customer data and meet PCI standards to help protect against fraud and ensure that payments are secure and credible.
• Supported payment methods. Look for gateways that accept common payment methods like credit and debit cards, digital wallets (Apple Pay, Google Pay), BNPL, or other emerging options like crypto payments.
• Transaction fees & pricing. Gateways can add additional fees on top of interchange fees, processing fees, and merchant account costs. Know what you’re paying on each transaction and keep costs as low as possible by choosing gateways with fair pricing.
• Global reach & settlement speed. Whether you’re selling internationally or starting small, choosing a gateway that supports multi-currency transactions without too much lag can save you time and money come time for your ecommerce business to scale.

Many payment processors also provide built-in gateway services, including Stripe, Square, and PayPal, as some commonly used options. Others, such as Shopify, Payline, or Stax, offer different integrations and pricing models that may suit your needs.

Picking a gateway is only part of the job you face when your ecommerce business is ready to accept payments. While gateways and processors facilitate the movement of your funds, they don’t provide financial oversight over payouts, revenue, and cash flows. For ecommerce merchants juggling multiple payment platforms and reconciling all of those transactions in one account, financial management can quickly become overwhelming, potentially impacting your accounting and operational workflows. Fortunately, Slash offers a solution.

How Slash enhances payment processing and gateways

Slash isn’t a payment gateway. Instead, we act as a post-gateway financial operations layer, the place where all your payouts can securely land. Slash’s centralized financial oversight platform provides clarity into your payouts within the broader context of your business finances. Here are some of the ways Slash helps real ecommerce businesses stay on top of payouts and financial management:

• Plaid integration. Slash securely links your external accounts and gateways (Stripe, Square, PayPal, Shopify, etc.), pulling all your online payment data into a single dashboard.
• Analytics and oversight. Slash’s analytics offer merchant services, letting you see where your payouts are coming from, giving you deeper insight into how your money is moving and those effective processors and gateways behind the movement.
• Reconciliation support. Slash integrates with QuickBooks and Xero, providing accounting solutions that assist ecommerce businesses with reconciliations, even when handling multiple currencies or payment methods.
• Financial tools. Slash is a comprehensive financial platform that offers users access to banking services,¹ corporate cards with up to 2% cash back on all spending,² cross-border and stablecoin payments,³ and more. Learn how Slash can help your ecommerce business manage payouts at slash.com.

Use your gateway to move funds, and use Slash to actually understand them.

Frequently asked questions

How does reconciliation work across multiple payment methods?

Reconciliation across multiple payment methods requires standardizing payment data and matching data with transaction records. Slash's automated accounting tools can be helpful in the reconciliation process.

What is API payment processing?

API payment processing utilizes software connections (APIs) to enable platforms to securely exchange money and data with one another. For example, when a customer initiates a Shopify payment, Plaid's API verifies the bank account before routing funds into your Slash account.

What are the typical costs associated with payment processing?

Different processing services involve variations in fees and pricing models. Please refer to your payment processing service's official site for more information.

¹ Slash Financial, Inc. is a financial technology company and is not a bank. Banking services provided by Column N.A., Member FDIC.

² The Slash Platinum Card is a Visa® charge card issued by Column N.A., pursuant to a license from Visa U.S.A. Approval is subject to eligibility. Payment of account balance is due in full daily. Monthly membership fees may apply. Card purchases may be eligible for cashback, see slash.com/legal/disclosures for more information.

³ Cryptocurrency conversion, transfer, and custody services are provided by Bridge, not by Column, N.A. or Slash. Cryptocurrency is not custodied by any bank, is not FDIC-insured, may fluctuate in value, and is subject to loss. Terms and conditions apply; see https://www.slash.com/legal/global-usd-terms.