Ecommerce has been growing rapidly over the last few years, and it’s not showing any signs of slowing down.
Even if growth has tapered off slightly since its peak in 2020, it’s clear that ecommerce will continue to take a larger share of total retail sales. Global ecommerce sales are projected to hit $7.41 trillion by the end of 2026, with online purchases accounting for 21.8% of all retail sales—a steady climb from previous years.
This makes streamlined credit card processing by brands more important than ever to reduce cart abandonment and build customer loyalty. Doing this starts with choosing the right payment processor.
In this guide, we’re going to explore everything that your business needs to know about ecommerce credit card processing, including:
- Why seamless ecommerce credit card processing is important
- How credit card processing works
- How to navigate credit card processing fees
- How to get started with credit card processing
Why do merchants need to understand ecommerce credit card processing?
First things first. Why do you need a good ecommerce credit card processing solution? Consider the following.
Customers expect to pay online seamlessly using multiple payment methods
To meet customer expectations for convenient and effective card transactions, anyone selling online needs to be able to offer streamlined card payment processing solutions for all types of payments.
In addition to standalone credit card cards, ecommerce stores also need to accept payments from sources such as mobile wallets, which can hold multiple credit or debit cards. Mobile wallets, such as PayPal and Apple Pay, are now in widespread use.
In fact, digital wallets are now the primary engine of global online spending, used in 53% of ecommerce transactions. Furthermore, more than 5.2 billion people globally are forecast to use digital wallets by the end of 2026.
Preventing ecommerce fraud
Payment fraud is a widespread problem in ecommerce—and it’s only getting worse. Merchant losses to ecommerce fraud are projected to reach $131 billion in 2030. Businesses in North America are disproportionately targeted, specifically by “friendly fraud” and synthetic identity theft.
Higher volumes of card-not-present transactions, combined with a lack of fraud prevention technology, have left many businesses unprepared for data breaches. It’s essential that online stores can handle fraud attempts effectively, and it all starts with your credit card processor.
Knowing how to navigate credit card processing fees
Investing in credit card processing services is essential for retailers, but it comes at a price.
From setup fees with merchant service providers to steep transaction fees from major credit card companies like Visa and Mastercard, there are all kinds of costs to be aware of.
Merchant fees are unavoidable in online shopping, especially as credit cards continue to be the favored payment option. But if brands pick the wrong payment solution, they can end up paying unnecessarily higher fees.
By comparing payment processing services and pricing models, you can avoid extra costs and pick the best value solution for your business.
How does ecommerce credit card processing work?
To understand how credit card processing works, we need to define a few key terms:
The acquiring bank. The bank that enables the merchant to accept credit and debit cards and deposit the money from online transactions into their account.
The issuing bank. The bank that issues the credit card the customer is using to make an online purchase.
Merchant account. The bank account an ecommerce business holds with the acquiring bank to accept credit card payments.
Payment gateway. Works like a virtual card reader on an ecommerce platform to transfer card data from the point of sale to the payment processor.
Payment processor. Sends the transaction details to the relevant credit card network and awaits approval for money to be moved from the customer’s bank to the merchant’s account.
Tokenization: Replaces sensitive card data with a unique, non-sensitive placeholder value (a token) to protect data security during transmission and storage.
Steps of ecommerce credit card processing
- The transaction is initiated by the customer presenting their card details at the checkout to pay for the items in their shopping cart.
- The merchant uses their payment gateway to encrypt this data and send it to the payment processor.
- The payment processor reaches out to the credit card network, where it is routed to the issuing bank for authorization if the necessary funds are available.
- The issuing bank will either approve or decline the transaction. If approved, the payment processor sends the approval to the merchant, and then the transaction details are batched for settlement, initiating the transfer of funds from the issuing bank (via the card network) to the merchant’s acquiring bank.
What credit card processing fees are involved?
There are a variety of hidden fees involved with credit card processing, depending on whether your small business has a merchant account or uses a third-party payment processor. Fees are charged either as a flat rate or as a percentage, depending on the nature of the fees.
Monthly fees. If you are using a third-party payment processor or payment gateway, there will be a subscription fee to access the service.
PCI compliance fees. Businesses must stay PCI compliant if they are accepting credit card payments from customers. If your payment processor is managing this on your behalf, they may bill this as an additional service.
Transaction fees. A transaction fee is charged every time a credit card payment is made at the point of sale (in this case, your ecommerce website). Because card-not-present transactions involve more risk than in-person transactions, online payments generally entail higher fees. Transaction fees will be either charged as a percentage or as a dollar amount.
Interchange fees. Interchange fees are set by the card networks (Visa, Mastercard, etc.) and paid to the issuing bank (the customer’s bank). While the base rates are non-negotiable, the effective rate you pay is highly optimizable by submitting proper transaction data, which a good processor, like Stax, facilitates.
Verification fees. Charged to verify the customer’s billing address (AVS) or card security code (CVV), which are essential steps in reducing fraud for online (card-not-present) transactions.
Termination fees. Some payment processors will charge businesses a termination fee if they choose to end their contract early. This makes it costly to switch providers if you aren’t happy with the service. Consider looking for a virtual terminal that doesn’t enforce a cancellation fee.
How merchants can get started with ecommerce credit card processing
Now that we’ve established the fundamentals of ecommerce credit card processing, let’s look at the steps you should take to set up the system in your business.
Decide which payment processor to use
The first step is to set up an account with a payment processor who can facilitate ecommerce transactions. This step requires a bit of research, as you need to determine which processor is right for your business.
Here are some questions to ask when considering an ecommerce credit card processor:
- What is their pricing structure, and how much are their fees?
- Do they offer a subscription or interchange-plus-zero model that eliminates percentage markups, providing the lowest processing cost for high-volume sales?
- Do they integrate with the business tools you’re using?
- What modes of payment do they support?
- What are their customer support offerings?
The answers to these questions will help you evaluate different payment processors and make the right decision for your business.
Think about what other payment services you may need
When looking for a payment processor, it’s important to think about other functionalities your business needs to coordinate a smooth payment process. Some payment processors are designed for accepting payments and little else, while others provide wraparound support.
If you’re a new business or are looking to expand to new markets, it’s a good idea to look for a full-fledged payment solution that provides other capabilities. For example, in addition to credit card processing, Stax also offers subscription billing capabilities and customizable invoicing.
Integrate your system with your website
Once your system is online, you need to make sure that it integrates seamlessly with your ecommerce platform for smooth payment processing. Most payment processors offer pre-built integrations with popular platforms and business management tools for an easy set-up.
Alternatively, you can take advantage of their open API to build your own integration, though this requires some in-house experience with software development. It’s also worth noting that some ecommerce platforms will charge you extra fees for bringing in an external payment processor.
Perform a test transaction using your system
Before you accept any real-world transactions, you need to make sure that your payment processing system is working correctly.
There are multiple ways of doing this, depending on the credit card processing system your business is using. Some providers offer what is known as a bogus payment gateway, where you can process a test transaction to check that your settings are working. Otherwise, you can process a small transaction using a business credit card and refund the purchase, though you will have to pay credit card processing fees.
Final words
Payment processing might not be the most exciting part of running an ecommerce store, but it’s essential to offering a seamless shopping experience that fosters customer loyalty and trust.
By investing in a powerful ecommerce credit card processing solution like Stax’s subscription platform, you can ensure your online store is ready to handle everything from chargebacks to recurring payments—all while accessing the direct wholesale rate for the lowest fees on the market
FAQs about ecommerce credit card processing
Q: What is ecommerce credit card processing?
Ecommerce credit card processing enables online businesses to accept and process credit and debit card payments from customers. It involves a series of steps that includes the customer initiating the transaction, the merchant encrypting the data and sending it to the payment processor, and the issuing bank approving or declining the transaction.
Q: Why is seamless ecommerce credit card processing important?
Seamless ecommerce credit card processing is vital to meet customer expectations for convenient and effective card transactions. It helps reduce cart abandonment, build customer loyalty, and handle fraud attempts effectively.
Q: How does ecommerce credit card processing work?
Ecommerce credit card processing involves several steps. The customer initiates the transaction by presenting their card details at checkout. The merchant then encrypts this data and sends it to the payment processor, which then contacts the credit card network. If the necessary funds are available, the issuing bank approves the transaction and notifies the payment processor to transfer funds to the merchant’s acquiring bank.
Q: What are the various credit card processing fees involved?
Credit card processing fees can include monthly fees, PCI compliance fees, transaction fees, interchange fees, verification fees, and termination fees. The nature of these fees can vary depending on whether your business uses a merchant account or a third-party payment processor.
Q: How can merchants get started with ecommerce credit card processing?
To get started, merchants need to set up an account with a payment processor that can facilitate ecommerce transactions. This involves researching different processors to find the one that is right for their business. They also need to consider what other payment services they may need, integrate the system with their website, and perform test transactions to ensure the system is working correctly.
Q: What is the role of a payment gateway in ecommerce credit card processing?
A payment gateway acts as a virtual card reader on an ecommerce platform, transferring card data from the point of sale to the payment processor. It plays a crucial role in ensuring the secure transmission of sensitive card data during the transaction process.
Q: What factors should be considered when choosing an ecommerce credit card processor?
When choosing a credit card processor, consider factors such as their pricing structure, the types of payment they support, their integration capabilities with the business tools you’re using, and the quality of their customer support.
Q: Why is it important to stay PCI compliant when accepting credit card payments?
Staying PCI compliant is important as it ensures businesses follow the necessary security standards when processing credit card transactions. This helps protect sensitive cardholder data and reduces the risk of data breaches and fraud.
Q: What are the risks associated with ecommerce credit card processing?
Risks associated with ecommerce credit card processing include payment fraud, data breaches, and the potential for higher transaction fees for online payments due to increased risk. It’s therefore crucial for businesses to implement robust security measures and choose a reliable payment processor.
