how to accept payments online - two women at a computer

How to get started accepting payments online

Tuesday, November 04, 2014

Small business owners like you know all about adaptability. From offering new products to meeting consumer demands to adjusting your business model, you're constantly adapting.

So as more and more customers rely on online shopping, you’ve probably considered how your business can implement online payments. Whether you're a brick-and-mortar store looking to start an ecommerce business or a service that relies on a subscription model, there’s a way online payments can help.

In this article, we’ll discuss how to get started accepting online payments, the types of payments your business can accept online, as well as the benefits and risks associated with these payments.

How to accept payments: The basics

Just like accepting payments in-store, there are a few tools you’ll need to get started accepting payments online. The two essential things your business will need: a merchant account and a payment gateway. These are integral parts of accepting online payments, regardless of the method.

Merchant account  

A merchant account is an account that lets you accept payments from consumers. One way to think of a merchant account is that it’s a holding account for your funds. When you make a sale, the funds from the sale are deposited there. Once the funds are received in your merchant account from the payor, they'll be transferred into your business account. Merchant accounts are typically provided by the acquiring bank or your payment processor.

Payment gateway

A payment gateway is a facilitator of payment information. The payment gateway's main function is encrypting cardholder data for a secure transaction. When a customer pays, the payment gateway passes the cardholder’s encrypted data to the payment processor. The payment processor then contacts the cardholder’s issuing bank and receives authorization for this transaction. Many payment gateways support various payment methods, from credit  and debit cards to things like gift cards and even ACH payments. As always, talk to your payment gateway provider about the payment methods it supports.

While you need both a merchant account and a payment gateway, that doesn’t mean you need two separate vendors to handle these. A payment processing partner like Heartland can provide an all-in-one solution. This limits the number of vendors you’ll have to manage while also helping to manage transaction fees.

Online payment types

Once you’ve set up your merchant account and payment gateway, it’s important to decide what types of payments you’ll accept at your business. Let’s look at various online payments and how your small business can accept each type of payment.

Credit card and debit card payments

The process for accepting credit and debit cards at your online store is very similar. As discussed above, when debit card or credit card transactions are accepted online, they enter a payment gateway. Then, a payment processing company steps in to link the merchant and the card-issuing bank. The card-issuing bank then confirms funds are available to complete the transaction.

Credit card payments are the most common method of payment. But don't skip over the importance of debit card payments for your business's bottom line. That’s because debit card processing fees are lower than credit card processing fees, saving you money with each debit.

Gift card payments

Another beneficial online payment method for your business is gift card payments. Gift cards are generally grouped into two categories: open loop or closed loop. Major credit card companies like Visa, MasterCard and American Express back open loop gift cards. Customers can use these gift cards at a variety of businesses. When a customer uses an open loop gift card, your business will process it similarly to a debit card, since the credit card company is holding the available funds in reserve. During the sale, the funds are confirmed in the reserve account before being dispersed.

The other type of gift card is closed loop. This means the gift card comes directly from the business and can be used only at that particular business. In this case, when someone buys a gift card, the small business would hold those funds in reserve. When the card recipient uses the card, those funds are then released from the merchant’s reserves.

ACH debits and eChecks

The next type of online payment your business can accept is ACH payments. These payments utilize the Automated Clearing House Network to facilitate bank transfers, moving money from the customer’s bank account to yours. You’re probably most familiar with ACH debits for recurring bill payments like cable or electricity. ACH debits happen when you pull the payment from a customer’s account and often occur regularly.

On the other hand, echecks are the electronic version of paper checks. While ACH debits are a "pull" payment, echecks are a "push" payment because your customer pushes money into your account.

You can put either of these types of payments to work for your business to streamline your invoicing process for clients. Instead of dealing with paper checks, your customers can pay you directly, or you can pull recurring payments from their accounts.

Mobile payments

The final form of online payments we’ll discuss is mobile payments. As you know, the rise of smartphones has changed business. Mobile payments provide consumers with a way to store their credit card information on their mobile devices. It's easier than ever to make purchases on the go or through a company's mobile app. While mobile payments are popular in person at businesses, it's great to incorporate them online as well..

Because customers have their credit card information saved in services like Google Pay and Apple Pay, they no longer have to search for or input their credit card information at checkout; it’s already there.

Now that we’ve discussed the different online payment options for small businesses like yours, let’s discuss the benefits and drawbacks of accepting online payments.

The benefits of accepting online payments

In today’s economy, it’s more important than ever to accept online payments. As you’ve seen, online payments can bolster your business and its reputation. Here are a few of the key benefits that online payments provide:

Reaching a global audience

When you accept online payments, your business expands its potential customer base substantially. No longer are prospective customers only those that can see you in person. Prospective customers only need to have internet access, regardless of where in the world they’re located.

Enhanced payment security

The rise of online payments has also led to increased payment security. Online, you’re much less likely to experience counterfeit cash or bounced checks like you would in person. Plus, any business that wants to accept online credit card payments must comply with the rigorous standard set by the Payment Card Industry – the Data Security Standard (PCI DSS). This standard governs how credit card data is collected and shared, no matter if you're a startup or a multi-national business. If you work with a payment processor, you'll want to check their PCI compliance.

Better customer journey

In a physical store, the hours of operation of your business limit consumer purchases. However, thanks to online payments, customers can shop your business whenever they want, in different time zones, or the comfort of their own homes. This can lead to more sales and an improved customer journey since they control when the sale occurs.

Increased payment acceptance

As noted above, the varying types of payments your business can accept online mean more payment flexibility for customers. This can help increase your bottom line while giving customers the payment flexibility they might not have in brick and mortar stores.

Possibility for recurring payments

Another benefit of online payments is the ability for your business to set up and accept recurring payments thanks to ACH payments. Recurring payments help retain customers and optimize the checkout experience. It can also give you the ability to expand your offerings to include subscription models and pricing.

Now that you have a grasp of some of the biggest advantages of accepting online payments let’s look at the challenges of online payment acceptance.


The challenges of accepting online payments

While online payments make it easier for businesses like you, they also pose some challenges worth considering. Here, we’ll take a look at the most significant challenges to consider when accepting online payments.

Potential for chargebacks

One of the biggest challenges when it comes to online payments is the threat of chargebacks. In its simplest form, a chargeback happens when a customer disputes a credit card purchase. Chargebacks can be not only incredibly irritating but also very costly for a business. 

Risk of fraud

While credit card acceptance technology works hard to prevent fraud,  it can’t completely eradicate it. Across the board, incidences of fraud are much greater in card-not-present transactions, including online payments. Your business can take steps to help mitigate fraud, including occasional audits to ensure that you are protecting your online business the best you can.

Global payment challenges

While global reach is undoubtedly a positive for accepting online payments, it also introduces a challenge. When dealing with global customers, you encounter currency exchange, language barriers and even conflicting banking structures. To help with this, consider partnering with a payment partner who can handle some of these components for you.

Confusing user experience

When accepting online payments, you’ll want to ensure you make the user experience seamless for your customers. If the user experience trips them up, they’ll likely leave items abandoned in their shopping cart. One way to ensure  a seamless experience is to confirm that the payment solution you’re using is compatible with your ecommerce platform.

As you’ve seen, there are many different ways to accept online payments. No matter how you choose to implement online payments, they’re sure to boost your bottom line, help you reach an even broader audience, and transform your business.

Heartland is the point of sale, payments and payroll solution of choice for entrepreneurs that need human-centered technology to sell more, keep customers coming back and spend less time in the back office. Nearly 1,000,000 businesses trust us to guide them through market changes and technology challenges, so they can stay competitive and focus on building remarkable businesses instead of managing the daily grind.