An introduction to eCommerce and payment gateways

An introduction to eCommerce and payment gateways

Welcome to the world of eCommerce

Today, selling online and taking payments online has never been easier.

This guide explains what you’ll need to start selling on the internet. To start, you’ll need the following four things sorted: 

Part 1: Somewhere to sell your stuff (usually a website)

Part 2: A way to handle payments (a payment gateway)

Part 3: Someone to process your payments (a payments processing company)

Part 4: Other services to help manage your business (various bits and bobs)
 


Note: We recommend you approach things in the above order. This way, the work is lined up in sequence for your web developer, which can reduce costs.  


But before we go into each of these parts, it’s useful to first know how the online shopping process actually works:

 

The online shopping process

Let’s look at the general process of what happens when customers buy from an online shop, from start to finish:

A customer browses through a website’s online shop for products they want.

The customer puts the products they want into their online shopping basket.

The customer takes their shopping basket to the online till, known as a checkout page, or payment page.

The checkout page is connected to a bit of software called a payment gateway.

The gateway then encrypts and sends the final payment information to your payment processing company.

The payment processing company pushes the payment through the banking system. The gateway/website then notifies seller and customer whether or not the transaction was successful.

The seller can send the goods or services to the customer.

The payment processing company usually sends the money to the seller’s bank account within 2-3 working days.

Part 1: Somewhere to sell your stuff

There are several ways you can sell your goods and services online:

Method A: Custom website with built-in shopping cart

Method B: Standalone eCommerce store, or Shop-in-a-box

Method C: Marketplace websites – such as eBay, Amazon, Etsy

Method D: Remote payment methods – such as email invoices, or phone payments

It’s also common to use more than one of these methods – for example, a book shop can have its own website, but may also sell on online marketplaces, such as Amazon.

Next we’ll break down the advantages and disadvantages for each of these methods. 

Method A: Custom website with built-in shopping cart

Setting up a custom website is easier and cheaper than ever before. If you want your own website, then you’ll need a website developer to build it for you, or you can build it yourself (nowadays, there are lots of services which allow you to build a simple website with very little technical knowledge. This means you would be fulfilling the role of the website developer).  

You and your web developer (if you’re using one) will need to consider lots of different aspects, such as: branding, SEO, content structure, and website hosting, amongst others. Once this is all set up, you or your developer will need to connect your shop to a payment gateway so your customers can pay you.

There are many different kinds of shopping cart systems (sometimes called eCommerce software), but they all serve the same function: they allow customers to see your products, add them to a shopping basket, and to ‘check out’ that basket when they’re ready to pay.

An example would be an online supermarket. The supermarket displays all their products on their website; you add your apples and oranges to a basket; adding any discount codes before finally checking out at a payment page.

Building and maintaining your own website is like owning your own house, rather than renting from a landlord. With ownership, you can do pretty much whatever you want with the house – but it’s also up to you to improve it, or fix it if anything goes wrong. 

Advantages

Disadvantages

No limits on customisation – get your site to look and feel exactly as you want 

Higher costs during the set-up period – hiring a website developer can be costly 

Marketing and branding opportunities aren’t limited (whereas selling on a marketplace like eBay, you’re very restricted). 

Ongoing website maintenance costs – if anything goes wrong, a web developer will need to fix it

No fees for selling on your own website (unlike with ‘rented’ online shops, such as Shopify)

You’ll be the one who needs to make sure your website is optimised (create a smooth shopping experience, search engine optimised content, etc.)  

Easier to integrate into other systems (such as stock management software) than with marketplace websites like eBay

Best option for selling services as opposed to products (you can’t sell services on eBay, for example)

Method B: Standalone eCommerce store or Shop-in-a-box

Standalone eCommerce stores, sometimes called ‘shop-in-a-box’ solutions, allow you to have your own dedicated shop which is hosted on a third-party website, such as EKM Powershop. This allows you to sell your products without having to build your own website.

Think of an eCommerce store as an upmarket clothing brand concession within a larger department store. The clothing brand isn’t big enough to justify having its own individual storefront on the high street, so they rent a space within the bigger department store.

Another way of looking at it is like renting a house, instead of owning it. You don’t get to customise the house (like building an extension), but then you also don’t have to worry about maintenance and repairs.

This shopping cart software method is becoming more popular for smaller online retailers. For example, Bob is a one-man-band who makes and sells handmade wooden figurines. He doesn’t have the resources to build and maintain a website, so he opts for an easy-to-use ‘shopping cart’ system from EKM Powershop

Advantages

Disadvantages

Easy and quick to set up

Probably less customisable compared to having your own website

Lower costs in the short term, compared to building a custom website

Ecommerce selling fees tend to be higher than the cost of taking a payment via your own website

No need to maintain the website – all handled by the eCommerce company

Often can’t take foreign currencies 

May not remember custom payment details for next time (useful for one-click checkout)

May not allow for repeat billing, subscriptions or pay by instalments

Method C: Marketplace websites

Similar to a dedicated eCommerce site, marketplaces such as eBay, Amazon and Etsy act as a platform which allows sellers to list and sell their products.

The main difference between a dedicated eCommerce site and a marketplace is that with a marketplace, your products are listed directly alongside your competitor’s. Also, customers tend to find your product by searching the entire marketplace, as opposed to browsing shop by shop.  

While this is a great method for customers looking for cheap goods, marketplaces can be both a gift and a curse for sellers…

Advantages

Disadvantages

Very easy and quick to start selling

Products often listed in order of price, so customers might go with whatever is cheapest 

You benefit from the popularity of the marketplace without having to invest in marketing or branding

Very little opportunity to build your brand, due to emphasis on products and prices only

No website maintenance needed

Marketplace selling fees tend to be higher than the cost of a taking a payment via your own website 

Usually no monthly costs, though sometimes there are fees for things like server hosting 

Difficult to integrate into your own systems, such as stock management software

Doesn’t allow data collection for marketing purposes (e.g. promotional emails) 

Method D: Remote payment methods

Remote payment methods allow customers to pay you when they’re not at the point of sale. This mainly involves invoicing by post or email, or by getting the customer to pay at a later date by phone.

For invoicing, an example would be a plumber who emails an invoice to his client to pay within two weeks. The customer clicks a customised link to a payment page, which automatically fills out the correct payment amount and reference code.

For phone payments, an example would be an insurance company with a customer who wants to renew by phone. The service agent takes the customer’s card details over the phone and inputs them into an online payment page (sometimes called a virtual terminal) on behalf of the customer. 

Advantages

Disadvantages

Useful if you provide services which don’t come with a fixed or flat pricing package (e.g. an accountant might charge based on total hours spent on the case) 

There is a risk in that your customer might refuse to pay you even though you've supplied the product or service.

Customers paying an invoice via a gateway can use a credit card, as opposed to using cash (i.e. they can use a line of credit, if they don’t have the funds there and then)

Potential cash flow issues – customers may not pay on time, or you have to wait a while for them to pay (for example, food suppliers may give their customers 60 days to pay)

No need for you to carry a physical card machine/payment terminal

Part 2: A way to handle payments – a payment gateway

What is a payment gateway?

Simply put, a payment gateway is a nifty bit of software which takes a payment and directs it to where it needs to go.

Gateways can be used in many ways, but the most common way is to plug it into your online shop. So, when your customer is checking out their shopping basket and clicks ‘pay now’, your gateway securely sends the payment information to your payment processing company (explained in Part 3).

There are two ways of plugging your gateway into your online shop: by using a hosted payment page (the simple option), or integrating it directly into your website (more advanced, but also better customisation). For more information on which option to choose, see our article on how to connect your online shop to your gateway.

What does a payment gateway do?

Once your gateway is plugged into your online shop, it should be able to:

  • Take a wide variety of payment methods, e.g. PayPal, and all the major credit and debit cards.
  • Process refunds via the back office.
  • Apply discount codes, vouchers and store credit. 
  • Securely remember a customer’s payment details (called ‘tokenisation’) – allowing for faster checkout, and even ‘one-click’ checkout.
  • Act as a platform for extra tools, such as: stock management, data analytics, fraud management, subscriptions/recurring payments, tokenisation, and more.

Aside from these standard features, you can also use a gateway in all sorts of other ways, which we explain next.  

Other ways to use a payment gateway 

Aside from plugging your gateway into a website, you can also use it to:

Take payments over the phone

For example, a customer calls their insurance company to renew their policy over the phone. So, the service agent then takes card details over the phone and inputs them into a website-based virtual terminal (i.e. a virtual card machine/PDQ), which is connected to their gateway.

Some businesses, such as car parking facilities, take this phone payment method one step further. By using an ‘Interactive Voice Response’ system, customers can input their payment details using their phone’s keypad – so there’s no need for staff to manually take the payment.   

Invoice your customers & pay by link

You can send out an invoice via letter, email, or text, which directs customers to a payment page. 

For example, a solicitor’s firm sends their client an invoice in the post. The invoice directs the client to an online payment page, where they can pay using a unique reference number (so the solicitor can reconcile who has paid what). 

Take regular payments: repeat billing, subscriptions, spread payments

A payment gateway can handle regular billing (e.g. gym memberships), subscriptions (e.g. TV streaming services), and also spread payments (e.g. car finance payments).
 

Offer free trials with delayed billing

For example, a gym may offer free access to their services for a limited time. Once the free trial has ended, the gym can start automatically taking payments using a payment gateway.

Deposits

Gateways allow you to take a deposit, and charge the full amount afterwards. For example, hotels can take a deposit for a room, then charge the full amount when the guest checks out.
 

Charge ‘in-app’ payments and micro payments

A payment gateway can handle ‘in-app’ payments from a mobile app, computer program or other device. For example, a mobile game which charges £1 for 100 in-game credits. (This is also an example of a ‘micro payment’ – a transaction for a small amount.)

Charities and donations

Charities and other organisations can encourage one-off or regular donations using a payment gateway.

These organisations can also use the same gateway to sell products. For example, a poverty charity selling donated goods via their online shop. 

A quick note about choosing a gateway supplier

Implementing and using a gateway can be difficult without the right knowledge. And if yours breaks, it means customers won’t be able to pay you and may go to a competitor instead.

To avoid this, the company who supplies your gateway should provide on-call technical support 24/7 in case you have any issues. Many low-cost gateway suppliers don’t provide on-call support, so be aware of this when choosing a gateway. 

Part 3: Get someone to process your payments … so you get paid

Once your sale has passed through your payment gateway, it needs to pass through a payment processing company in order for you to get paid.

Your payment processing company acts as messenger between you, your customer, your customer’s payment network (e.g. Visa), and your customer’s bank (e.g. Barclays). 
 


It’s useful to know how your customer’s money moves from their account to yours. For more info, see our article on how online payments actually work.


Your payment processing company should also:

  • Give you a ‘merchant account’ – which collects all your sales information into one place.
  • Help you become compliant with the Payment Card Industry Data Security Standards, referred to as PCI DSS. (For more info, see our Beginner’s guide to PCI DSS).
  • Have a customer support team who can help you 24/7 if you have any issues or questions.
  • And most importantly… pay you your money from the sales you’ve made. 
     


Some companies, such as Barclaycard, can supply you with a payment gateway and process payments for you. 

Part 4: Other services to help manage your business

In addition to what we’ve mentioned so far, you may need other services to help run your business:

  • Accounting system
  • Stock management system  – ideally this should accurately display available stock on your site
  • Marketing systems – email marketing, customer loyalty schemes, etc.
  • Customer relationship management system
  • Content management system – for managing your website

Smaller sellers may not need these extra bits, but for some, these could be essential. It’s worth giving this some thought, and also to consider what needs you might have as your company grows. 

Start taking online payments

Barclaycard have a payment gateway and also are a payment processing company, and provide these services to both small and large companies alike. For more info, you can get a quote, or call us on 0800 056 1289 (Monday to Friday 8.30am-6pm) to speak to one of our advisors. 



Now you’re clued up on how to integrate a payment gateway into your website, you might want to read our other introductory guide: How do online payments actually work?

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