One of the most complex parts of an ecommerce business is setting up processing services to accept payments online, which is why we’ve created this guide to ecommerce payment processing.
It’s designed to help you navigate the numerous payment methods you can accept, along with some terms that you should know to get up and running with ecommerce payment processing.
We hope this guide serves as a handy quick reference to help you get clients online and selling more quickly, or to assist you in getting the most from your own ecommerce operation.
Types of online payments
Knowing how payment processing works and what kind of payments you can accept is the first thing you’ll need to consider before signing up for a payment processor.
Almost all payment processors will allow you to accept credit card payments from your customers, which is one of the most common ways to pay online.
Credit card payments typically go through the following lifecycle:
- Customer enters payment details on your site
- These details are securely sent from your site to your payment gateway to check if the transaction should be approved or declined
- Your payment gateway makes the determination on the transaction, and tells your site if it’s good or not
- Your site either accepts the payment and completes checkout, or shows the customer a decline message and rejects the payment
If you’re one of the many people building an ecommerce store using WordPress and WooCommerce, we recommend GoDaddy Payments. It’s a proven, easy and profitable POS system optimized for WooCommerce, with these key features and benefits:
- Manage everything in one place — Online and in person transactions all handled in one location, under one WooCommerce dashboard.
- Keep more of what you sell — Rely on the lowest credit and debit card transaction fees, starting at 2.3%, plus $0.30 per transaction. There are no long-term contracts, set up fees or hidden charges.
- Save time and start selling faster — Avoid tricky payments integrations and start selling faster with an integrated POS system designed for quick setup and built to work with WooCommerce.
- Accept payments anywhere, anytime — Provide convenient in-person credit and debit card payments options that let your customers pay the way they want: swipe, insert or tap.
- Rely on a proven, reliable POS solution — Gain peace of mind with a reliable and versatile POS system able to meet any in-person selling need with billions of dollars in transactions already processed
PayPal is one of the most trusted payment methods on the internet, and it’s a huge benefit for merchants to offer it. Nielsen Online Buyer Insights reports that PayPal Merchants benefit from a 27% increase in total customers after integrating PayPal, while total amount spent by customers increases 15% and transactions per customer almost double.
PayPal can process credit card transactions, but they can also act as a money transfer service when PayPal credit is used (like a digital wallet).
This is especially useful when selling internationally, where some customers may not have an accepted credit card type.
ACH transfers / eChecks
Bank transfers or eChecks are essentially like paying with cash or checks online. They allow the customer to enter bank details for your payment gateway to check the funds and initiate a transfer to your merchant account.
There are also some payment methods, such as Dwolla, that can simulate “cash transfers” online, which are typically lower cost for merchants than credit card processing.
Bitcoin / Cryptocurrency
Bitcoin is still a very small portion of online payments, so many merchants don’t yet accept bitcoin or other cryptocurrencies. However, if your customers are concerned with privacy, bitcoin may be an option they appreciate having (though otherwise you probably shouldn’t bother with it for your store).
Bitcoin transfers are sort of like a secure ACH transfer (but in a unique currency rather than USD, etc), as the transfer is immediate and there are no payment processing fees.
However, the complex setup really isn’t a great option for beginners, so while it can seem like a cutting edge thing to do, you’re better off with PayPal and/or credit card payments.
Payment processing terms
Let’s take a look at a glossary of ecommerce payment processing terms with which you’ll want to be familiar as you launch your business. These are mostly related to credit card processing, as that’s typically a rabbit hole for many new merchants.
A merchant account is essentially your bank account for transferred payments; it’s where the payment coming from the customer goes first before you can transfer it out to your business bank account (if you have a separate business bank account).
The merchant account isn’t involved directly in the payment transaction, so you have a lot of flexibility in where you get your merchant account (i.e., your local bank).
If you have a brick-and-mortar location, you most likely already have a merchant account for the payments you accept in-person. If you don’t already have one, you have a choice between a dedicated or an aggregated account.
A dedicated account will be a merchant account only used by you, and is the choice of many merchants (though you’ll typically need some more set up to get a dedicated account). When payments are processed, they’re typically transferred to this account within a couple of days, and then released to you for transfer to your business bank account within a couple more days.
An aggregated account is what many modern processors like GoDaddy Payments, Braintree, and Stripe offer — they’re bundled in with your payment gateway so you don’t have to sign up for both a merchant account and a payment gateway account. They’re especially great for new merchants, as you only sign up for one “payment processing” account, and after payments have cleared, they can just be transferred right to your business’s bank account.
A payment gateway is the online replacement for a point-of-sale terminal (the thing your credit card is swiped through). This is what handles approving and declining transactions and managing responses to and from your website.
When you use an ecommerce plugin, you typically need an extension or add-on plugin to connect your payment gateway to your website.
The integration plugin is what handles the communication between your website and the payment gateway to check whether transactions should be approved or declined.
You can usually buy a premade integration for your ecommerce plugin and your payment gateway. If none are available, you may need to hire a developer to build one, as your website needs a way to communicate with your payment gateway.
If you have a dedicated merchant account, you may be charged fees for it, and your payment gateway fees will be assessed separately. If you sign up for an aggregated account that includes both the merchant account and payment gateway, your fees are typically for the entire “payment processing” package.
The payment gateway is where you get differentiation in terms of which features are offered: whether customers can save cards for future purchases, whether you can authorize charges and capture them at a later date, and which credit cards (or other payment methods, such as eChecks) you can accept.
Charge vs. authorize
Most payment gateways can allow you to either charge or authorize a payment. Charging a payment means that your payment gateway requests funds from the customer immediately; a charge says, “please have this person’s account pay me now.”
Authorizing a payment means that your payment gateway first asks if the customer can pay the charge; it says, “does the customer have sufficient funds for the order?” This lets you then capture the payment and complete the charge later.
Tokenization refers to the ability to securely save a customer’s payment information for a later date. You should never, ever, ever store customers’ credit card numbers on your website. Instead, if you want to allow customers to save a payment method for easy use in the future or for recurring payments, your payment gateway will need to offer the ability to tokenize the payment details.
This means that the payment gateway securely stores the customer’s credit card number and personal details, and instead gives your site a “token” to use.
This is kind of like how poker chips work — the payment processor gives you a token for the credit card number instead of the actual credit card number. At a later time, you can charge the customer by using the payment token — your website basically says to the payment gateway, “Please charge token #123456,” and the payment gateway can then run the credit card details for that token securely since it has stored which tokens go with which credit card.
That way, if your site is ever compromised, only useless payment tokens are gathered (since they’re specific to your merchant account, they can’t be used by anyone else), rather than very important credit card numbers.
If you’d like to allow customers to save payment methods for future use, or you want to allow things like pre-orders and recurring payments, you’ll want to ensure that your payment processor supports tokenization. They sometimes also refer to this as a “secure vault” or similar.
Here’s what you need to know about SSL certificates: get one. That’s it.
Truly though, get one no matter whether your payment processor requires one or not; it’s a no-brainer investment and you can get them starting for less than $10 per year.
Not only do SSL certificates protect customer information when your payment processing takes place on-site, they also protect login credentials — both yours and customers’ — when logging into your site, so they can’t be intercepted.
Additionally, they also improve conversions. Customers are trained to look for the “green lock” at checkout, and even if they’re being taken off-site to complete a purchase, they still expect to see it on your cart and checkout pages. Just get one.
If you don’t already have an SSL certificate for your site, there are a number of great places that you can purchase one to secure your site. In addition, most modern hosting providers also include an SSL certificate with their hosting packages, so make sure to check with your hosting provider first to see if this is an included feature you’re not yet utilizing.
PCI Compliance is one of those terms that many merchants have heard of and know is important, but don’t really understand what’s related to it or how it works.
PCI Compliance refers to regulations that are imposed on merchants in order to be able to accept payments securely online.
There are several levels of compliance, which relate to different layers of security for payment processing, and merchant accounts can require different levels of compliance to accept payments (or some allow the use of an SSL certificate alone and charge a monthly fee for non-compliance).
Since payment processing requires communication between your site and a payment processor, it may or may not be related to your payment gateway / ecommerce plugin alone, which is why it tends to be complicated to understand.
If payments occur outside of your site, and the customer gets redirected back to your site (like PayPal Standard), this is PCI compliant because your site never handles sensitive customer data or credit card numbers.
If customers remain on-site, then the way your payment gateway integration is built and the features your payment gateway offers will influence PCI compliance.
Helpful resources on payment processing
This guide gives you an introduction to the types of processing and some of the terms payment processors use, but deciding which processor is right for your store is up to you. It will depend largely on:
- What payments you need to accept (credit cards, ACH / eChecks, etc)
- Whether you have a merchant account already or not
- Whether you need to be PCI compliant and what level of compliance you need to meet
- Whether or not there’s an integration plugin available for your ecommerce plugin and payment gateway (you’ll have to fund one if not)
- What features the payment gateway offers
- What features the payment gateway integration plugin supports (if it can tokenize cards using your payment gateway’s tokenization, etc)
If you use an ecommerce plugin already, we’ve also compared some of the payment gateway integration plugins available for each:
Payment processing recommendations
So which payment processors do we recommend? That depends on how you currently have things set up.
One of the easiest ways to get set up to accept payments is with our very own GoDaddy Payments. Whether you’re already using one of our managed platforms — like Managed WordPress Ecommerce hosting, which has GoDaddy Payments integration built-in — or simply hosting your WooCommerce store elsewhere, integrating GoDaddy Payments is a breeze.
Signup takes just a few minutes to complete and you can begin accepting payments almost immediately — and get funds in your bank account the next day! If you’re hosting your WooCommerce site elsewhere, you simply need to install the Poynt — a GoDaddy Brand for WooCommerce plugin to connect.
As a bonus, GoDaddy Payments also lets you accept payments without a website using Pay Links and a Virtual Terminal, but that’s a whole different article.
If you already have a merchant account (i.e., for your brick-and-mortar store), and you want to use your chosen solution for your online payments as well, you could also check out Braintree. While they offer accounts with combined merchant accounts and payment gateways for new merchants, you can also use their payment processing services with an existing merchant account. They have fantastic customer service, and they offer tons of great tools and features for merchants.
The built-in integration they have for PayPal is also excellent (PayPal owns Braintree). The WooCommerce integration for Braintree supports many of these features.
Many merchants also use Authorize.Net, which is another excellent choice (they were the first company to offer online payment gateway services). They offer tokenization, eCheck support, and tons of other features. You can use Authorize.Net as a payment gateway with an existing merchant account, or use their bundled offering for an all-in-one processor.
Stripe is also quite popular, since it’s really easy to get set up. They offer combined merchant accounts and payment gateway services, so you’ll be up and running within minutes, and almost every ecommerce platform integrates with Stripe.
Closing thoughts on ecommerce payment processing
We certainly recommend taking all the time needed to prioritize the features you need in your payment-processing solution. Needs vary, but we find most online sellers look for something that lets them keep more of their sales, as well as a platform that’s easy to set up yet offers robust functionality.
Whatever you land on, we congratulate you on your wise investment of time in considering our guide to ecommerce payment processing.
Are Small-Business Loans Installment or Revolving?
A small-business loan provides funds to purchase supplies, expand your business and more. This type of funding can be either installment or revolving. Reviewing the credit terms of your loan offer will help you determine whether you’re being offered an installment loan or revolving credit.
Both types of loans can be found in the Small Business Administration, or SBA, loan program and at banks, credit unions and online lenders. While each can provide much-needed funding for your business, there are some key differences to keep in mind.
Installment loans vs. revolving credit
Installment loans provide a lump sum of money
An installment loan is a credit agreement where the borrower receives a specific amount of money at one time and then repays the lender a set amount at regular intervals over a fixed period of time. Typically, each payment includes a portion for interest and another amount to pay down the principal balance.
Business term loan is another common name for this type of loan. After the loan is paid off, the borrower typically must apply for a new loan if additional funds are needed.
Revolving credit provides flexible funds
A revolving loan is a credit agreement where the borrower can withdraw money as needed up to a preset limit and then repays the lender a portion of the balance at regular intervals. Each payment is based on the current balance, interest charges and applicable fees, if any. You pay interest only on the funds that you use — not the maximum limit.
A business line of credit is a common type of revolving credit. Revolving credit gives the borrower flexibility in determining when to withdraw money and how much. As long as the credit balance remains within the preset limit and you continue to make timely payments, you can continue to draw from the line again and again.
Differences between installment loans and revolving credit
The terms of a loan can vary depending on the type of loan, lender and your business’s credentials. Your loan may be a unique combination of terms. However, the following are some common differences between installment and revolving loan programs.
Withdraw as needed.
Minimum amount based on balance and interest with option to pay more.
Based on loan amount.
Based on current balance, not maximum loan limit.
Ability to renew
Not renewable, typically.
When to use an installment loan
Set loan amount is needed
If you’re confident in the loan amount you need, then an installment loan may be the right fit, especially if you need the money in a lump sum. For example, if you’re using the funds to make a one-time purchase, you’ll likely want an installment loan.
Long-term financing needs
Some term loans can offer you more time for repayment when compared with revolving credit. When you stretch your payments out over a longer period of time, it can mean a lower monthly payment. However, that trade-off typically means you’ll pay more in interest costs over the life of the loan.
Larger funding needs
If you’re looking to purchase property, equipment or other large-ticket items, there are a number of installment loans that can be used for this purpose. Revolving credit limits are often less than term loan maximums.
Preference for predictable payments
With a set monthly payment amount, it can be easier to budget for an installment loan compared with a revolving loan, where the payment varies depending on how much of the credit line you use.
When to use a revolving loan
Short-term financing needs
Revolving credit can be good to handle short-term cash shortages or to cover unexpected expenses. Some businesses use lines of credit as an emergency fund of sorts since they’ll pay interest only on the funds they use.
Fluctuations in cash flow
Businesses that experience major fluctuations in their cash flows may benefit from revolving credit. For example, seasonal businesses that don’t have consistent revenue throughout the year can use lines of credit to cover operational costs during their slow season.
Preference for flexible loan amount and payments
If you don’t know exactly how much money you need, then revolving credit will give you the option to qualify for a maximum amount but only withdraw funds as you need them. This way, you’ll pay interest only on the current amount owed.
Compare small-business loans
To see and compare loan options, check out NerdWallet’s list of best small-business loans. Our recommendations are based on the lender’s market scope and track record and on the needs of business owners, as well as rates and other factors, so you can make the right financing decision.
Advantages and Disadvantages of a Business Bank Loan
According to the Federal Reserve’s 2021 Small Business Credit Survey, banks remain the most common source of credit for small businesses — compared with options such as online lenders, community development financial institutions or credit unions.
You can use a business bank loan for a variety of purposes: working capital, real estate acquisition, equipment purchase or business expansion. To qualify for one of these small-business loans, however, you’ll likely need excellent credit and several years in business.
Before applying for a business loan from a bank, consider the following advantages and disadvantages.
Advantages of business bank loans
Flexible use of funds
Banks offer a range of different business loan products, including term loans, business lines of credit, equipment financing and commercial real estate loans, among other options. Unless you opt for a product that has a specific use case, like a business auto loan, for example, you can generally use a bank loan in a variety of ways to grow and expand your business.
When you submit your loan application, the bank may ask you to identify a purpose for the financing to evaluate the risk of lending to your business. Once you’re approved, however, the bank is unlikely to interfere if you change your intentions, as long as you make your payments. This flexibility is perhaps one of the biggest advantages when comparing debt versus equity financing.
Large loan amounts and competitive repayment terms
Bank loans are often available in amounts up to $1 million or more. Many online lenders, on the other hand, only offer financing in smaller amounts. Popular online lenders OnDeck and BlueVine, for example, both have maximum loan limits of $250,000.
Business loans from banks also tend to have long terms, up to 25 years in some cases. These loans usually have monthly repayment schedules, as opposed to daily or weekly repayments.
In comparison, online business loans typically have shorter repayment terms, ranging from a few months to a few years. Many of these loans require daily or weekly repayments.
Low interest rates
Banks typically offer small-business loans with the lowest interest rates. According to the most recent data from the Federal Reserve, the average business loan interest rates at banks range from 3.19% to 6.78%.
Although some online lenders can offer competitive rates, you’ll find that their products are generally more expensive than bank loans, with rates that range from 7% to 99%.
The interest rates you receive on a bank loan, or any small-business loan, however, can vary based on a number of factors, such as loan type, amount borrowed and your business’s qualifications, as well as any collateral you provide to back the loan. In general, the stronger your qualifications and the more collateral you can offer, the better rates you’ll be able to receive.
Relationship with a bank lender
Many banks provide ongoing support for their lending customers, such as business credit score tracking or a dedicated relationship manager to work with your business. Most banks also offer other types of financial products, such as business checking accounts, business credit cards and merchant services, if you prefer to use one institution for your financial needs.
Although some alternative lenders offer additional support and services, the Federal Reserve’s 2021 Small Business Credit Survey reports that businesses that receive financing are more satisfied with their experience with small banks (74%) and large banks (60%) compared with online lenders (25%).
Disadvantages of business bank loans
Intensive application process and slow to fund
To apply for a small-business loan from a bank, you’ll need to provide detailed paperwork that may include, but is not limited to, business and personal tax returns, business financial statements, a loan purpose statement, business organization documentation, a personal financial statement form and collateral information. You may have to visit a bank branch and work with a lending representative to complete and submit an application — although some banks offer online applications for certain business loan products.
The entire process, from application to funding, can take anywhere from several days to a few weeks, or even longer, depending on the type of loan and the bank. Some banks will also require you to open a business checking account with them before you can receive funds.
In comparison, alternative lenders typically have streamlined, online application processes that require minimal documentation. Many of these lenders also offer fast business loans — in some cases, funding applications within 24 hours.
Strict eligibility requirements
To qualify for a business loan from a bank, you’ll generally need strong personal credit (often a FICO score of over 700), several years in business and a track record of solid business revenue. Bank of America, for example, requires a minimum annual revenue of $100,000 for unsecured term loans and a minimum annual revenue of $250,000 for secured term loans.
Depending on the bank and the loan type, you may need to provide collateral, such as real estate or equipment, to secure your financing. Most banks will also require you to sign a personal guarantee that holds you personally responsible for the debt in the event that your business can’t pay.
Online lenders, on the other hand, have more flexible qualifications and some will work with startups or businesses with bad credit. To qualify for a business line of credit with Fundbox, for example, you only need six months in business, a credit score of 600 or higher and at least $100,000 in annual revenue.
Although online lenders may still require a personal guarantee, they’re less likely than banks to require physical collateral.
Find and compare small-business loans
Still trying to determine the right way to finance your business? Check out NerdWallet’s list of the best small-business loans for business owners.
Our recommendations are based on the market scope and track record of lenders, the needs of business owners, and an analysis of rates and other factors, so you can make the right financing decision.
Fidelity Bonds: What They Are, How to Get One
Fidelity bonds are insurance policies that protect a business’s finances in case an employee steals from the business or commits fraud. Fidelity bonds are also known as employee dishonesty insurance.
You can buy a fidelity bond on its own or as part of a commercial crime insurance policy. Consider purchasing this coverage if your employees routinely handle money or valuable assets that belong to your business or your customers.
What are fidelity bonds?
Fidelity bonds are a type of business insurance that protects your business finances if an employee steals money or property from your company or customers.
This coverage can pay out to make your business whole if an employee or group of employees commits theft on the job. It goes by a few different names, including “employee dishonesty insurance,” “fidelity bond” and “employee dishonesty bond.”
Despite the name, fidelity bonds are insurance policies, not bonds. Historically, fidelity bonds were similar to surety bonds, which are agreements among the business owner, their client and a third party promising that work will be completed. Today, fidelity bonds are structured like insurance policies. Some companies still use the term “fidelity bond,” while others use “employee dishonesty insurance.”
Does your business need a fidelity bond?
Fidelity bonds are important for businesses where lots of employees have access to your business finances or customers’ property. Consider purchasing this coverage in the following instances:
If your employees have access to your business finances: Nonprofits, medical offices, professional offices and other kinds of businesses where employees make financial transactions are all at risk of employee theft.
If your employees have access to customers’ money or assets: If your employees regularly enter customers’ homes or businesses, a fidelity bond can set you apart from your competitors because customers know their assets are protected. This may be important for janitorial and cleaning businesses, HVAC businesses, plumbing businesses and other in-home service providers.
If you need this type of protection, look for business service bonds or third-party fidelity bonds, which specifically protect a business’s customers from losses due to theft.
If you work as a contractor or consultant: Clients may request that you buy a fidelity bond before beginning work with them. In this case, you’ll also want a business service bond.
If you work in the financial services industry: You may need a specialized type of fidelity bond known as a financial institution bond, which protects financial institutions. If you’re a pension plan trustee, you’re also required by law to have an ERISA bond, which protects pension plan participants and their beneficiaries.
How to get a fidelity bond
You can get a fidelity bond on its own or as part of a commercial crime insurance policy. If your business faces risks like forgery, computer fraud, extortion and counterfeiting, opting for a broader commercial crime policy may make sense.
NerdWallet recommends getting business insurance quotes from multiple companies so you can compare coverage details, coverage limits and premium costs before choosing a policy. Start your search for fidelity bonds with these companies:
If you need a business service bond to protect customer assets: Nationwide sells business service bonds, which cover your customers’ losses if one of your employees commits theft or fraud on their premises, as well as employee dishonesty bonds and ERISA bonds. Read NerdWallet’s review of Nationwide business insurance.
If your primary concern is your company’s assets:
You can also look into bonding companies, which specialize in products like surety and fidelity bonds. Merchants Bonding Company, for instance, was one of the 10 largest writers of fidelity and surety bonds by premium values in the first half of 2021, according to the Surety & Fidelity Association of America
How much do fidelity bonds cost?
The cost of a fidelity bond depends on the size of the bond, which is the most the insurance company will pay out to cover a loss.
According to BondExchange, a wholesale insurance marketplace that helps insurance agents find policies for their customers, fidelity bonds insuring five or fewer employees can cost:
$100 per year for a $5,000 bond.
$167 per year for a $20,000 bond.
$257 per year for a $50,000 bond.
$359 per year for a $100,000 bond
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