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This blog details payment systems in eCommerce, their features and how they help businesses accept and disburse payments.
E-commerce deliveries in India are among the fastest-growing sectors in the Asia-Pacific region. Despite several developmental challenges in rural areas, the industry is experiencing robust expansion every day. According to reports, global retail e-commerce sales are expected to exceed $3.6 trillion worldwide, and this estimation continues to reach new heights every year.
In e-commerce, the most important factor is the payment system of the website you are using to make a purchase. With millions of people entering the e-commerce market, it is crucial to ensure customer safety and security and provide a smooth checkout experience every time.
Have you ever wondered what goes on behind the scenes to make your purchase as smooth and flexible as possible? Your payment is processed within seconds to minutes, and a team of developers at payment gateway companies makes this possible. In this article, we will learn about what e-payments are all about and how you can increase your earnings securely and smoothly.
What is an electronic payment system in e-commerce?
It is a digital system in which all money-related activities are conducted online. All financial transactions are settled using online payment methods, including e-wallets and online debit and credit cards, UPI payments, and bank transfers. These methods have completely transformed the way a business sells and a customer buys.
A business to grow and flourish requires a digital shopfront to the payment processing network of your choice, using the right payment gateway. This processing network aligns with your bank to assist you with your funds.
For an effortless payment system to work, a business works with an easy and accessible payment gateway (a third-party payment handler) that eliminates the need to enter financial details every time a customer tries to make a payment.
Related Read: Payment Gateway vs Merchant Account
Explore the Types of E-Payment Systems in E-Commerce
E-commerce payment systems are available in a variety of formats to accommodate a range of clientele. The different e-payment systems in e-commerce that are available to simplify and ease your online finances are covered below. E-payment options improve customer satisfaction overall, lower cart abandonment, and serve a larger market.
Credit & Debit cards
At the beginning of the digital payment era, credit and debit cards were among the early e-payment methods to be adopted in e-commerce. When you reach the checkout payment page, you are given the option to make a payment using a debit or credit card. By selecting the relevant option, you can complete a secure and quick online transaction by entering your card details, such as the card number, expiry date, and CVV.
Many platforms also offer the option to save card details for faster future checkouts. While some users may consider this unsafe, choosing a reliable and trusted payment gateway partner ensures that your information remains protected through advanced security measures and encryption.
Using a debit card option, your amount is directly transferred to the merchant’s account, while with a credit card, you pay using the bank’s money and pay later to your bank as per the billing cycle.
With security measures like OTP authentication, encryption and tokenisation, debit and credit card payments are surely a preferable choice for both business owners and their customers.
UPI and QR-based payments
Ever since UPI entered the digital payment ecosystem, a large majority of customers have started preferring it as their primary mode of payment. The reason is simple: UPI offers a fast, hassle-free, and smooth payment experience. Just a few taps and it’s done. Payments can be completed within seconds using a UPI ID or by scanning a QR code, that too without entering card or bank details.
Each transaction requires the user to enter a secure UPI PIN set by the customer in order to make a payment successful, ensuring that payments cannot be completed without the customer’s consent. Additionally, UPI transactions are protected by bank-grade encryption and operate directly between bank accounts, reducing the risk of data theft or fraud.
Internet banking
With internet banking, you can not only transfer money from one account to another but also access your bank online 24×7 to check your balance, view transaction history, pay bills, and manage your account conveniently. You can download your transactions online, saving you a lot of physical visits to the bank.
E-wallets
E-wallets are digital wallets that allow you to make payments without entering your bank details every time. Link your bank account and add funds to your e-wallet using a debit card or UPI method. You can also top up your e-wallet balance as and when needed. This allows you to store money and make payments, both digitally and physically.
Buy Now Pay Later (BNPL)
Buy now, pay later is a convenient option when it comes to making a high-value payment online. With BPNL, the customers get an option to buy the product immediately and pay the amount later, through instalments. The parties involved in the BPNL process are the merchant, the merchant’s bank, the customer and the customer’s bank. The pay later option is available in a form, and the customer must make the repayment of the amount within the designated time frame, which varies from company to company.
EMI and pay-later options
In the EMI payment system, the customer is given an option to convert the total cost of the product into feasible monthly instalments. This gives the customer time to make the payment, especially when it is a high-value order, like electronics or expensive furniture.
These instalments are meant to be paid over a fixed, decided tenure, through debit, credit or bank transfers. Since the cost of the product is spread over the months, it does not create a burden on the customer and makes it affordable and feasible to manage the expenses.
Prepaid Cards
Prepaid cards are autofilled cards with a specific amount, eliminating the use of debit and credit cards. These cards are usually more useful in corporate offices, where the company provides each employee a prefilled card for meals or paying bills, or buying office supplies, etc. Also, it is an ideal payment method when travelling without worrying about the security of your debit cards. There is a fixed amount that is prefilled, allowing you to stay budgeted.
Transaction Flow For Payment Systems In eCommerce:
1. The customer finalized the product and heads to checkout. The merchant may use a hosted payment gateway or non hosted payment gateway. They enter their personal financial details. These can be card details, VPA in UPI, net banking details, etc.
2. It is important to note that the payment may have been done through QR codes, payment links, UPI or any other mode. The transaction flows remains the same. The payment gateway safely captures this information and forwards it to the acquiring bank.
3. Next, the Acquiring bank runs a fraud check and sends the information to the card company. (Mastercard/Visa/ American Express) The card company authorizes or denies the transaction on the basis of these parameters:
Knowledge Parameters: Information like customer PIN, passwords, CVV etc
Inherence Parameters: Two-factor authentication codes, OTPs or biometrics
Possession Parameters: Cheques, account numbers, physical cards, etc.
4. Once the card company gives the go-ahead, the information is transferred to the Issuer (customer’s bank). The Issuer runs an authentication process and checks if the account has enough funds.
5. After this, the approval or denial of the transaction is forwarded through the same route. Issuer>Card companies>Acquirer>Payment Gateway>Merchant>Customer.
6. After the payment status is accepted, the acquirer requests funds from Issuer. Thereafter, the funds are settled under this time frame.
Recurring Bill
By 2022, 53% of all software revenue will be generated through the recurring bill model? Moreover, 70% of business leaders believe that the subscription business model is the future of eCommerce.
These stats are enough to prove that the recurring bill model is important to eCommerce businesses. They can increase customer satisfaction and retention with a better customer experience. Moreover, they can aid in accurate business forecasting. Businesses are extending Fixed Charge or Pay-Per-Consumption models for their customers. For example, Adobe changed their one-time 200 USD fee to a monthly subscription of 10 USD. This helped them grow their revenue and boost sales.
Choose a payment system that allows you to offer recurring payments. Moreover, ensure that it is developer-friendly and allows you to offer free trials and has multi-user support. A payment system with advanced analytics will help you evaluate your past transactions and help optimize for better success rates.
Sub Merchant Account
A merchant account is necessary to accept and collect payments as a business. An eCommerce payment system can help you with a sub-merchant account after onboarding.
Basically, the payment gateway owns the master merchant account. Thereafter, all of its clients are accorded a sub-merchant account. As a result, the payment gateway accepts and disburses payments on behalf of the merchant. Finally, it settles the respective amount with each merchant.
It is beneficial for businesses to get a sub-merchant account as it is cost-effective. Moreover, the payment gateway handles PCI compliance, ensuring safe transactions. In fact, Cashfree employs a robust Risk Management System with the help of Paypal.
Moreover, a sub-merchant account eliminates the infrastructure and compliance cost that comes with an ISO merchant account. In a payment gateway merchant account, you only have to pay the merchant discount rate per transaction.
Related Read: Payment Aggregator: Updated Guide
Easy Onboarding and Integration
Accepting payments through payment systems in eCommerce may be easy, However, integrating it is not a piece of cake.
Ensure that your payment system is easy to integrate. Look for payment gateways with ready-to-use plugins for major eCommerce platforms like Shopify, Magento, Woocommerce. Moreover, ensure that it has detailed guides for integration in every popular computer language.
Mobile Payments makes up for 53.9% of global e-commerce sales. So, ensure that your payment gateway is easily integrated with websites and apps alike. Ensure that it offers SDKs for platforms like Android, iOS, React Native and more.
Furthermore, ensure that your payment gateway offers a seamless onboarding experience. Having a dedicated account manager and stellar support team always comes in handy!
Payment Analytics
Another important feature of payment systems for eCommerce is payment analytics. As a business, your scalability will depend on your current cash flow. Payment systems have dashboards that can help you with payment reports. You can get insights into your payment volumes, popular payment modes, timelines and platforms.
With the help of these insights, you can optimize your payment flow and increase your transaction success rates. Furthermore, you can make marketing campaigns around the most popular modes of payment with the help of discounts and vouchers.
Related Read: Payment Page Design Examples
Instant Settlements
After payment processing, the customer funds reach the payment gateway. After that, the payment gateway forwards the net amount to each individual merchant. It takes the refunds, cancelled orders, and payouts into account. This process is known as payment gateway settlement.
However, the settlement may be standard or Instant. The standard settlement may take 3 to 4 days. However, instant settlements may take as little as 15 minutes after fund capture. In fact, it may allow settlements during bank holidays as well.
Instant settlements are beneficial for your eCommerce business in numerous ways. They eliminate settlement uncertainties and offer improved cash flow. As a result, you can address your urgent payment dues.
PS. You can activate Instant Settlement on specific transactions you select as well!
Refunds for Ecommerce
40% of customers buy products online with the intention of return some of them. Needless to say, online refunds are an integral part of eCommerce shops. However, with settlement and reconciliation issues, refunds can quite often be a hassle. On top of that, late or incorrect refunds can lead to poor customer service.
However, there are three main solutions for solving these issues:
1. Instant Refunds: Your payment system can help you offer instant refunds to the original payment source.
2. Payout Links: Remember those payment links we discussed? Well, your payment system can use that for refunds as well. You can create a payout link and notify the customer with email, message or social apps. After that, the customer can select the preferred account where they want to receive the refund.
3. Card Pre-authorization: You can temporarily block funds on your customer card when they place an order. In case, they cancel the order with 7-9 days, the transaction will be marked void. This way, you will not need to refund at all.
Swift Reconciliation
Reconciling your payment can be a breeze with the right payment system. A payment gateway can equip you with a dashboard that spells out the details of each transaction. Moreover, you can access customized reports of transactions with specific filters.
For instance, the dashboard can help you filter out transactions of a certain time period. You can also check transaction amount, unique order ID, MDR on each transaction and net settlement amount
However, there is a way to automate your reconciliation process as well! With Autocollect, you can create virtual IDs for each of your customers. A virtual account is basically a pass-through account connected to your real merchant account. Once the customer pays, you are instantly notified about the transaction and payment details via webhook.
Bank Account Verification
Bank transfer failures are one of the biggest issues in payment transfer. Ensure that your eCommerce payment system equips you with a solution: Bank Account Verification.
This feature can help you verify the existence of your beneficiary’s bank account. Moreover, it will help you match your beneficiary’s name to the one listed in their bank account. In fact, you can verify UPI IDs as well.
Bank account verification can be extremely useful for refunds and vendor commissions. It will minimise failed transfers or reversals.
Vendor Commissions
When we discuss payment systems in eCommerce, it is important to include marketplaces. And a marketplace would need to split vendor commissions in an efficient manner.
Money transfer API can be used to send funds directly from your bank account. Ensure that your payment system can help collect customer payments, deduct commissions, and schedule payments to vendors. These vendors may be delivery partners or service providers as well.
Sell Globally
Like we mentioned before, international payments are a necessity for businesses today. After all, the global eCommerce market is expected to rise to 6388 billion dollars by 2024.
A robust payment system is important to keep up with this shift. Offering international payments will help you attract overseas customers and reduce cart abandonment issues.
Ensure that your payment system offers popular international payment modes like Paypal. You can add your Paypal account to your payment gateway account to receive payments. Moreover, ensure that your payment gateway supports international cards.
Furthermore, you can also show the product prices in the customer’s preferred currency. This will help you provide a better customer experience. Moreover, ensure that the payment gateway settles the funds in your own currency.
Benefits of E-Payment Systems for eCommerce
E-payment systems play a crucial role in the smooth functioning of transactions for both customers and merchants. Let’s take a look at what makes it an essential part of every e-commerce operation.
- Faster checkout and convenience
E-payments have made our lives easier by providing faster checkouts that are not just convenient but also simple. It allows us to make the payment within seconds without entering the lengthy atm card details or carrying cash. With e-payment, your payment is not just fast but safe too, just one click or one scan, and your payment is done.
- Better customer experience
With an e-payment system, every online customer can choose their preferred mode of payment and complete transactions without discomfort, giving them the best customer experience online. This builds trust and reduces hassle and payment failure, and encourages customers to repeat purchases without worry.
- Global reach and scalability
E-payments in e-commerce help businesses receive payments from customers across states or countries. This provision of payment helps both the merchant (to grow business, and reach millions online) and the customer (easy access to a variety of articles from other states or countries too)
- Reduced cash handling
By enabling digital transactions, e-payment systems significantly reduce the need for cash handling. Thereby minimising the risk associated with handling cash, like theft and misplacement. Digital payments allow you to keep records of payments, making business and transactions more efficient.
Security Measures in E-Payment Systems
There are several processes working in the background to ensure the success of every online transaction. In an e-payment system, payment gateway companies implement robust financial and security measures and take additional steps to ensure that customer transactions are processed smoothly, securely, and with complete reliability.
- Encryption and tokenisation
Encryption and tokenisation are key security techniques used in e-payment systems to secure sensitive financial customer and merchant data. Encryption simply converts your personal card details and other payment information into untraceable and unreadable code, which ensures that the data will not be intercepted or broken by fraudulent handlers.
Tokenisation, on the other hand, replaces sensitive details, like card numbers, with unique tokens that have no real value if compromised. Encryption and tokenisation support in reducing the risk of data theft, thereby promoting secure online transactions.
- Two-Factor Authentication (2FA)
Two-factor authentication adds an extra layer of security to e-payment transactions by requiring users to verify their identity using two methods. This usually involves two codes, which are sent to the customers’ mobile numbers and email IDs. Once the customer enters both the OTPs, only then is the payment securely processed.
- PCI-DSS Compliance
PCI DSS (Payment Card Industry Data Security Standard) is a global security standard that all payment service providers and merchants must comply with to protect customers’ card data.
These standards are set by the PCI Security Standards Council, which has defined strict guidelines for data storage, processing, and transactions. For eCommerce businesses, working with PCI DSS–compliant payment gateways helps prevent data breaches and ensures secure, trustworthy card transactions.
- Fraud Detection and Prevention
Fraud detection and prevention systems use advanced technologies such as artificial intelligence, machine learning, and real-time monitoring to identify suspicious activities. These systems analyse transaction patterns, customer behaviour, and location data to detect unusual or high-risk transactions. If potential fraud is identified, transactions can be flagged, blocked, or verified before completion. This proactive approach helps minimise financial losses, protect customers from unauthorised payments, and maintain the overall integrity of e-payment systems in e-commerce.
Conclusion
Phew!
That has been a long read.
We hope that it has been equally insightful as well. Choosing a payment system for eCommerce may be tricky. However, once you have your needs figured out, it can be a piece of cake.
We hope that reading this blog was a step in that direction.
Frequently Asked Questions (FAQs)
Q.1 Which is the most widely used payment system in e-commerce?
Unified Payment Interface (UPI) is the most commonly used payment system in India. As per reports, there are more than 491 million individuals and 65 million merchants that are associated with the UPI server, connecting almost 675 banks on a single platform.
Q.2 How to add/integrate the payment system to the website?
Integrate a payment gateway into your website. Enrol in a payment gateway service that will help you (merchant) to securely process transactions. Which payment gateway suits you might vary as per your business requirements. Once decided, consult with the best payment gateway available, and discuss the integration process through API or other plugin methods.
Q.3 Can a small or micro business owner have an e-payment system?
Yes, integrating a payment system into your e-commerce business is simple and affordable. Choose a plan that suits your needs, meaning it offers scalable and advanced features like the option to accept various payment types and is 100% efficient and secure.
Q4. What are the five electronic payment systems available?
The five payment systems commonly used include credit/debit cards, mobile banking, internet banking, UPI, mobile wallets (e-wallets), and other online payment systems.
Q5. Are e-payments 100% secure?
Yes, if the chosen payment gateway partner is authenticated, legal and secure, then every payment made through any payment system is also secure.
Q6. How to set up an e-payment system?
To set up an e-payment system, first set up a secure hosting platform and apply for an SSL certificate to protect data transmission.
1. Focus on building a secure payment page or checkout form on your website. Choose a reliable payment gateway or processor that supports multiple payment methods.
2. Complete KYC and compliance requirements, integrate the payment system using APIs or plugins, test transactions, and then go live.
Q7. Do payment systems help reduce cart abandonment?
Yes, if the merchant has integrated a strong and reliable payment gateway, then surely, it will help reduce cart abandonment. Payment systems offer multiple secure and convenient payment processing options designed to make customers’ and merchants’ lives easier with security without frustration.
