Published May 13, 2022

e-Commerce Payment Processing: An Essential Guide For Online Sellers

Table of contents

With the proper tools to help, e-commerce payment processing can be (as it should be) a seamless experience for your customers.

Reality, however, can be rough on you.

To begin, there are payment security issues to deal with. You also have to cater to the numerous payment methods that your customers prefer, or they may leave your store and shop elsewhere.

Understanding the technicalities and choosing the right payment services provider can be difficult, too.

We hear you, and so we’ve created this guide on e-commerce payment processing.

In this article, we’ll walk you through the essentials of payment processing for e-commerce and get you started on accepting payments at your online store.

  • What is e-commerce payment processing?
  • How does e-commerce payment processing work?
  • Payment gateway vs. payment processor: What’s the difference?
  • How to choose an e-commerce payment processing solution
  • 4 best payment services providers
  • Some last words

What is e-commerce payment processing?

e-Commerce payment processing refers to the process of accepting electronic payments from customers at your online store.

Before we delve into how e-commerce payment processing works in practice, there are three key terms to take note of: payment gateway, payment processor and merchant account.

  1. Payment gateway: It reads and transmits payment information (e.g. credit card details) provided by customers to a payment processor (more on this below).
  2. Payment processor: It works behind the scenes, facilitating transactions by transmitting payment information between you (the merchant), the customer’s bank and your bank.
  3. Merchant account: It’s a type of business bank account which gives you access to funds received from credit and debit card payments.

How does e-commerce payment processing work?

Although online payments can be completed in a few seconds (from customers’ perspective), e-commerce payment processing actually involves a series of steps and is more complicated than what it looks like.

Here is a step-by-step explanation of how e-commerce payment processing works:

  1. When placing an order at your e-commerce store, a customer enters his credit or debit card details at the checkout page.
  2. Once the customer hits the “pay” button, the payment gateway securely transmits the payment information to a payment processor.
  3. The payment processor sends the transaction information to the credit card network (e.g. Visa, Mastercard or American Express) to verify the customer’s card details.
  4. Upon verification, the card network requests authorization for release of funds with the customer’s bank.
  5. If the card-issuing bank confirms that the customer has sufficient funds to pay for the order, it will send a response to the credit card network to approve the transaction.
  6. The card network communicates the card-issuing bank’s approval to the payment processor, which then requests transfer of funds from the customer’s bank to your merchant account.
  7. Finally, the funds will be transferred to your business’s bank account by the payment processor.

Payment gateway vs. payment processor: What’s the difference?

As illustrated above, payment gateway and payment processor play vastly different roles in the course of payment processing.

Many people are nevertheless confused about the respective roles and functions that these two components have in e-commerce payment processing.

To clear up any misconceptions about payment gateway vs. payment processor, this section is dedicated to exploring the differences between a payment gateway and a payment processor.

1. What is a payment gateway?

A payment gateway is a consumer-facing interface used to collect payment information from your customers and send this information to a payment processor. In the context of payment processing for e-commerce, payment gateways are the payment methods that customers see on the checkout page at your online store.

Payment gateway examples

  • PayPal
  • Stripe
  • Amazon Pay
  • Apple Pay
  • AsiaPay

2. What is a payment processor?

You can think of a payment processor as an ‘intermediary’ between you, the customer’s bank and your bank. It works in the background and is responsible for relaying transaction information to and from the customer’s card-issuing bank and your bank.

Payment processor examples

Payment processors come in many shapes and forms. For instance, a card-issuing bank may serve as a payment processor. Some companies offering payment gateways also have their own payment processors. An example is the PayPal Commerce Platform, which provides merchants with both a payment gateway and payment processor.

The takeaway: A payment gateway is a consumer-facing interface used to collect payment information from customers. A payment processor works in the background as an ‘intermediary’ between you, the customer’s bank and your bank.

How to choose an e-commerce payment processing solution

When comparing different payment processing solutions for your business, it’s easy to get lost in the fancy copywriting or numerous jargons on the webpages of service providers.

If you’re not yet familiar with the payments industry landscape, the following principles for choosing an e-commerce payment processing solution will guide you in the right direction. 

1. Data security

When it comes to e-commerce, data security is of paramount importance.

In fact, a vast majority of customers (76%) indicate that data security and privacy is the #1 factor affecting their decision whether to buy from an online store.

Make sure you choose a payment gateway that protects customers’ sensitive information (e.g. using SSL data encryption) and is PCI compliant.

2. Customer experience

Everyone has their favorite payment method. However, if that method isn’t available at an e-commerce store, 42% of consumers would simply quit and leave for good.

Therefore, it is crucial that you use payment gateways that support the payment methods preferred by your customers.

You can also consider using Choco Payment, a no-code, unified payment aggregator which can be easily embedded on your website, giving you the capability to process funds channeled through 10+ different payment systems.

To help you get a grasp of the e-commerce payments landscape, here are some popular online payment methods:

  • Credit cards
  • Debit cards
  • PayPal
  • Amazon Pay
  • Apple Pay
  • Google Pay
Source: Statista

Consumers’ preferences of payment methods also vary across regions. For instance, below are some digital wallets commonly used in Asia:

  • Alipay
  • FavePay
  • GrabPay
  • Huawei Pay
  • WeChat Pay

3. Pricing and fees

While you care for customers’ online shopping experience, you should care about your own wallet too. More specifically, a good payment processing solution should be available at reasonable costs and transparent pricing.

Most payment services providers charge a per-transaction percentage fee, but you should also pay attention to the following fees to ensure there are no hidden surprises:

  • Initial set-up fees
  • Monthly or annual fees
  • Refund or chargeback fees
  • PCI compliance fees

4. Integrations

If you wish to connect your payment gateway with other e-commerce software or services, integration is an aspect you should look out for.

For example, Stripe can be easily connected to e-commerce platforms like Shopify, Shopline and WooCommerce.

The payment gateway developed by QuickBooks (called QuickBook Payments) can be seamlessly integrated with other QuickBook products too.

5. International capabilities

A recent e-commerce report found that 3 out of 4 online shoppers have bought from outside of their home countries.

Evidently, the popularity of cross-border shopping has made global payment capabilities a necessity for online merchants, whether you are eyeing the cross-border e-commerce market or not.

Thus, it’s advisable to choose a payment processing solution that will allow you accept online payments in multiple currencies at competitive fees and rates.

If you’re looking to grow and expand your e-commerce business internationally, Choco Up is here to help.

As the leading revenue-based financing and growth platform in Asia, we offer funding ranging from US$10K to $10M to companies of all sizes. With our quick and flexible funding, we’ve helped hundreds of businesses fuel their growth and accomplish remarkable results.

To learn more about how Choco Up can help your business grow, check out our client success stories or claim your FREE preliminary offer now!


Quick summary: This section rounds up five factors that you must take into account when choosing a payment processing solution for your e-commerce business. 

The factors of consideration are recapped below.

  1. Data security
  2. Customer experience
  3. Pricing and fees
  4. Integrations
  5. International capabilities

4 best payment services providers

Payment disputes, fraud and data theft… so many things could go wrong with e-commerce payment processing.

To protect both your customers and yourself, it’s important to choose a payment services provider that is trustworthy and credible. Below are some examples.

1. PayPal

Established back in 1998 and currently serving 200+ markets, PayPal is one of the largest payment services providers in the world.

It has a payment gateway as well as its own payment processor, both of which are available on the all-in-one PayPal Commerce Platform.


Using PayPal, you can accept payments made via a variety of methods, such as:

  • Account balance in the customer’s PayPal account
  • Bank account
  • Debit card
  • Credit card

2. Stripe

Stripe was founded by brothers Patrick and John Collison in 2010, and it’s gaining traction fast.

It offers a set of payment APIs (application programming interfaces) for merchants who want to customize the online payment experience for customers.

On top of being a payments instractructure platform, Stripe also provides a range of other solutions such as corporate credit cards, business financing, tax collection automation, and the list goes on.

3. Square

Square was born in 2009, just a year ahead of Stripe.

Co-founded by Jack Dorsey, Twitter’s former CEO, Square started out as a provider of card readers for artists and vendors to accept card payments.

Over the years, it has grown into a powerhouse of payment services, providing point of sale (POS) software and hardware for merchants, as well as turnkey solutions for in-person, online and remote payments.

Square currently supports integration with a number of e-commerce platforms, such as WooCommerce, Magento, BigCommerce and OpenCart.

For merchants using these e-commerce platforms, Square can be quickly and easily set up at their online stores.

4. Airwallex

With a focus on global payment services, Airwallex was established in Melbourne in 2015.

In just a few years, Airwallex has built a suite of APIs and turnkey solutions to help businesses overcome the challenges of operating in a global economy.

It offers, among others, a payment gateway that enables e-commerce businesses to make cross-border payments in more than 130 currencies at market-leading foreign exchange rates.

Are you planning on global business expansion? Choco Up can help! Bringing together Airwallex's global payment technology with Choco Up's funding platform and analytics tools, we offer a one-stop shop for e-commerce companies looking to expand internationally. With us, you’ll be able to:

  • Make and collect cross-border payments at market-leading exchange rates
  • Gain access to flexible growth funding ranging from US$10K to $10M (no lengthy application forms to fill!)
  • Use virtual credit cards to make cross-border payments securely and efficiently

Find out about the one-stop fintech solution here or drop us a message to learn more!

Quick summary: This section introduces four payment services companies that you can trust. These payment services providers include:

  • PayPal
  • Stripe
  • Square
  • Airwallex

Some last words

When we speak of online payment processing, cross-border e-commerce is a recurrent theme throughout. Though global expansion is one way to grow, we must assure you that it’s not the only means to scale your business.

As the leading revenue-based financing and growth platform in Asia, we’ve helped hundreds of businesses fuel their growth. Some of them launched new product lines, others invested in ad spend to 5X their revenue growth.

If you are hoping to bring your business to new heights, Choco Up could be your growth partner.

We offer not only flexible funding to fuel your business’s growth, but also provide a suite of essential fintech solutions to help our clients ace the e-commerce race.

Interested in knowing more? Check out our client success stories or apply for funding now!