Person shopping at home using an online payment systems.

The Basics of Online Payment Systems

As a modern business owner, taking any type of payment is a must. It’s not enough to take a customer’s payment at a point of sale (POS) terminal in a brick and mortar location. Your business must be equipped to process online payment options from an ecommerce platform in order to maximize your profitability. How do these online payment systems work? Here’s a rundown of how online payment platforms function.

In-Store Payments

A retailer must be ready to accept a variety of in-store payments during the checkout process. Some are considered “traditional” forms of payment, like cash, credit cards, debit cards, checks, and gift cards. Credit card readers can still read cards that have a magnetic stripe, but credit card companies have recently started issuing cards that are equipped with embedded chips that keep customers’ credit card information more secure.

In-person payment now also includes contactless forms of payment as well, such as Apple Pay, Google Pay, Amazon Pay, and other mobile payment methods that are stored on a customer’s smartphone. In many cases, your business could lose a sale if these options are not available to the customer when they rely on their phone to pay.

Online Payments

An E-commerce business, or any business with an online store, can accept a similar number of payment methods as a brick and mortar retailer. Accepting online payments is especially important for small businesses since it enables them to accept payments from anywhere in the world. Any online payment solution is made of three components:

Payment Gateway

The payment gateway is the point of sale component of an online business. It’s where a customer enters their payment information to purchase the items in their online shopping cart. It allows your business to take debit and credit card payments, as well as funds from an online digital wallet. Popular payment gateways include Shopify and WooCommerce. These types of programs are known as APIs, which stand for Application Programming Interface. Simply put, they are sets of instructions that allow two programs to communicate with each other.

Payment Processor

The payment processing service is responsible for sending the customer’s credit or debit card information to your bank and the customer’s bank. The processor verifies the legitimacy of the card and whether there is sufficient credit or funds in a bank account to cover the transaction before accepting payment. You, the merchant, may be responsible for any credit card processing fees, so check with your payment processor to find out.

Merchant Account

A merchant account is a type of bank account that holds all of the funds received from online sales. Your payment processor may set up a merchant account for you, or you can set up one at a bank of your choice. If your merchant account is part of your payment processor, be aware of any possible transaction fees or other processing fees associated with it.

Online payment methods also encompass systems that handle recurring payments, such as mortgages and utility bills. In these cases, the customer provides the utility or lender with their banking information. Recurring bills usually occur every month, so when the bill comes due, the vendor accesses your bank account and withdraws the funds.

There are also types of payments called Automated Clearing House, or ACH payments. When a bank transfers money electronically to another bank, this is considered an ACH transaction. ACH payments have been around since the 1970s and are governed by the Automated Clearing House Network. The ACH network is based in the United States and covers the United States as well as the U.S. Virgin Islands, Guam, American Samoa, and the Northern Mariana Islands. ACH payments are typically limited to only these territories. International ACH payments are sent as wire transfers.

The Growth of Online Payment Systems

For the last two decades, online payment systems have been growing steadily, but their growth accelerated rapidly during the recent COVID-19 pandemic. More and more people shopped online instead of heading to the store. Additionally, the rise of food delivery services made accepting online payments especially important for restaurants. Allowing customers to order from your business online is an easy way to increase revenue.

Rise of Ecommerce

The use of the Internet to buy and see goods has seen steady growth for over 20 years, and electronic payment systems have had to grow and evolve to keep up with the demand for online shopping.

Increased Reliance on Mobile Phones

Mobile phone usage continues to increase, and younger users have extensive experience using online payment systems for food ordering apps, and person-to person payment systems such as Venmo, a payment app owned by PayPal.

Pineapple POS is the Online and In-Person Payment Specialist

Whether it’s online or in your store, Pineapple POS makes payment quick and easy for you and your customers. If you’re unhappy or frustrated with your current point of sale system, contact Pineapple POS and we will evaluate your specific needs. There are no cookie-cutter solutions! Every business is unique, and we will make a POS recommendation based on your business’s specific requirements. The best part is that your hardware and staff training are free! All you’ll pay is a $29.99 monthly fee. Call or email Pineapple POS today and take your business to the next level with online payment systems or revamping your current system!