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Payment Processors vs Online Marketplaces For E-Commerce Websites

According to Statista, nearly 20% of all retail sales worldwide were conducted over the internet. This number is expected to increase in the coming years, making e-commerce a must for businesses.

When it comes to building an e-commerce website, one of the most crucial decisions you'll make is selecting a payment processor. After all, without one, your website wouldn't be able to function as an e-commerce platform. So, before we delve into some of the available options, let's start by understanding what a payment processor is and why it's so vital to the success of an e-commerce website.

What is a Payment Processor? What is a Payment Gateway?

A payment processor is an essential system utilized by both online e-commerce websites and physical brick-and-mortar stores that enable customers to pay for the items they wish to purchase. In physical stores, the payment processor comprises a card reader and a cash register, whereas, for online transactions, it is primarily used to process credit and debit card payments, although certain exceptions do exist.

To make the payment process more convenient for the business, the payment processor should also include a payment gateway from the same provider. However, it is feasible to run them as separate processes from different providers. A payment gateway plays a crucial role in validating payment card information by verifying that the customer has sufficient funds on their card to pay for the item.

Stripe, PayPal, and Square are among the most commonly used online payment processors. These payment processors are also payment gateways, which can save a significant amount of time and hassle by using a single provider instead of multiple ones.

Steps to Building an E-Commerce Website

First, choose the right WordPress hosting for the company's wants and needs. The IT staff may want to code a website on their own but this is not the recommended approach. It's far easier to use an established template builder that connects with WordPress or a similar website.

First, gently remind IT that no matter how good at coding they are (and they're probably excellent or else they wouldn't have been hired), due to the time and effort required, it's far easier to simply pay for WordPress hosting and use an established framework. As soon as they realize the amount of coding involved with each individual item, they'll likely agree anyway.

Once the rest of the website is ready, now it's time to set up the shop. The first decision to make is whether to use a program like Shopify or a WordPress plug-in storefront or if it'll be better to set up the sales interface in-house. This is the perfect time to get the IT staff involved because the in-house option may be better.

Payment Processing Fees

The main consideration is the fee structure involved. Shopify and other online marketplaces take a percentage of each sale in exchange for providing the service. Their credit card processor will also take a cut, which means that (depending on which Shopify plan the business is using), nearly 6% of each sale could end up going to the host.

Of course, payment processors will charge the fee regardless of whether the company is using a service like Shopify or not. The exact fee structure is subject to change at any time, so it'll take a bit of research to determine which has the current best fee schedule.

A major factor here will be the volume of sales the company is expecting from its online marketplace. A local shop that only expects a small number of sales will see a bigger reduction in its profits. On the other end of the spectrum, a large shop that sells thousands of items every year could potentially pay tens of thousands of dollars in shop hosting fees.

Some stores charge more in their online marketplace for items compared to their brick-and-mortar shops for the same items to compensate for the extra processing fees they're charged. This is a valid strategy, although not all customers may understand the reasoning and could get upset. For smaller local retailers, this can incentivize users to physically come into the store but it'll also reduce the return on investment for the website.

Final Thoughts

When building an e-commerce website, companies have the choice of using a sales assistant like Shopify or cutting out the middleman and using a payment processor themselves. There are advantages and disadvantages for each option, so businesses should weigh the options carefully and choose the one that's right for their exact situation.

The only thing that is certain is that online shopping is only going to increase in the coming years, with 43% of Americans saying they prefer to shop online over retail stores.

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