Last editedApr 20233 min read
The online payments ecosystem is vast and can be a little overwhelming for a new business owner. When you’re researching the best online payment system for a small business, you’ll probably see some names you recognise, like PayPal and Stripe, as well as a few you don’t. We’ve put together a simple guide to online payment systems for small business, breaking down the basics and providing you with all the information you need to create an online payment system.
How does an online payment system work?
First, what is an online payment system? It’s simple. Online payment systems are a way of facilitating payments for goods and services online. These systems consist of three parts – the payment gateway, the payment processor, and the merchant account – which between them handle the entire transaction. Here’s a little more detail about these elements of online payment systems for small business:
Payment gateway – A middleman between the credit card companies and the payment processor. The payment gateway essentially manages the technical side of the cardholder information transfer, ensuring that the transaction is completed quickly and securely.
Payment processor – A third-party that manages the card transaction process. The payment processor will communicate your customer’s card details with your bank and their own bank, and assuming that they have enough funds in the account, the payment will go through.
Merchant account – A special kind of bank account that businesses use to accept credit/debit card payments. Without a merchant account, you won’t be able to accept these types of payments, which is why start-up businesses should register for an account as soon as possible.
Together, these three elements of your online payment system process the entire transaction from beginning to end, withdrawing the funds from your customer’s bank account and depositing them in your business’s merchant account.
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Types of online payment systems
There are two main ways to take payments from customers online: credit/debit cards and account-to-account payments. If you’re taking payment via credit/debit cards, you can either create an online payment system yourself (which means that you’ll need to set up the payment gateway, payment processor, and merchant account) or outsource to a third-party. If you outsource to a third-party payment provider, they’ll handle the entire transaction for you. Plus, the weight of PCI DSS compliance won’t be so heavy, as your company won’t actually come into contact with any financial data.
Then, there are account-to-account bank payments, for example, Direct Debit and Instant Bank Pay.
Direct Debit is an automated payment method that enables you pull payments directly from your customer’s bank accounts on dates scheduled by you. You can collect Direct Debit payments in-house if you have the resources to invest in Bacs approved Bacstel-IP software and your own SUN. Outsourcing the Direct Debit process to a specialist Direct Debit provider who handles the payment collection on your behalf is a more realistic and popular option for most businesses. There is a broad range of Direct Debit payment providers to choose from, including GoCardless (we’ll explore this option in a little more detail later in the article).
Instant Bank Pay offers a simple, convenient way for seamless collection of one-off payments from customers’ bank accounts. These bank-to-bank payments are confirmed instantly, which means better visibility for you and your customers. Furthermore, they offer frictionless authorisation as there is no need to enter card details. They also tend to be typically 54% cheaper than online card transactions.
Create an online payment system: step-by-step
Now that you understand a little more about online payment systems, let’s look at how you can create an online payment system for your organisation. If you’re not going with a third-party online payment system, you can follow these steps to create an online payment system:
Consult an expert to ensure that you’re getting all the coding, security, and compliance issues right.
Set up a hosting platform and apply for a Secure Socket Layer (SSL) certificate.
Build the payment form/payment page.
Find a payment processor that gives you the ability to process different types of payments, from credit and debit cards to account-to-account bank payments.
Integrate your payment processor/merchant account with your payment page.
Conquering online payments with GoCardless
Direct bank payments, such as Direct Debit or Instant Bank Pay, may be the best online payment system for small business. GoCardless can manage the entire payment collection process for you, ensuring that your business receives the money you’re expecting, when you’re expecting it. Plus, it’s easy to integrate GoCardless with your existing payments workflow – whether you’re working with Xero, QuickBooks, Sage, or so on – and the GoCardless API makes it easy to customise your online payment system to your exact specifications.
We can help
GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.