Online Business 101: Accepting Online Payments in Canada

One of the most intimidating parts of online business and ecommerce is understanding how to accept payments, and finding the best online payment processors in Canada. As soon as you begin to research, you’ll be hit with unfamiliar terms and frightening legalities that can leave you feeling unqualified to navigate the process. Luckily, with a basic understanding you can easily set it all up without a degree in finance.

The top five online payment methods for Canadians are VISA, MasterCard, Interac, American Express and PayPal. If you accept all of them, you’ll prevent shopping cart abandonment due to payment inconvenience and security fears. Don’t skip PayPal, because many shoppers prefer it to handing out their credit card or bank information to make the purchase.

The most popular type of payment online is by credit card. 76.2 million Visa and MasterCard cards are in circulation in Canada, according to the Canadian Bankers Association credit card statistics from January 2021.  Interac recently began offering an an integrated payment solution for online payments.

Accepting Online Payments in Canada

Most ecommerce platforms, apps and plugins are preprogrammed to accept payments from multiple payment processors. The trick is finding the ones that work with Canadian businesses.

The following information and tips will help you to choose and set up payment processing for your online business.

Online credit card payments are similar to offline payments, but the route is different. Chances are, you’re familiar with most of the process by being an online shopper yourself. As a merchant, however, you’ll also be concerned about what online shoppers DON’T see.

Accepting Payments Online Diagram
Online Payment Processing

  1. Customer arrives on your website, adds items to their cart and begins the checkout process.
  2. Payment information is entered by the customer.
  3. Your website ecommerce software automatically sends the customer’s payment information to your virtual payment gateway. This is the very same thing that happens in an offline store when you swipe or tap your credit card.
  4. Customer information is automatically verified by the payment processor.
  5. The payment processor notifies the payment gateway that the purchase is either approved or declined, which in turn sends the information back to the customer to continue checkout (approved) or cancel the order (declined).
  6. Money is sent to your merchant account.

From an ecommerce perspective, a merchant account is where purchase payments are held by the payment processor before being paid to you. You could have a direct relationship with the merchant account provider, or you may go through a payment gateway provided by your ecommerce platform provider (such as Shopify).  Your payment processor is involved with processing individual transactions and confirming authorization, then depositing the funds into your merchant account.

You can set up a merchant account in several ways, such as direct through the provider, through a bank or through a third-party payment processor/aggregator. Alternatively, you can use a processor specifically designed for online or omni-channel payments, such as a “digital wallet” or aggregator like PayPal, Google Checkout, Square, Moneris, Clearly Payments, Payfirma and Stripe (no payment gateway), or your ecommerce platform. Most small businesses go through their ecommerce platform, which can guide you through your options if required.

Micro-businesses with few transactions usually go with PayPal for online sales, which facilitates PayPal balance, credit card and bank account payment processing. If you need to accept payments for invoices, you may find your accounting solution (like QuickBooks Canada) can include the option to pay by credit card online when you send out the invoice.

Note of caution: while there are benefits for small business owners, third-party payment aggregators are notorious for placing ‘holds’ on accounts for what they deem as unusual activity. In most scenarios, you won’t be able to process transactions or receive payouts until the issue is resolved.

You may or may not have to set up a payment gateway from your merchant account. Most already have payment gateways in place for you to choose from.

Find the best choice for your business by evaluating their:

  • Shopping cart / ecommerce platform compatibility
  • Types of cards accepted
  • Currencies
  • Fees (setup, transaction rates, transaction minimums, charge backs, termination fee, etc.)
  • Online/offline payment options & Point of Sale (POS) hardware
  • Account management tools
  • Functionality
  • Security
  • Mobile compatibility
  • Payment schedule
  • Inventory tracking
  • Customer support

It’s extremely important to read every single detail in payment processing contracts. Everything from fees to chargebacks should be covered and there can be some surprises lurking in the ‘fine print.’ For example, your fees and terms might change dramatically for international purchases, which should be considered if you sell online to anywhere outside of Canada.

There can be multiple fees to consider before choosing your payment processor, and not all of them are disclosed in the signup phase. Look for setup fees, deposits, monthly fees, transaction fees, contract termination penalties, and other costs. It’s common practice to negotiate these fees if you’re going directly through a provider, so add up any volume leverage you have and give it a try.

Merchants usually ask for a quote from several payment processors and then compare their top choices. Once your application has been approved, you’ll receive access to their platform and any POS hardware requested will be shipped to you. Many Canadian small businesses choose to use multiple payment processors, such as Stripe or Moneris with PayPal.

Once you’ve done the legwork, it’s relatively easy to set up your online payments. Usually, it’s a simple matter of setting it up through your ecommerce platform and/or PayPal.

Reassuring Hesitant Canadians

While online shopping in Canada has exploded the past few years, there are still many Canadians who refrain due to security concerns. In fact, one in five Canadians say they they avoid online shopping because they’re worried about online payments, according to PayPal Canada’s Trends & Spends 2021 report. This is especially true of older Canadians aged 55 plus.

It’s wise to counter that objection by providing reassurance that their payment information is safe with you. You can do that in a number of ways, including site quality, security certifications, disclosures, clear guidelines, and a range of protective payment options (like digital wallets).

Laws and guidelines are in place to help protect consumer data. Payment Card Industry (PCI) compliance is guided and supported by the PCI Security Standards Council, whose mission is to develop data standards and services. Whether you process payments through a payment gateway or have an in-house solution, you’ll need to familiarize yourself with PCI security standards for account data protection or risk paying penalties.

A Word About Credit Card Chargebacks

Consumers can dispute charges on their credit card for a number of reasons, which results in the loss of the purchase payment along with any fees the provider charges. The option is intended to protect consumers, but it can also be used by fraudsters. You’ll have to prove the purchase was processed and shipped, so keep any documentation that will help you prove delivery.

Chargebacks can cost your business as much as $25 or more in Canada. If you receive too many chargebacks, you may lose your merchant account or have to pay higher fees to compensate for the increased risk to the merchant account provider.

To learn more about the fraudulent side of chargebacks and other types on online sales fraud, check out Ecommerce and Online Sales Fraud Prevention in Canada.

“You need to make sure you’re dealing with providers that care about security, that care about their responsibility for getting it right and are consistently available and make sure they’re there for customer service issues, when needed,” Angela Brown, CEO of Moneris (Toronto) advises. “I think [small business owners] really need to look to the market leaders who are committed to the business, are in it for the long haul, can demonstrate a track record of reliability and a real responsibility to the function they’re providing.”

Do you have any questions about accepting online payments in Canada? Please post in the comments below or join us in the Online Business Canada Facebook group.

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Digital Business & Marketing Manager at | Website | + posts

Melody McKinnon's formal education is in business management, which she enhanced with more than 60 certifications revolving around business, marketing, health, general sciences and writing. In over 20 years of working online, she has owned or managed both educational and eCommerce websites.

Melody has worked with many businesses & brands in a multitude of capacities. She can often be found on CanadiansInternet.com, CanadianFamily.net and AllNaturalPetCare.com, as well as other quality digital publications. Her content has earned reference links from highly-respected websites, magazines and university textbooks.

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