How do you set up an online payment system for your small-sized business?

. 6 min read
How do you set up an online payment system for your small-sized business?

The government has put their best foot forward to acclimatise the Indian populace with various online payment systems. These are UPI and digital wallets and recently e-RUPI. One might also include debit and credit cards under the same umbrella by extension.

Here's a step-by-step guide for you on how to set up an online payment system for your small-sized business.

Online Payment Systems

Online payment systems are a way to obtain funds from your clients and customers without any physical exchange of money, and in the case of e-commerce, no face-to-face interactions as well.

These systems are divided into three parts—Payment Gateway, Payment processor and the Merchant Account, excluding security filters which are usually add-ons.

  • Payment Gateway: A middleman between the credit/debit card companies, digital wallet companies and the payment processor. The payment gateway is who the customer first encounters and where they enter the payment information. The gateway is required to be highly secure as they are perhaps the most vulnerable to hackers.
woman doing online payment from laptop
  • Payment processor: A third party responsible for the transfer of funds between the consumer and merchant. They communicate the details obtained from the gateway to the customer's bank for verification and their bank for approval of fund transfer. After ensuring that the bank balance is enough to make the transfer possible, the payment processor carries out a safe fund transfer.
  • Merchant Account: This is a minimum requirement for any merchant to receive their payments from the processor. This account holds all the valid required information for the safe transfer of funds.

Types of online payment systems

If we assess and acknowledge all peculiarities of various payment systems, we would be going through an endless list. Broadly speaking, we can divide them into credit and debit card payments; direct debit; and UPI and digital wallets. In theory, there are several others: EMI, Smart Cards, and Loyalty Cards and other temporary promotional schemes. These are rare and more or less hybrid forms of the broader types mentioned before.  

1. Credit and debit card payments

If you want to accept credit and debit card payments, you'll either have to create your payment system or transfer the responsibility to a third party. If choosing the former, you'll have to create the payment gateway, payment processor and merchant account on your own. Outsourcing to a third party, on the other hand, will relieve you of these responsibilities (they have pre-existing systems where you'll be required to create a merchant account) as well as PCI DSS compliance issues. You won't have to deal with any financial data pertaining to that criteria.

2. Direct debit

Direct debit is a method of accepting payments where you deal with the consumer's bank directly to receive payments. It requires a one-time verification by the end user, after which all upcoming payments will debit automatically. Most modern subscription services use this method. You could, once again, try to construct the infrastructure yourself (you'll have to invest in Bacs approved Bacstel-IP software) or you could outsource it to a third party, which is ultimately more secure.

3. UPI and digital wallets

Another more direct and most recent development in online payment systems is digital wallets and UPI. You have to create a merchant account in any popular UPI and digital wallet services (you'll have to go through KYC) where your customers will also have regular accounts. The primary advantage of this type is the obvious ease of use and affordability. However, this method is also highly dependent on your customer base (you're more likely to find customers possessing debit cards than digital wallets) and the availability of adequate interest in such a form of payment.

Having read through these options you might want to experiment with one or all of them. OkCredit is a financial accounting service that helps you track and manage all your transactions with ease, leaving you space to grow your business.

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Guide on How to set up an online payment system

Third party applications and services, although easy to use, can be an accounting nightmare. They also leave you with no choice but to leave everything in your payment system to them rather than certain sections of the process. To maintain financial and operational freedom, you should make and operate your online payment system.

Here's a general guide to set up an online payment system for your small business:

  • It's always a good idea to get an expert involved to ensure all compliances, coding and regulations are being followed strictly. They can also enhance the overall security and quality of service for your system.
  • Next, you must set up a hosting platform and apply for an SSL (Secure Socket Layer) certificate. This will allow you to commence work on your payment page.
  • Create a payment gateway. Take extra care in making this step secure.
  • You cannot create a payment processor from scratch as it is not monetarily feasible for a small business. Choose a payment processor that can handle both debit/credit and direct debit.
  • Integrate this payment processor with your payment page or gateway.

Creating one's system comes with its issues. Maintenance is necessary for security as well as customer experience. You may find that the complexity of your system deters some customers. A lack of graphical complexity may hamper the interest of a different set of consumers. You have to strike a balance between these two customer bases. Ensure that the ones already in your fray are not disenfranchised, all the while keeping a firm grip on security measures. It sounds daunting and is to a certain extent but is also the reason behind the success of other prominent payment systems.

Blue payment button on the keyboard

Keeping Your Payment System Secure

Online payment systems, albeit convenient, can be far more difficult to secure than any offline business. The likelihood of someone's entire stock getting lost is minuscule; however, wiping someone's bank balance clean isn't unheard of. A slight misstep in your system's security can jeopardise both you and your customer. This will also make your business disreputable.

To avoid this, you must constantly consult with a payment expert and choose a payment processor known for the security of their networks. Do not skimp on security, or you'll pay in much more later. If a customer entrusts you with their valuable information, it's your responsibility as a merchant to ensure that you complete the transaction without a hitch.

You should always look out for suspicious activity on your payment system like multiple transaction requests with the same details from different IP addresses, injection trials, hacker attacks and so on. Vigilance will pay off in both security terms as well as customer loyalty.


We hope our article on how to set up an online payment system for small merchants turned out to be useful for you. Creating your system or using an existing third party, both come with their challenges. To set up an online payment system in today's competitive climate is far more convenient and pertinent. It will ease tracking business transactions and allow for more accurate taxation.

Also Read:

1) Pros and Cons of Cheque payments
2) All You Need to Know About Electronic Checks
3) Differences between E-checks and Paper Checks
4) Digital Payments: Definition and Methods

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Q. What is the safest method of payment?

Ans. By and large, taking into consideration both the security of the transaction and the probability of the payment going through, credit cards are the safest.

Q. Is PayPal safer than using a debit card?

Ans: Although there's no reason why one might be safer than the other, using your debit card through PayPal is much safer than using it directly.

Q. How many types of payment cards exist?

Ans: There are broadly four types of cards in circulation in India: credit cards, debit cards, prepaid cards and electronic cards.