Online Payment Processing in Panama

If you own a business and are not selling online yet, this article is a good place to start.

E-commerce has come a long way in recent years, revolutionizing entire industries such as retail, tourism, and education, while helping others come to life, including marketplaces, delivery apps, and online entertainment.

In 1995, Amazon was one of the first companies to envision a marketplace model where goods and services were exchanged online for instant payment. Today, e-commerce is one of the most sought-after business models worldwide.

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Latin America is not falling behind:

According to the latest estimates from Statista Digital Market Insights, the Latin American and Caribbean e-commerce market reached $125 billion in retail sales in 2022. By 2027, this figure is expected to nearly double and exceed $243 billion. Both figures would be the highest ever recorded for this sector, which continues to grow year over year and increase its share of national economies.

Panama is no exception. Growth across the region has continued year over year, and online payments have become increasingly popular among consumers.

Growth surged in 2020 due to the new social distancing rules introduced during the COVID-19 pandemic. Since then, it seems like everyone has been trying to sell online in one way or another.

In today’s e-commerce landscape, the ability to accept online payments is a top priority for business owners. No matter how attractive your offer is or how unbeatable your prices are, nothing ends a sale faster than not having an online checkout flow.

Beyond marketing approaches, product development, and sales cycles, business owners across the e-commerce spectrum share a strong interest in accepting cards online. Payment processing and its capabilities are what every online seller is looking for. However, the complexities of this field still leave merchants asking, “How does an online transaction work?”

Although there are many concepts to understand and many of the players in the market can be confusing—payment gateways, merchant accounts, payment service providers—which do you need? The online payment process is a logical flow that you can easily master.

If you have been looking for the basics of online payments, you have come to the right place.

What does payment processing mean?

Online payment processing refers to the online exchange of money as payment for goods or services ordered over the internet. In other words, payment processing is an electronic transaction between a business selling a good or service online and a buyer who wants that offering. This process involves exchanging the buyer’s personal and financial information to authenticate the buyer and authorize the transaction.

To accept online payments, a merchant needs to work with one or more intermediary partners that provide the technology behind the transaction and connect with the buyer’s financial institution to settle the payment. The merchant’s payment processor usually manages this process.

Payment processors allow merchants to accept online payments and manage the entire transaction process. They connect to the buyer’s bank (also known as the acquiring bank) and verify the transaction to determine whether it should be approved. During the process, payment processors also verify the buyer’s identity (to make sure they are who they claim to be) and use fraud prevention mechanisms to prevent foul play. Payment processors must comply with specific regulations established by credit card associations, which we will explain later.

Payment gateways are the part of the flow that collects the buyer’s payment information and sends it to the payment processor. Essentially, a gateway is the front end of the process, while the payment processor facilitates the transaction on the back end. A merchant can use a gateway and processor from the same provider or use different providers and integrate the flow.

The term “merchant” refers to the business that sells goods or services over the internet, sometimes also called an e-commerce merchant. To accept online payments, a merchant opens a merchant account with an acquiring bank. This merchant account is a prerequisite for payment processing because a business cannot receive payments without it. In practice, the merchant account identifies the seller to the bank receiving the processing request as the recipient of the incoming funds. Both the acquiring bank and the merchant opening an account must agree to the regulations imposed by credit card associations such as Visa and MasterCard.

The term “buyer” refers to the person or business purchasing goods or services from a merchant’s store. In e-commerce, this happens when the customer enters their payment information on a secure page on the merchant’s website. The payment processor or payment gateway then receives this information and handles authorizing the transaction and communicating whether the payment was approved or declined.

How do you choose a payment gateway?

If you want to start accepting credit cards online right away, you will need to work with a payment gateway so you can receive payments in your merchant account. The main criteria to consider when evaluating payment gateway options include the following features:

First, you need to evaluate the payment methods included. Check whether the major card networks are supported and whether the gateway integrates with local payment methods, especially across different countries in the region.

Second, review the security features offered by the potential new gateway and whether they comply with PCI DSS. Ideally, you should work with a provider that actively uses fraud prevention tools, including both automated detection and manual review.

Third, understand the gateway’s automated recurring billing features if you are considering selling—or already sell—subscriptions or recurring payment plans, such as monthly tuition for an educational institution or a gym membership. Automated tools are essential for managing subscriptions, streamlining your users’ payments, and strengthening your retention strategy.

Next, check which integration options your payment gateway offers for your online store. There are different e-commerce platforms, such as Shopify, Wix, and Woocommerce. Depending on the solution you use, you need to know whether it integrates easily or requires custom development with your technology.

Last but not least, consider cost efficiency. Evaluate the transaction fee proposed by the gateway and compare it with the features you are getting.

Evaluating a potential provider

There are three main areas you should confirm with your prospective payment provider.

From a business perspective, ask the provider to clarify which business model they recommend and provide details about the necessary requirements. You should also ask about their scalability. On the one hand, you want to make sure they have the local payment capabilities to support your future expansion into a new country (any country in Central America or the Caribbean). On the other hand, you also want to understand the scale of their operation. Finally, ask them to explain their onboarding process and make sure it is easy.

From a capabilities perspective, where should you start? Many of these needs depend heavily on what your business is looking for in its online payment processing flow. Start by requesting details about the available integration and customization options. Also, check how the provider can help you reach your goals of increasing conversion rates and gaining insights from the data flowing through your store (think chargebacks, authorization rates, and refunds). If you sell subscriptions, do not forget to review their recurring billing options.

From a financial perspective, try to clarify all fees and operating costs from the start. Some fees, such as API call, chargeback, or refund fees, may not be very visible in the terms now, but you will definitely encounter them later. Also ask about additional integration costs and the available support resources.

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