If you are someone that is new to ecommerce or online retail, the terminology can be a bit daunting and confusing at first. Terms like shopping cart, online store, ecommerce website/platform, merchant account, payment processor, payment gateway, etc. seem to get thrown around a lot. Some of this ecommerce terminology can be interchangeable, and in other context, they can mean very different things. On top of all this, given the rapidly evolving ecommerce technology space, answers can vary depending on who you talk to and in what year you are asking.
So, we are going to group these terms together in the simplest buckets we can think of and provide a nice little diagram to hopefully make some sense of this.
Technology to List Your Products Online
Let’s start with establishing a few definitions of the technology that allows you to display your products online and where customers purchase them.
- Online Marketplace: a type of ecommerce site where products or service information are provided by multiple third parties. Transactions are processed by the marketplace operator and products/services are fulfilled by the third party vendors. Examples: Amazon, eBay, Rakuten
- Online Store: a website that is built with a product catalog and method of facilitating ecommerce payments aka an “ecommerce website” or “ecommerce platform”. Unlike a marketplace in which there are multiple vendors, an “online store” usually only contains products from a sole online retail company.
- Website: (for the purposes of this guide) a traditional or “informative” website built to provide company or personal information, informative web pages and/or blog posts. Unlike an online store, it is not built for online shopping and often lacks a product catalog along with other features and functionality that support an online shopping experience along with ecommerce store management.
Online Store vs. Website
So I hope you noticed the blurry line in the diagram above because when it comes to comparing an online store to a website, there is no better way to describe it.
The two terms can really be interchangeable, but when evaluating technology I think the distinction is important. The distinction for me is that an online store is built on an “ecommerce platform” and designed with the primary purpose of facilitating an online shopping experience for the customer while also providing ecommerce management tools for the business owner. This means a product catalog, checkout process, shipping and tax calculations, inventory and order management and ready-made integrations to more robust ecommerce management tools.
A traditional “informative” website is built on a Content Management System (CMS) that is primarily for managing web page content and blog posts. However, a traditional website can quickly be considered an “ecommerce website” by simply integrating a payment gateway such as Paypal, and beginning to take payments online. But, the lack of the features and functionality that facilitate a “shopping experience” and online store management is what separates an online store vs. a website (ecommerce or informative).
So, a quick recap:
- Your online store is built on an ecommerce platform.
- Your online store is considered a type of website because it is built of web pages.
- Your traditional website can be considered an ecommerce website the moment you accept payments through your website, which is accomplished by integrating a payment gateway.
- Your website is not an online store if it doesn’t facilitate a shopping experience with features such as a product catalog, cart page and checkout process.
Choosing your ecommerce platform to build your online store is a whole other topic and is covered in Chapter 2: How to Choose the Best Ecommerce Platform.
Now, let’s move on to technology that allows you to manage your online business and facilitate transactions.
Technology to Manage Inventory, Orders and Payments
Why use an Inventory and Order Management System?
So, as you may or may have noticed, your online store allows you to manage inventory and orders pretty well; and for many people, this is enough. However, when you are selling across multiple sales channels (online store, marketplaces, etc.) and are receiving orders from each of these channels, the robust order management tools can help really help keep you sane when you have hundreds or thousands of orders coming in each day.
The same can be said about inventory management when selling products from multiple suppliers. Inventory management tools that allow you to manage inventory across your own internal warehouse(s) and other dropship suppliers or “direct fulfillment partners” can be critical to managing your online retail business. In any case where you are selling products from anywhere else than those that you physically have on hand, I would say a system in place to sync supplier inventory is absolutely vital to your ability to reliably sell online.
Payment Processor vs. Payment Gateway & Merchant Accounts
- Payment Processor: a company (often a third party) that handles transactions from various channels, such as credit cards and debit cards and works with the banks and credit card companies to complete and or remediate any financial transaction on behalf of the merchant.
- Payment Gateway: a service that authorizes the credit card payments for online sales for the payment processor. The main goal of the payment gateway is to provide the technology to facilitate the credit card transaction while minimizing risk of fraud, security breach or inaccuracy. Essentially, the payment gateway acts as a mediator between the transactions that are made on your website and the payment processor.
- Merchant Account: a type of bank account that allows you to accept credit cards. Traditionally, this required providing an Federal Tax ID (EIN) and setting up a business account with your local bank. However, once again the merging of new technology and the traditional retail business structure is blurring the lines of how we look at these three types of companies/services.
There is a trend of stronger partnerships and consolidation of the technology provider and the financial agent that is blurring payment gateways, processors and merchant accounts into a one stop shop, allowing you to start accepting credit cards in the matter of minutes with minimal hoops to jump through.