How it Works
There are several components necessary for Ecommerce: the merchant account, the payment gateway (for real-time-processing), the security system, and the hosted website and shopping cart system.
1. The Merchant Account
eCommerce requires a Merchant Account (basically a bank account for processing your transactions), unless you choose to go through a 3rd party company like RegSoft, PayPal or ClickBank. These companies offer an all-in-one solution to ecommerce, but can take up to 15% of your sales to process your orders for you. PayPal is one of the lowest in cost, and takes about 3%.
Although the up-front costs of a merchant account can be relatively high, the long-term savings may make it worthwhile. In any case, you should shop around for a merchant account. Start with your own bank. Check online merchant account services. Compare the costs of setup, percentage of sales, transaction costs and monthly fees.
A merchant account comes with a merchant identification number or T-ID number, and is a holding account for your business transactions. It does not process the transactions. In order to process transactions manually (meaning that you type in the credit card number and amount) you’ll also need either a POS (Point Of Sale) terminal (a little box to swipe an actual credit card through), or a Virtual Terminal (software that runs on your PC and will dial up the bank via your modem or a credit terminal). Every business that decides to accept credit cards should have this feature, even if Real Time Credit Card Processing is used because you still need some method to process phone, fax and mail-in orders, as well as returns or credits. Most payment gateway systems, like Verisign’s Payflow Link, or Authorize.net provide a Web-Based terminal with your account.
2. The Shopping Cart System
You will need a shopping cart on your website if you want to sell a variety of products online, and make it easy for your customers to shop. The easier you make it to buy your products, the more your customers will spend. Your shopping cart should make it easy to buy your products, easy to select a shipping method, and give the buyer a feeling of security. The shopping cart system must also integrate with your merchant account and payment gateway.
Some shopping carts accept orders and store them in a secure database for you to process manually by using the afore-mentioned POS system to process the customer’s credit card, and this cart does not have to integrate with your merchant account. This is only a good solution if you can manually process the volume of transactions you accept in a timely manner.
You may need a shopping cart that processes orders “real time” as the customers place them. In this case, you will need an integrated payment gateway account. This way, you do not handle the credit card numbers at all. All you do is fulfill the customer’s order.
Shopping cart systems can be purchased or leased, and both ways have their advantages and disadvantages. At PA Internet Marketing, we have standardized on MIVA Merchant with Host My Site as the leased option, and Squirrel Cart as the purchased and more customizable option.
3. SSL Certificate
If you want your customer to stay on your website URL throughout the checkout process, you will need your own SSL Site Certificate (Secure Socket Layer). If this is not as important to you, you can use your payment gateway or hosting services’ SSL certificate. This Certificate results in HTTPS: or secure pages for the checkout process, and provides encrypted security for the credit card information from the user’s browser through your website and then into the Gateway. Another indication of a secure transaction provided by the SSL certificate is the Lock graphic in the bottom of your browser. This icon appears in the lower right side for Microsoft Internet Explorer and Firefox, and in the lower right for Netscape browsers.
The cost of a site certificate varies, based on the level of security, but usually starts at about $80 and can go up to $800. You must renew it every year. It is not necessary to have SSL to process with an online shopping cart, but many people will not purchase from insecure websites, and their private data may be intercepted during the checkout process.
4. Gateway Account
The payment gateway communicates with both your shopping cart and your merchant account. The user transmits the order from his browser to the Shop-Cart using the SSL, and the shopping cart transmits this data to the Payment Gateway. The payment gateway uses the ATM banking network to process the credit card transaction. It connects to the Customers Credit Card Issuer. The credit card processor checks the information it received about the order to be sure it has everything it needs to continue processing the transaction. It then determines what company manages the customer’s credit card and transmits a request for the card to be charged.
The customer’s credit card company validates the card and the account. If everything validates, the credit card company sends an acknowledgement back to the card processor that the amount requested can be transferred. If the credit card company denies the charge it sends a code back to the credit card processor indicating what the problem was.
The payment gateway tells the shopping cart program whether or not the transaction was successful, and the shopping cart then tells the customer whether or not the order was completed. It lets the merchant know that an order was placed.
In the meantime, the credit card processor initiates a funds transfer to the merchant account company for deposit into the merchant’s bank account. If the order is accepted, it charges the order amount to the customer’s account and sends the payment gateway an authorization code.
The Customer’s Bank will then process the transaction when they do their batch settlement processing — usually at the end of each business day. When the bank performs it settlements, the sale amount will then be deposit into the merchant bank account, minus any fees that that may apply to the sale. Sometimes funds may not show up in the merchant account for 24 – 48 hours due to bank settlement timing.