Online Credit Card Processing

Online merchants usually want to be able to accept credit cards for online payments, but new merchants often feel daunted by the task of setting up online credit card processing for their business. Though the steps required for online credit card processing may seem complex, many services are available that make it easier for businesses to process credit cards online. Most online businesses choose to set up a payment gateway for processing online credit card payments, but some merchants opt to use a third party to process all of their online payments, such as PayPal or Google Check Out, which simplifies the process but may discourage some customers from shopping.

A few things are required for online credit card processing:

• An SSL (Secure Sockets Layer) certificate, which allows credit card transactions to be encrypted, greatly increasing the security of online credit card processing
• A payment gateway service to accept the customer’s credit card information and process the transaction
• A shopping cart system that is compatible with the payment gateway
• A merchant account that is able to accept the customer’s online credit card payment
• A web hosting service that supports these other components

Though merchants can get all of these components separately, it is often easier and less expensive to find a package that combines most or all of these features. Once a merchant has all of the components necessary for online credit card processing, customers are able to shop on their web sites.

• The customer selects what they want to purchase with the shopping cart software and goes to the check out page.
• The customer’s web browser sends an encrypted message to the merchant’s web site to confirm that the site is secure.
• The customer types in their credit card information, and their browser sends it to the merchant’s web site, which then forwards to information to their payment gateway.
• The payment gateway verifies that the customer’s account is valid and sends the approved or declined response back to the web site, usually within a few seconds. If the merchant also uses address verification or another fraud protection measure, this is  also checked during this process.
• If the transaction is approved, the merchant is notified and goes forward with processing the order.
• At the end of each business day, a batch of all the credit card transactions for the day is sent to the merchant account to be settled.
• Within a few days the money from the customer’s account will be deposited in the merchant’s account.

There are many good shopping cart programs and web hosting services that are free or low cost, but the other components for processing online credit card payments will cost the merchant extra ongoing fees. SSL certificates can be purchased by a business or are sometimes included in the price of shopping cart software, payment gateways, or eCommerce web hosting packages. Both merchant accounts and payment gateways, however, may charge several types of fees:

• Application or set up fees when the merchant applies for an account
• Monthly account or statement fees of around $10, and there can be a monthly fee for both the merchant account and the payment gateway
• Minimum monthly charges required by some banks, so that if the merchant’s total fees for the month are less than the minimum, the merchant has to pay that amount anyway, often  around $20
• Transaction or authorization fees, which are a fixed amount paid each time a customer places an order, usually around 20 cents
• Discount rates, a percentage charged for each transaction, in addition to the transaction fee, often around 2% of the transaction total
• Batch fees charged for each day that a batch of payments is sent to the bank for processing
• Chargeback fees if the merchant’s bank is required to refund money for a transaction that was fraudulent, such as in the case of credit card fraud or identity theft
• Annual fees charges by some banks and services
• Maintenance or customer service fees
• Early termination fees if the merchant decides to close their account before the time allotted by their agreement with the bank or service

Some banks or payment gateway services may charge other fees as well, so it’s important for merchants to read agreements carefully before applying for a merchant account or payment gateway. Sometimes bundling a merchant account and payment gateway can reduce fees.

When choosing a payment gateway, merchant account, and other eCommerce features, merchants should make sure the company they are considering has a good reputation, and they should understand all the terms and conditions before they agree to anything. They should also verify that all the components of their web site will be compatible and easy to use.

Merchants who do not do a lot of business online may not find it worthwhile to set up a merchant account and payment gateway for online credit card processing. These merchants may want to consider using a third party payment acceptance system like PayPal or Google Check Out, which generally charge lower fees and are easy for merchants to use, though some customers may avoid making purchases because they prefer not to  use these systems.