(Written by guest contributor Joel Ownby)
Accepting payment online for your products and services sounds like a pretty simple endeavor, and at a low level it is. Understanding what is happening behind the scenes is an entirely different proposition. Understanding the nuts and bolts of payment processing will grant you the ability to provide better customer service, generate more accurate cash flow and projection data, help you to better understand technical issues involving payment processing as they arise, and also help you choose the platforms to use initially or scale into as you grow your business.
Shopping Cart
The first place that you touch your customers in the online sales process is the shopping cart. The term shopping cart is generally used in reference to the software that holds your product and its specific attributes such as price, shipping cost, etc. Many solutions have built-in shopping carts as components of an ecommerce suite, but here at InfoMedia we use a modified version of Magento with the base code actually available under an open source license free of charge. The shopping cart can be a product catalog/store front, or a standalone sales page designed to sell one product. In either one of these scenarios, the term shopping cart is relevant in the industry today. If you are just getting started, I would recommend using the shopping cart integrated with many of the solutions from 1shoppingcart.com. For advanced users seeking scalability and functionality I recommend magentocommerce.com. To recap, the shopping cart is the piece of software that gathers the sale information and then sends it to the payment gateway.
Payment Gateway
The payment gateway is the portal that facilitates the transfer of data for an online sale to the actual merchant account (which we will cover next). Regardless of the solution you choose for your shopping cart, it must be connected to the payment gateway where it will actually send the purchase information for delivery to your merchant account. We currently use Authorize.net as our payment gateway provider and they have always provided quality service. Typical payment gateway fees and costs are .25-.35 per transaction and 3%-3.6% of the total transaction amount. Payment gateway fees vary greatly based upon volume, individual product prices, product types, and merchant history.
Merchant Account
After a purchase is submitted to the payment gateway, it then goes to your merchant account where it will reside until it is deposited into the bank account you specified when setting up your merchant account. At InfoMedia we use PowerPay exclusively, as we have had a long-standing relationship with the company and they have always delivered quality service. More than 50% of all PowerPay merchant account clients process payment over the Internet and that goes a long way to prove they have experience with the model. The only time I would recommend a solution other than PowerPay would be for very high-risk products and offerings like some online casino or gambling services.
There is a little-known optional piece that can be inserted at this point in the process that helps you relate individual transactions or batch transactions to the numbers you actually see in your bank statements. The Authorize.net solution is called Global Access Advantage. When deposits get deposited into your bank account they will come in bulk deposits that are impossible to correlate with actual daily sales. With Global Access Advantage we can make sure that the orders that processed and posted on a certain date were actually deposited. I am not a trusting person by nature and I know that most companies do not use a service like this, but I need to be absolutely sure that I understand exactly when and where our money is going.
The final resting place for your hard-earned money is your business bank account that you connected to your merchant account. I won\’t get into which bank we use and which banks I recommend as there are so many with similar quality of service. I will say that the quality of service you receive from your bank can go a long way to reduce your stress migraines, so do your research.
Long story short, you can purchase several ecommerce suites that make this process a lot less daunting than it may seem in this article. Keep in mind that even though the solution you choose may automate a lot of this process, it does not change the process in general.