William Cooper
Introduction To Ecommerce
Many people new to websites and/or ecommerce are confused at the in and
outs of ecommerce. Even many people who are fairly adept at scripting
can set up a store using some popular package such as OSCommerce and
then are left stumped by the idea of making it work with a payment
gateway to actually collect money and put it into their account. In
this article, I will give a brief overview of how the system is set up
to collect your money. I will then discuss briefly what to look for in
evaluating payment gateways. As usual, I will keep this basic and
understandable just as I do with all of my articles.
The Basics - How Funds are Collected
Ecommerce simply refers to the practice of shopping online. From the site owner's perspective, it entails collecting funds from sales
transactions on their website and depositing that money into the bank.
In order to collect funds, you need to have a merchant account and a
payment gateway (discussed below). Basically, when a person enters
their credit card number on a website, the card number and buyer
information is sent to a payment gateway. This is done securely. The
payment gateway will interface with a payment processor to check
availability of funds as well as any other criteria set for accepting
transactions. If the funds are available, the payment processor will
then deduct the funds. The payment gateway will then report back a
successful transaction to the merchant, at which point the merchant's
shopping cart system will respond by displaying a "Thank You" type
message to the buyer. Funds will sit until the transaction is settled,
which means the funds are collected and deposited to your bank account.
Until a transaction is settled, the transaction will not post to your
bank account and the corresponding debit will not post to the buyer's
credit card account.
Merchant Accounts
A Merchant Account is a special type of account specifically for online retailers. They are designed to allow non-POS (point of sale)
transactions using credit cards, or transactions where you don't have
the person's credit card in hand. In other words, you don't have a card
swiper. A merchant account is not the same as a bank account. It acts
as a go-between between your payment gateway and your bank account,
accepting funds from credit cards which are then deposited into your
bank.
A merchant account is a relationship based on trust between you and the issuing bank. The bank takes funds from the buyer's account and
deposits into your account. A payment processor takes care of checking
for availability of funds and debiting from the credit card account.
The bank issuing the merchant account is trusting that you will fulfill
your end of the transaction by providing the product or service that
the buyer purchased. In case where this does not occur, the buyer can
dispute the transaction. This puts the issuing bank on the line because
they are then obligated to return the funds to the buyer's card (a
chargeback). Therefore, merchant providers are taking a risk in
allowing a merchant to take credit cards under their name.
The organization providing your merchant account will do underwriting on the account when you apply to check your credit. If you
have a history of too many chargebacks, you may be denied. In fact, too
many chargebacks can result in you, as a merchant, being put on the
Terminated Merchant File (also called The Match File). This is a
blacklist which will effectively prevent you from ever receiving a
merchant account again.
Payment Gateways
A payment gateway serves as the front end to your merchant account, allowing you to manage funds, transactions, and the like. It also
serves as a connection between your website and your merchant account.
It takes data submitted via your secure order forms and presents it to
your processing bank. The processing bank then approves or declines the
transaction and sends its response back to the payment gateway. The
payment gateway then turns around and provides this data back to the
merchant for appropriate handling of the transaction. A payment
gateway, then, does not offer services such as merchant accounts or
shopping carts, although some of the larger-known gateways do provide
such options as value-added services.
Some of the better known payment gateway services are Authorize.Net, Verisign, 2CheckOut.com, Linkpoint, Paysystems.com,
Worldpay.com, and MerchantCommerce. Some of the things to look for in a
payment gateway are compliance with CISP, SDP and DISC (security
initiatives put out by the major credit card companies), virtual
terminal (to be able to accept transactions over the phone by typing in
their data rather than only relying on your website), fraud prevention,
recurring billing, methods of integration, cost and whether they can
accept e-checks or not.
Fraud prevention is a big one because, as stated above, too many fraudulent transactions will result in chargebacks which could end up
putting you on the Match List and your merchant account closed. Some of
the common fraud detection mechanisms are Address Verification (AVS)
which compares the customer's address with that on file with the
issuing bank, CVV2 which makes use of the 3-digit security code on the
credit card (4-digit on American Express cards).
Most gateways will provide instructions on how to interface with their servers from your web store. Most gateways offer two methods of
integration.
One method is to have your site POST a form to the gateway's server which is pre-populated with your customer's information. At that point,
the customer will provide the customer with the payment form which
allows them to type in their credit card number in a secure
environment. After processing occurs, the customer is then routed back
to your website along with the results of the transaction. Your site
again takes over the process. This method is usually easier to set up
for site owners and it also means the site owner does not need to
purchase their own SSL certificate (allowing secure transactions on the
site itself). The tradeoff is that you do need to send your customers
off of your website for payment collection. Many gateways offer ways to
make the payment form look like your website using customized headers
and footers, but the fact remains that the visitors are leaving your
website.
The second method is totally invisible to the customer. If the site owner has an SSL certificate, they can set up security on their own
site. This means they can host the payment form themselves, totally
customizing it to their website. When the customer submits payment,
your site will securely and invisibly submit the information to the
payment gateway. The payment gateway will do the usual processing and
then invisibly send the response back to the merchant's website,
allowing it to respond properly. From the customer's perspective, they
never left your website. And they never did. This type of setup
requires an SSL certificate as well as access to the CURL library.
Many gateway providers can get you set up with a merchant account at the same time as the gateway. So, in most cases, you do not need to
sign up for them separately.
Conclusion
Hopefully this has given you a brief introduction to how credit card payments are processed on the internet.
Ilse Cooper
William Cooper
Greg Crane
Gregory B Crane
Morris and Miller
Matthew and Marks
http://www.qedmediagroup.com
Internet Marketing SEO
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