Online Credit Card Processing - How to Accept Credit Cards - Ecommerce 101

Back in 1998 (through 2000 or so), I worked for a small company (called PaymentNet / then Signio) that handled online transactions. Verisign later purchased this company, and the product team I led integrated the "client" - the portion that took the credit card information and sent it to our servers for processing. The product name is Payflow Pro - maybe you've heard of it?

I'm going to limit this discussion to Visa / MasterCard credit cards -- Amex and others operate slightly differently.

First, there is the bank that the consumer's credit card is attached to. That bank is called the "acquiring institution" ... it handles the "credit" you have on your credit card.

Then, there is the merchant bank. That's where the business opens up a "merchant account" to be able to accept various forms of credit cards.

The merchant account is connected to another company called a "processor". This "hidden" layer is the company that actually moves the funds from the acquiring institution to the merchant account (that process is called "settlement"). The processor also handles talking to the acquiring institution to make sure that the customer has the funds available (a process known as authorization).

Some well-known credit card processors are First Data Merchant Services (FDMS), Nova and PaymentTech.

Sitting on top of the processor is one of two primary systems either a swipe-card terminal (like those you see in Wal-Mart) or a "gateway" company that does basically the same thing, but over the Internet - that's what Verisign Payment Services and Authorize.Net do.

Note that the waters are even muddier in many cases, for example, Wells Fargo can act as every piece of the puzzle in some circumstances.

So, what actually happens when you purchase something at Wal-Mart using a credit card?

a) You place your items from your "basket" onto the counter and scan them. the checkout system provides a total.

b) You swipe your card through a "terminal", which reads the # off the magnetic stripe.

c) Wal-Mart dials their processor, and asks if you have the funds available on your credit card. The processor talks to your bank (the acquiring institution). If funds are available on the card, they are marked as "held" in your account (an authorization) - if not, the transaction is declined (yuk). Authorizations that are never settled tie up your credit card funds for a period of time, usually 10 days or so.

d) At the end of the day, Wal-Mart marks all the transactions they want to receive funds for, and submits them to their processor in a "batch". The processor then contacts the acquiring institutions and transfers the funds to your merchant bank - which may make the funds available instantly (in a day or two), or may hold them for a while, or may hold the funds in a "rolling reserve" (keeping some funds held back in case a consumer fights the transaction, called a chargeback).

In the online world, replace the cash-register with an online shopping cart, and the electronic credit-card with terminal with called a "gateway" such as Payflow or Authorize.Net. the process is basically the same, with slightly more complexity.

Be careful going "a-la-carte" with ecommerce credit-card services: if the gateway you chose can't talk to the processor your bank uses, or your software can't talk to the gateway, you're hosed. That situation was MUCH more common (things not working together) back in the mid/late 90's than it is today. However, most "brick and mortar" banks (like your local branch) still don't have a clue about online credit-card processing ? if they attempt to sell you a "leased terminal", it's best to run the other way and find a solution from reputable online source.

As an online merchant looking to accept credit cards, all you really need to know is that all services purchased through a single solution will usually work together seemlessly.

Nick Temple is a former engineer for what is now Verisign Payment Services. He can be reached at his website, http://www.nicktemple.com. He is part-owner of the CommerceStore.com; complete online credit card ecommerce solution.

My site, CommerceStore.com handles the entire "shopping cart" and storefront process, including talking to the gateway. It knows how to talk to every major gateway (online credit card terminal) available. In addition, we have direct relationships with various banks that can help you open a merchant account in the US or in Canada, and the system works with PayPal. There's a whole lot more, including AutoResponders, built-in affiliate system, etc.

---

Online Consumers ? What Are They Complaining About?

For many businesses, e-commerce represents a tremendous method for generating... Read More

Maximize Your Froogling for Increased Website Profits

Are you familiar with Froogle? If you are an online... Read More

Drop-Shipping ? A Great Way of Making Money Online

Using the Internet to sell products and services to ever... Read More

How to Get Free Internet Merchant Accounts

This article will show small businesses how to get free... Read More

How Do You Make Money Online?

If you learn how other people make money online, I... Read More

Mr and Mrs Smith Go Online, as Internet Technology Moves from Fantasy to Normality

According to NOP World, 48% of all Internet users have... Read More

Intranet - The Benefits Realisation Plan

The Millennium ExperienceA successful project is one that delivers on-spec... Read More

Is Your Business Afraid of the Internet?

My Business is Afraid of the InternetBill Gates, CEO of... Read More

Selecting The Right Shopping Cart For Your Website

Shopping Cart Installation And SetupShopping cart technology has evolved to... Read More

Is ClickBanks Popularity Drawing To An End?

ClickBank is the Internet's most popular payment processor for online... Read More

Online Merchant Account - Costs and Alternatives

Merchant Account BasicsA Merchant Account is a commercial bank account... Read More

Database: The Secret of Success

BENEFITS OF A DATABASEBy maintaining your list as a database,... Read More

How To Turn Any Product You Sell In To Residual Income

The concept of this is for you to offer a... Read More

Grow Your Business Using B2B Emarketplace - Part I

If you are a small to medium size company and... Read More

5 Tips for Online Shopping

Shopping online has become more and more popular in America... Read More

Building eCommerce Websites That Work - Part 1

You want to succeed at eCommerce? Welcome to a very... Read More

Intranet Project Names - Some Ideas

"What's in a name? That which we call a rose... Read More

Online Payments Make It Easy For Your Customers To Buy

In the last column we discussed the process of credit... Read More

Online Customer Service - The Cornerstone of a Successful Online Business

Online customer service is still one of the most frequently... Read More

Succeed With Your Own Home Based Business

An internet business is by far the best way to... Read More

Keep Your Customers Happy by Organizing Your Payment Options

Anyone using a slow, or an awkward payment processor had... Read More

Accept Credit Cards Online Without A Merchant Account

It is often assumed if you want to accept credit... Read More

Cheap Cigarettes, Discount Tobacco and Cigars Online - Is It Legal?

Many people online today still believe that buying tobacco products... Read More

The ClickBank E-Commerce Solution

ClickBank.com can offer you multiple solutions for your e-commerce business.... Read More

Say Something Worth Talking About

I recently published a short e-book called 'One Thing I... Read More

Google Catalogs - Old Gashioned Mail Order Meets High Tech Search

In addition to Google's Froogle shopping service (still in beta),... Read More

How To Sell Your Products Online?

E-commerce is gaining pace! Research firm eMarketer predicts that 2003... Read More

Using Credit Cards Securely Online

Nowadays, shopping online is a very common thing. Making your... Read More

Are You Making These E-Commerce Excuses? (part 1)

A year ago, I had big plans to re-vamp my... Read More

Cost Effective Ecommerce Solutions

Ecommerce use to be about spending thousands of dollars on... Read More

E-Gold

E-gold is a digital currency, used extensively on the Internet... Read More

How Measuring Key Performance Indicators Can Improve E-Commerce Strategy - Part One

The problem with most e-commerce marketing strategy today is that... Read More

Pitfalls of Doing Big International Brokerage Business Online

Nothing has helped international brokerage business more than the internet:... Read More