Confused by eCommerce? What you don’t know could be costing you thousands of dollars annually
There’s a lot of confusing terminology in the world of
eCommerce, where you can accept credit card payments online. While eCommerce
can be complicated, there are two main terms that you need to know in order
to accept credit card payments online: Payment Gateway and Merchant Account.
What is a Payment Gateway?
A payment gateway authorizes credit card payments (or e-checks)
online. This is the system that either “approves” or “declines” a transaction. Your
website or application can be set up to send credit card information to your
Payment Gateway to authorize the transaction and process the payment. The
Payment Gateway matches the information with the credit card company in order
to approve the payment. If the payment is approved the Payment Gateway will
transfer the money from your customer’s credit card into your merchant account.
If the payment is declined the Payment Gateway gives a decline code which you
can use to determine the reason for the decline, such as an expired credit card
or address mismatch.
What is a Merchant
A merchant account collects payments from your customer’s
bank and deposits the acquired funds into your business checking or savings
account. The Merchant Account basically holds your money for a few days for
settlement of payments then transfers the money to your business account.
Should you have a
separate Merchant Account? Do the math.
Many smaller merchants keep things simple by using a single
service, such as PayPal or Stripe, to act as both the Payment Gateway and
Merchant Account. This handles the complete eCommerce process, from an online
payment through depositing funds into their business account. However, the
simplicity could be costing them hundreds if not thousands of dollars per year
in extra fees. Typical fees for companies such as PayPal are 2.9% of the transaction
plus a flat fee, such as $0.30 per transaction. Other companies charge up to
3.75% and $0.35 per transaction.
Many times your current bank offers Merchant Account
services. Shrewd businesses learn that they can save significant fees by using
their own bank as a Merchant Account if possible. While cheaper is not
necessarily better, you have to consider a combination of fees along with
support, speed and fraud protection. Check reviews and the track record for
whichever eCommerce providers you choose, and make sure your integrator is
up-to-date on the latest security standards for PCI Compliance to keep your
site and data secure.