Chuck Fields
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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 Account?

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.


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