Merchant Accounts and Payment Gateways
This is the part of the process of making a website that sells your products or services that makes people a little drowsy, and their eyes glaze over, because it sounds so technical. Actually, it is the most technical so I try to help people understand in the most simplest way possible and use words that they’re familiar with. If you’re new to Ecommerce and you sell things, you have to know this stuff enough to GET PAID!
THERE, I GOT YOUR ATTENTION!
Here’s How Accepting Credit Cards Work in Very Simple Terms
- You have a product or service that cost money
- Someone finds your product online and purchases it
- An middleman type company handles the money part so both parties are protected.
- The payment process is closer to instantaneous since no loaning money is involved.
- Your product, once paid for, gets deposited into your bank and you GET PAID!!!
- You have a seller – that’s you, with the website that sells stuff
- You have a buyer who visits your site and agrees to the prices of your products or services and decides to get them by paying you money.
- They collect (hopefully) multiple products, adding them into a holding area that saves what they want, a virtual shopping cart. When they invented with first E-Commerce web site technology, they wanted someone to understand what was going on and they used a shopping cart icon, something people knew and used every week, so they would “get it” easier (meaning adding something to your cart!)
- When they’re ready to pay, they click a link or button that takes them to a secured page where they give you the information needed to pay you and get the stuff to them.
- This section becomes as “safe zone” by an SSL Certificate
- The SSL encrypts / scrambles all of this personal information while it’s going from your web site to the bank, into something no one could possibly understand or decrypt – like a secret military code.
- The information is transferred online to a payment gateway company that keeps the sensitive data away from the web site owner and bank (like an escrow company!), and simply put, it transfers that money into a virtual bank account.
- The rates from the merchant account will vary based on your credit (of course, it had to be that way, the people with the best credit getting the best rates, but that’s how the world works)
- Sometimes the money is put in instantly, sometimes you need to go in and process these transactions on the merchant accounts’ web site.
- The money is then transferred into your actual bank account
Why The Middlemen?
With all the honest AND dishonest people out there, a new type of middleman was needed, and the payment gateway companies were established in order to keep everyone from stealing each other’s money!
The first one, was created (think of it like an escrow account in the simplest of terms to keep everyone honest) also to keep the information (remember the old adage, “Information is Power”? – think of all the information. The payment gateway takes the information collected from the web site selling the product or service.
There are other ways that have, over the years, become other methods of paying for things online:
PayPal – Paypal Payments Standard and PayPal Payments Pro
they have two levels, first is just taking payments through PayPal, the second is where they are actually your merchant two and your customers will pay on PayPal’s web site without logging in. I see it every day with online shopping and people are familiar with it now so it’s perfectly okay to do. I do it myself, accept credit cards through PayPal.
when PayPal came into existence, everyone said it would NEVER catch on. Giving your personal information to a completely new separate company (even though they were doing it with credit cards anyway).
A light came into my eyes when I heard of this company watched it grow in one year to a Payment Processing Giant, accepting payments on nearly half the web sites in the world within a few years. Now it’s on almost every web site out there.
Why PayPal Caught On So Fast
Since they allowed you to setup an account and tie it to multiple ways to pay people, including banks and credit cards, people loved it! It caught on like wildfire. You, the account holder could use one default way (with a backup way even) to pay for almost anything online, and depending on what was in your PayPal Account or bank account, or the balance on your credit cards, Also, you didn’t have to put in your credit card on the merchants’ site, which, once people trusted PayPal, people LOVED because they didn’t have to worry so much about getting ripped off.
Most of the world, and probably you have a personal account to buy things on the Internet right now so you’re familiar with it.
Google Wallet is very similar, almost identical to PayPal in nearly every way. It was just Google’s way of getting a piece of a VERY BIG PIE!!! And thought it’s gone through some changes over the years, it’s back again and people are using it to buy things online everyday. As far as I know they don’t act as a merchant but I’ll investigate and let you know.
E-Checks and Bitcoin
These are two other ways to accept payment online, but they’re not very widely used and less trustworthy, especially Bitcoin as it’s completely anonymous. I have never in fifteen years been asked to set up one of these payment methods either, so I won’t write about them. If you’re interested in using one of these services, just ask when we talk and I’ll make it happen for you!
How Do I Choose or Do I Use Them All?
Each comes with monthly fees and transaction fees, so you have to decide if it’s worth it for you to use all three main ways to pay. You could use PayPal as your way to accept cards with OR without if you apply to have PayPal be your merchant too. It saves one set of fees, but you’re stuck with their rates, which i won’t quote as they do change from time to time.
I found by tracking my family’s ecommerce site, www.humidifierpartsandfilters.com that half paid with the regular credit cards method, and the rest of the half was divided evenly almost every month! So is it worth it for your business?
It depends on how young your demographic is. Younger people are more used to alternate payment methods, so if you’re selling clothing or DVD’s, I’d use as many methods as you can afford, as some people ONLY use one method to keep things simple.
In simple terms, a merchant account is a business arrangement between you (the merchant) and a credit card processor that allows you to accept credit card payments from customers. The processor sets you up with the necessary technology, handles the authorization of your sales transactions by the issuing bank and deposits the proceeds into the designated bank account.
You can accept credit cards a number of ways:
a traditional merchant account / payment gateway (like your local Bank of America and