At this point you should be ready to accept online payments in order for your online business to kick off. Shoppers will browse the site and add-to-cart the items they wish to buy from your storefront. You should provide them with payment options including paying using debit cards, credit cards and electronic checks. You should decide whether you want to process the payment which includes storage of sensitive data or you would prefer this to be handled by a third-party payment processing company like PayPal.
To accept online payments you will need to have a merchant account and also a payment gateway account.
A Merchant Account
You will need to make arrangements with a financial institution to open a merchant account. A merchant acquiring bank enables merchants to collect payments from their customers’ bank accounts and credit/debit card accounts. Check with your bank to find out if they provide merchant accounts.
If you are an existing company selling products offline and you now wish to take your business online, you may already have a Card Present CP merchant account. To accept online payments you will need a CP and a Card Not Present merchant account.This means that, you will accept credit card payments as well as other types of virtual payments. It is good to be flexible so you do not cut-off some consumers interested in purchasing goods and services from your site.
A Payment Gateway Account
Due to the sensitive nature of payment transactions, banks have limited accessibility of information to payment gateways and not everyone can access this information. You therefore need a payment gateway account so you can accept credit card payments and also electronic check payments from consumer Websites and other sources. The payment gateway processes the payment, accesses transaction records and communicates with the necessary authorities until the money is deposited in the merchant account.
The payment gateways like PayPal and Authorize.net ensure tight security as the information travels through the internet preventing fraud by encrypting the data until it reaches the desired destination where it is decoded. This way, the merchant and customers’ monetary transactions and sensitive data are shelved from hackers. The payment gateway makes sure that, online payment processing is done in a secure environment using secure connections. Any suspicious transactions are detected and managed before any shipping is done. To be able to accept online payments, you will need to have your Website connected to the payment gateway.
The flow of Credit Card Payments
This is a step-by-step process which takes place within 2-3 seconds.
When a customer visits your site and adds-to-the-cart the items he wishes to buy, he presses the ‘Buy’ or ‘Submit Order’ button and he is led to the checkout section of the Website. He fills the financial data including the credit card number and other personal information which the system requires. When the customer submits the credit card or electronic check data, the data is encrypted using SSL encryption by the customer’s browser and then it is sent to the merchant web server. The system relays this encrypted information to the merchant’s payment gateway.
The payment gateway sends the transaction to the merchant banks processor which sends it to the card association such as Visa or MasterCard which the merchant acquiring bank uses. Your merchant bank processor directs the transaction to Credit Card Interchange to process, clear and pay. They in turn forward the transaction to the customer’s Credit Card Issuer to authorize, approve or decline the transaction depending on whether the customer has enough funds. The approved response is relayed back with the funds if they are available which are then deposited to the merchant bank account. The decline response is also coded and sent back through the same way.
The payment gateway routes the response to the customer and/or merchant informing them if the payment has gone through or it has been declined. At the end of each day, the merchant batches the ‘authorizations’ and submits them through their processor to the acquiring bank who make a claim from the credit card issuer for payment. The amount is forwarded to the merchant acquiring bank and then deposited in the merchant bank account usually within 3 days.
In the meantime, the merchant fulfills the customer’s order shipping the products as required.