Once you have set up your merchant account, it is necessary to have a 'gateway' that connects you to the credit card prcessing clearinghouse.
For retail environments, a swipe machine is utilized whereby once you swipe the credit card, an authorization code is displayed and is printed on the transaction receipt. This authorization originates with the clearinghouse that your business' merchant account bank contracts with.
- With transactions manually performed on a computer (eg. phone or mail orders), the software transmits the information over the Internet to the bank's clearinghouse.
- For website real-time transactions, the processing gateway acts as an intermediary to transfer the credit card information from your website's shopping cart to the merchant account. Upon receipt of the information the gateway checks its database to identify the acquiring bank and remits the information to the acquiring bank's payment processor service, which sends the customer information and transaction amount to the issuing bank. The latter bank examines the information and runs a check on your customer's account balance to see if there are sufficient funds to cover the transaction. It also verifies that the billing address matches the billing address on file for the credit card.
Provided there are sufficient funds, the issuing bank remits an authorization code back to the payment processor. Where there are insufficient funds, an invalid billing address or some other discrepancy, the issuing bank will deny the transaction and send a 'transaction declined' message back to the payment processor, which then sends the declined message to the payment gateway. The payment gateway then transmits the authorization code or the declined message back to you.
A payment gateway provides an Internet merchant with a number of benefits:
- reduces the cost of otherwise having to manually process credit card orders
- provides you with instant access to a global marketplace
- improves control over your individual transactions
- improves customer service by offering real time payment authorizations
- processing is faster
- facilitates the management of your business through detailed reporting
- improves security against malicious credit card attacks
- helps increase customer trust making the purchasing process transparent and providing him with a means of reclaiming his money through the chargeback process in the event he is not satisfied with your product or service
- reduces your need to be concerned about the security of the credit card information
Most providers of internet merchant accounts can also set up your payment gateway, thereby greatly simplifying the setup process. Before signing on with a merchant account provider, make sure your shopping cart software is compatible with the recommended payment gateway.
Payment gateways come in a couple of formats: a secure order form that transfers your customer to a third party website for processing; and a merchant-side application whereby code is integrated into the server hosting your website.
Your gateway will come with an online reporting system to allow you to view the transactions and in some cases can also include advanced features that can allow you, for example, to process recurrent billing situations (like monthly subscriptions). You will be charged a monthly gateway fee, usually in the $15 to $30 range, which covers the maintenance and any upgrading of the gateway.
And be sure to check out our recommendations for the top internet merchant accounts, phone & mail merchant accounts and retail merchant accounts.