An often overlooked and under-analyzed segment of building your eCommerce business is the back-end processing of your orders. Entrepreneurs spend a lot of money and time to make sure their site design is just right, but they often overlook their order processing systems. Invest a fraction of your time spent on design tweaks to choose the right payment gateway, merchant processor, and bank account, and you’ll save a lot of money!

payment method

In a nutshell, a payment gateway is the system used to transmit your customer’s payment information from your secure website to your secure merchant processor. Think of it as the terminal that securely collects, encrypts and transmits the data to your merchant account. There are many different services to choose from when choosing your payment gateway, though it’s important to know that the gateway you choose must be compatible with your eCommerce solution. PLEASE make sure you get a list of the different gateways that your e-commerce solution accepts and contact each one for their fees and service offerings.

According to a 2009 Internet Retailer report, the top 3 payment gateway providers used by the top 500 e-commerce websites are:

1. Chase Paymentech Solutions LLC. (113 of the Top 500)
2. PayPal Inc. (75 of the Top 500)
3. Cybersource Corp. (45th of the Top 500)

All in one (payment gateway and merchant processor)

PayPal (and other integrated solutions) offer an all-in-one service where you get the payment gateway and merchant processor together. The advantage here is that you don’t have to manage two separate accounts. However, fees are typically at the higher end of the spectrum.

For example, one of PayPal’s services has a flat rate (for domestic sales) based on your sales volume. The more you sell, the less you are charged to process the transaction. The benefit here is that regardless of which credit card is used (MasterCard, Visa, Discover, or the dreaded American Express), or if the card qualifies, you are charged the same flat rate. This is unique to PayPal and other comprehensive services.

commercial processors

The payment gateway transmits encrypted billing data to your merchant processor, who is then responsible for routing this data to the credit card network. The credit card network verifies that your customer’s credit card is valid or has sufficient funds to cover the transaction, then notifies the payment gateway, which then communicates with your e-commerce solution. If the transaction is approved, the merchant processor will transmit your settled orders to your bank account (sometimes this requires a manual process).

The merchant processor is the behind-the-scenes system that communicates with the payment gateway, your customers’ credit card network, and your bank account. This is a simplified way to accept credit cards online. It’s important to know if your payment gateway, merchant processor, bank account, and e-commerce solution work together. Make sure your merchant processor interfaces with your payment gateway and bank account!

what to know

Payment Gateways – When choosing a payment gateway, check and review the following:

• Gateway Setup Fee – Many paid gateways will require an initial payment to set up your gateway.
• Monthly Gateway Fee – This is an ongoing fee for the privilege of using the payment gateway
• Fee per transaction: each transaction made is charged a fee. This also includes; refunds, cancellations and rejections.
• Batch Fee – If you choose to settle your transactions every day, you will be charged this fee daily.
• API Integration – Make sure your website’s shopping cart can integrate with the gateway of your choice.

When reviewing this data, make sure you understand all requirements and fees. Also remember that you can trade virtually all of these items (if you’re processing a lot of orders). It’s definitely worth trying to call and try to get the best possible rate! For example, Authorize.net had a package for high-volume sites where they charged $50 a month, but provided 2,000 free transactions plus 0.07 per transaction thereafter. Over time, you can save thousands of dollars per year!

Business Processors – When choosing a business processor, please check and review the following:

• Installation fee: same as above
• Monthly rate: same as above
• Transaction fee: same as above
• Contract – same as above
• Qualified Discount Rate – This is a very difficult rate to track. The qualifying rate is for specific credit cards and types of credit cards.
• Non-Qualified Rate – Understand which credit cards don’t qualify as the discount rate so you can calculate the numbers. This fee can be as much as twice your discount rate.
• Minimum Processing Fee: Some business accounts will require a minimum monthly transaction threshold. If you do not meet this threshold, you will be charged another fee.
• Order Refund/Chargeback Fee: When orders need to be refunded or you are charged a fee, you will usually be charged another fee for this.
• International Rate: Please check the rates for customer orders outside of the United States to see if you are charged an additional fee.

Services like PayPal charge a flat percentage of the transaction (typically around 2.9% based on volume), plus the transaction fee. Most commercial processors charge between 2.2% and 2.65%.

There is often a debate about what is the best solution for e-commerce credit card processing.

What do you recommend when it comes to payment gateways and merchant accounts?