Since 2001. Professional Web Design & Internet Marketing.

While setting up a client’s  ecommerce store the other day,  I realized just how confusing the concept of payment gateways and merchant accounts can be to those setting up their first online store.  So, I thought I’d share with you the brief overview I sent our client:

Merchant Account - In order to accept payments through your online store you first need a Merchant Account.  Your merchant account is a type of bank account that allows your business to accept credit cards.  (This is completely separate from your business checking account.) Your merchant account is the one that is collecting the money from Visa, for example, and then depositing it into your checking account.  You can open a merchant account through any bank and they all of course have annual fees, an APR and most require a 1+ year contract.

Payment Gateway - The second thing you need is a Payment Gateway.  It is the equivalent of having a physical terminal (the little black machine that businesses swipe credit cards through). This will act as your “virtual terminal” and will allow you to process all of your credit card payments online through a secured link.  You will also be able to process any in-person or over the phone orders you may receive.  For this I recommend Authorize.net.  They are the industry standard and you set your account up here: http://www.authorize.net/application.  This also has a set up fee, monthly fee, and per transaction fee.  

A traditional Merchant Account and Payment Gateway will allow your customers to use their Visa, MasterCard, Amex, etc. at the time of checkout.  They will use their debit or credit card as they would with any other purchase and the charges from your store will show up on their statement.

The alternative is a non-seamless checkout such as PayPal or Google Checkout.  The reason they are so popular is because they are less expensive and don’t require a Merchant Account.  Chances are, many of your customers already have a PayPal or Google Checkout account and prefer to use this method of payment online.  This is called a “non-seamless checkout” because when chosen, the customer will get redirected to PayPal’s site which is where the payment is processed. This also means that instead of your name showing up on their billing statement it will say “PayPal” or “Google Checkout”.

Another option we highly recommend is a PayPal’s Website Payment Pro.  It’s a Merchant Account and Payment Gateway all wrapped up into one!  It would allow customers to have a seamless credit card checkout (without being navigating to PayPal’s site, and the customer’s cc statement would say your company’s name, not PayPal).  So it’s just like having a Merchant Account & Payment Gateway, except the customer would also be given PayPal as an additional payment option. 

After you factor in the cost/fees of your Merchant Account plus Authorize.net,  PayPal Payment Pro is probably less expensive, as it eliminates the need for a separate Merchant Account.  Many will also say that even when given the option to pay directly with their cc (seamless option) many still prefer to use their PayPal.

Here’s some good links about PayPal Pro:
https://www.paypal.com/us/cgi-bin/webscr?cmd=xpt/Marketing/merchant/wppro/WPProFAQs-outside
https://www.paypal.com/us/cgi-bin/webscr?cmd=_wp-standard-pro-compare-outside

Info on benefit of Merchant Account + Authorize.net:
http://www.authorize.net/advantage/

Filed under: Ecommerce on January 20th, 2009