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How Does Internet Credit Card Processing Work?

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How Does Internet Credit Card Processing Work?

It's great that you're interested in understanding how Internet-based credit card processing works. There's actually a lot to it!

First of all, you'll need to decide whether or not you want to get a merchant account in the name of your business, or use a third party payment processor such as Clickbank, PayPal, 2Checkout, Verotel, Shareit, Worldpay. If you're already trading offline and have a retail merchant account, you'll just need to get approved for Internet/Mail Order/Phone Order processing, which shouldn't be very difficult. Just contact whoever issued you with your current merchant account.

If you don't already have a merchant account, you'll need to decide whether or not to go with a third party provider such as those listed above, or get your own merchant account. The advantages of using a third party processor are that it's easy to set up an account, and you won't need to set up a payment gateway too. Also, if you go with a big name such as Clickbank, you'll benefit from their established online brand name and, with some, a pool of affiliates ready to help promote your products.

However, there are disadvantages to using a third party credit card processor, such as the fact they they'll charge a higher percentage of each per-transaction fee to cover their costs, and you may have more trouble disputing any chargebacks that arise. It would be a good idea for you to estimate the volume of sales you'll do online and work out whether you'd be better off processing credit card orders via your own merchant account or through a third party credit card processor. Make sure you check out the total cost of the sales because while a third party processor will charge more per transaction, a merchant account will probably come with monthly fees, gateway access fees and possibly other payments. It's important to consider the big picture where the fees are concerned.

When you've decided on which way you're going to accept credit cards online, you need to work through a flowchart or diagram of how the customer is going to navigate your payment system. Are you going to offer instant online product delivery after processing the credit card order in real time? Are you going to use a shopping cart? Which way is your ecommerce system going to work?

The simplest way to set up your credit card processing system is to sign up with a third party provider such as Clickbank or Paypal and place one of their "buy now" buttons on your webpage. This solution will take the visitor through the credit card processor's systems, accept their payment and email you when a sale is completed. You then email the customer download details. If you want to, you can get a programmer to write a PHP script that captures the customer details to a database and redirects the customer to a download page immediately after purchase. That's known as "real time product delivery" and is expected for digital sales.

The other method involves using your own merchant account and a payment gateway. You will need your own php scripts to take the customer's details, send them through the merchant account and do something with them after the purchase, such as save them in a database, email the customer and deliver the product. Setting up your own online store to accept credit cards sales using your own merchant account can be trickier than using a third party processor. You may also have to apply to the separately to other credit card companies you want to use, such as Discover/Novus, American Express/Amex and Diners in addition to the standard Visa and Mastercard acceptance which comes with a merchant account. Usually third party processor account will allow you to accept the full range of credit cards as standard.

This article by Neil Shearing, executive author, 3rd Party Processors.

neil shearing, 3rd party processors author

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