Online businesses that want to accept payments with debit and credit cards typically do not set up their own merchant account with a bank. Rather, they work with a payment processor that itself has a merchant account.
The business is then assigned a merchant ID number. Payments pass through the processor’s gateway, and are deposited in the business’ checking account, with fees applicable along the way,
There are many payment processors offering these services to online businesses. The most important thing for the business in selecting a company with which to work is understanding the channel through which payments pass and what fees are attached.
The Path Transactions Take
The payment gateway allows charges to be approved or denied. It serves the same function as a terminal does with a physical card. The gateway also handles refunds, voided transactions and generates settlement reports.
A customer at an online store initiates a credit card purchase. The information is then passed through the gateway and on to the payment processor, which in turn will forward the information to the applicable credit card company or bank.
The response received, which is typically to accept or decline the transaction, flows back down the same pathway. There are security checks in place at each point in the path to protect the consumer’s sensitive information and to prevent fraud.
Choice of Payment Processor Determines Choice of Store
Because the "store" or "cart" software in place on the business site must be able to "speak" to the payment gateway, payment processors normally give customers a list of approved software packages. The site owner then has the software installed on the site, and enters the provided information to establish the two-way communication with the processor.
Application Process and Fees
Business owners will be asked to supply a Social Security number, driver’s license, personal and business addresses, along with their bank account information when applying to use a payment processor.
The processor will run a credit check on the applicant, and will ask for additional details about the business itself. Some businesses are perceived as carrying greater risk than others. It is imperative that business owners be honest and accurate in estimating projected number of transactions and monthly revenue as these have a bearing on the fees that will be assessed.
Any site on which debit or credit payments will be accepted must pass an audit for PCI compliance standards. This is a set of requirements put in place in 2011 by card companies to ensure the security of servers, data storage, and employee access systems among others.
Two sets of fees are routinely charged on all transactions. The processor will collect fees per transaction (including a service fee) and the card companies also charge a second set of fees. The amount of the fees is structured in tiers and influenced by how the card is processed and the manner in which the purchase is made.
For instance, a physical "point of purchase" sale where the owner is present will be charged different fees than an online purchase, or one made over the telephone. Merchants should always carefully review the fee structures. Also look at the cost of "chargebacks," which are the fees attached for reversed transactions.
Overall, the process of setting a site up to accept debit or credit card payment is not difficult. It is, however, time consuming and businesses should understand all fees attached at each step of the process – including set-up and termination fees.