Payment Gateways

The Merchant Account
Chances are, you already accept credit cards for your business. In order to accept credit cards, you had to set up a merchant account, probably through your bank.

In your e-commerce store you also need to accept credit cards, but the merchant account that you hold for your walk-in store cannot be used for your e-commerce store.

Typically, banks and other providers who offer merchant services to brick-and-mortar stores are reluctant to provide this kind of service for mail-order and internet businesses. This translates into higher discount rates, higher monthly minimums and large application fees, plus a whole lot of hoops to jump through just to get approved.

This early-on attitude on the part of traditional merchant account providers gave rise to a new type of service: the internet payment gateway providers.

Secure Gateway
These are companies that provide secure payment gateways so that people can shop on the internet without worrying about having sensitive information hijacked. When you make a purchase on the internet, you may notice that the http:// changes to https://. The 's' indicates security in the form of what is called a 'secure socket layer (SSL).' This is a specially encrypted pathway that keeps sensitive information from being stolen.

When a SSL is present, payment gateway companies provide virtual decals that can be posted on the website to give assurance to potential shoppers that the site is secure. In many browsers, a little padlock in the URL window is the real indication of a secure connection.

The Costs Involved in a Payment Gateway
In the past, in order to offer a payment gateway on your website you needed not only the payment gateway account, but you needed to purchase an SSL certificate every year. This cost often ran into the thousands of dollars. Even though the cost has come down, it can still be hundreds of dollars annually.

Internet Gateway Providers
Companies like Authorize.net and other payment gateway providers offer a secure payment gateway between your SSL where the purchase is made and the credit card company where the purchase is logged and the money is transferred from your customer to your account. Payment gateway providers charge a fee just as traditional merchant service providers do.

A typical monthly gateway fee may be $30 to $40. For internet sales, the discount rates are slightly higher than traditional business, but there is more risk involved in the form of identity theft and online fraud, so the slightly higher cost is justified. At least there is no debilitating application fee.

In the next article, On Site vs Off Site Payments, we'll tell you about the well-known, trusted Payment Gateway company that we recommend at eTweek that has no monthly fees and requires no SSL by the business owner.

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