How to Accept Payments Online – Payments 101

How to Accept Payments Online

As a small business owner, you want to know the best credit card processing rates and different options for online payment gateways. A good place to start is understanding how the process of a credit card purchase works.

How Does Credit Card Processing Work?

An online purchase with a credit card begins when the customer provides the card number, expiration date and billing address through a merchant point of sale (POS). This can be a physical card reader or the part of a website that is an online shopping cart.

The customer then hits the button to submit payment. The transaction is completed through a payment gateway. The payment gateway provides the transaction details to a payment processor. The payment processor provides the details to the customer’s credit card network, like True Merchant’s CardPointe Gateway. The network then sends the details to the customer’s card-issuing bank.

The card-issuing bank approves or denies the transaction. If the bank approves the transaction, it charges the customer and forwards the money to the card network minus fees to cover credit risk and rewards. The card network then sends the approved status to the merchant bank. The merchant bank receives the value of the transaction minus the fees of the gateway, processor and network.

You may not need a merchant bank if you partner with a third-party host like Amazon or Etsy. You should talk with the host about how it will pay you for the value of transactions.

Which Entities Are Involved in Accepting Credit Cards?

There are typically seven parties involved in a credit card transaction: the customer, the merchant, the payment gateway, the payment processor, the card interchange, the customer’s credit card issuer and the merchant’s bank. For an online sale, the merchant POS is the online shopping cart. For example, some of the best payment gateways include Magento payment gateways and WooCommerce payment gateways such as PayPal, Stripe and Braintree. Processors vary widely, from True Merchant to WorldPay.

What Fees Arise From What Companies?

The payment processor is the party who charges a merchant credit card processing fees. The payment processor usually charges a monthly processing fee of between $10 and $100 a month, plus transaction fees of 1.5 to 4 percent per transaction. You can check out True Merchant’s True Cost pricing model here. A payment processor can provide a merchant a credit card processing machine for a cost or for free. When the payment processor provides the machines for free, it usually charges slightly higher transactions fees to make up for the cost of the equipment.

The fee models for online merchant credit card processing are quite complex. You should review the requirements of the models and the associated fees before making your choice. There are occasional promotions and credits for a specified number of transactions. You should select the model that will work for you in the long run. If you are using credit card machines for small businesses to accept payment, you should also expect to pay for the lease or purchase of the equipment.

Online credit card processing might seem expensive, but it is one of the most popular methods of payment in e-commerce. As new methods such as mobile payment emerge, review providers’ charges and security measures to make sure they line up with your needs. Comparing your options will help you stay in the black and keep your customers’ data protected.

For more information on creating the perfect merchant account for your business, please contact us at True Merchant.

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Vice President of True Merchant. Really Nice Guy.