How Online Payment Services Work

Online payment services are essential for ecommerce businesses. Right now, companies have many options with regards to what company they would choose. The fees associated with online payment solutions can vary greatly but the service provided also encompasses many different levels. Basically, the process works like this:

1.    Customer completes the order on the merchant website. The payment information will be entered on a secure web page. This is encrypted to prevent third parties from accessing it.
2.    Shopping cart gathers the information and compiles it into a standard form within the system.
3.    Information is transmitted from the web host to the payment gateway. The processor will check that data. If it is accurate, it will continue processing the transaction.
4.    The credit card processor will signal to the shopping cart whether the transaction is successful or not. If it is, the processor initiates a fund transfer and the money is deposited to the merchant’s account.

When everything is all clear, the buyer will receive the order successfully. The entire process can be completed within minutes, sometimes within seconds. There are a number of companies that offer online payment services. We’ll analyze their charges further below.

Online Payment Services Fees and Other Charges
The online payment system providers have different ways of charging you for the service. For example, some companies charge a flat monthly fee while others takes a percentage of every sale you process. Meanwhile, a number of them also charge a flat fee for each site you operate (using the gateway) as opposed to a flat fee for one account.

It is important to consider your business structure carefully before choosing. It can significantly affect your bottom line especially if you’re just starting out. Some of the things you need to consider include the projected profit of your company and the average amount spent on the store.

Ecommerce Merchant Account vs. Online Payment Services
Which service is more relevant for your business? Merchant accounts or online payment systems (like PayPal)? For larger companies, they prefer to set-up a merchant account to avoid third-party fees. Also, they have the scale to make the hassle and investment worthwhile. On the other hand, smaller firms tend to stick with online payment providers because it is relatively easy to set up and is convenient.
In the former, it is important to take note that only merchants with business history are entitled to get an ecommerce merchant account. So if your business is a startup, it would be difficult to find a company that’s willing to take a risk. The best solution in this case is to choose a third-party payment processor.

Overall, the use of an online payment service is unavoidable if you want to engage in an ecommerce business. They key is to study all aspects of the service before committing your company to any service. Take note that it is more effective to combine credit card processing capabilities together with an ability to accept PayPal payments. That way, you can target a larger segment of the market.

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