Merchant Processing 102

Shopping Carts, Gateways and Payment Processors: Anatomy of an Online

Years ago, an exchange of cash was all it took for
a customer to make a purchase from a merchant. How things have changed! Today,
most businesses offer their products or services on the Internet – clearly,
they can’t be restricted to cash-on-delivery practices anymore. E-commerce has
emerged as a lucrative channel for merchants to boost sales and grow their
bottom lines. Many consumers have Internet access both at work and at home, and
browsing an online catalog can be faster than browsing the aisles of a physical
store – and customers get the added convenience of shopping 24 hours a day,
seven days a week.

Merchants should understand the value of operating
in multiple channels. For those who haven’t yet incorporated e-commerce into
their business but want to, there is much to learn. They must educate
themselves on how payment processing works in order to best accommodate their online
shoppers and serve the needs of their business. Though paying for an online
purchase takes just a few seconds, it involves a complex chain reaction of
behind-the-scenes processes.

Merchants can increase revenues and reach more
customers by offering an efficient, successful e-commerce solution. This
article examines what must be in place in order to complete a transaction that
is both secure and offers superior customer service.

What Makes an E-Commerce Solution Possible?

In addition to the range of software and hardware
that companies use to support the sale of products and services online, there
are three vital components that make online shopping possible: the shopping
cart, payment gateway and payment processor. Each is critical to ensuring
successful implementation of e-commerce functionality.

Shopping cart. The shopping cart acts quite literally as a virtual
shopping basket. It holds the items customers select from a Web site until they
are ready to proceed to the checkout stage, where their credit card information
will be processed. The shopping cart:

Keeps track of items until they are purchased

Automatically totals the amount of a customer’s
order, including shipping and tax

Allows shoppers to securely enter address and
credit card information

Payment gateway. In order to accept
credit cards through the Internet, a payment gateway is critical to transport
the credit card information from the shopping cart to the payment processor
once the consumer clicks the "Buy" button. In most cases, this transaction
happens almost instantaneously. The payment gateway receives encrypted transactions
from the merchant’s shopping cart. An encrypted transaction simply means that credit
card numbers can’t be read by people who are not supposed to read those
numbers. Authentication is then provided and the decrypted payment information
is transmitted for authorization. The payment gateway:

Fulfills the same function as a point-of-sale (card
swipe) terminal at a physical retail location

Takes information provided through a shopping cart
and transmits it electronically and securely to a payment processor to be
routed for authorization of payment

Payment processor. The payment processor transmits
a customer’s credit card information via the Internet to the merchant bank for
authorization. It also sends data back to the merchant’s bank to approve
payment or the transfer of funds. Specifically, a payment processor:

Acts as a link from the merchant to the acquiring
bank or merchant bank

Receives information from the merchant through the
payment gateway and packages the information for delivery to the acquirer,
ensuring that all necessary transactional data is present and valid

Later transmits information back from the acquirer
for delivery to the merchant to settle the transaction

With the shopping cart, payment gateway and payment
processor in place, merchants have all they need to offer convenient e-commerce
that deliver superior security and service. With a little research
and education, merchants can find the best providers to accommodate their
business needs and those of their consumers. It just makes sense – with online
shopping projected to account for $116 billion, or five percent of all retail
sales this year – e-commerce provides merchants an opportunity to make more
money and succeed in an increasingly competitive marketplace.


The tenth annual report, The
State of Retailing Online 2007, conducted
by Forrester Research states that e-commerce has come of age and its
profitability throughout the channel has stabilized. Eighty-three percent of
respondents to the survey reported making more money and 78 percent said they
were more profitable than just two years ago. The report found that apparel,
accessories and footwear reached $18.3 billion in 2006 for online purchases and
is expected to hit $22.1 billion by the end of 2007.

e-onlinedata (EOD) is the
nation’s fastest-growing, most trusted provider of online payment solutions.
Thousands of Internet, mail order, auction sellers and retail businesses – from
start-ups to billion-dollar companies – are choosing EOD every month for
affordable, reliable, and easy-to-use credit card processing and
payment gateway solutions. For more information on e-onlinedata or to apply for
a merchant account, please visit us online.

Merchant Processing 102 is a
production of e-onlinedata provided to Total Hosting, reprinted with permission
from e-onlinedata. Content is intended to provide merchants and small business
owners with practical information and insight into the world of payment

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