Joel Liu's Library tagged payment →  View Popular

Let
us discuss each type of cost:

Up
Front Application Fees

Many
internet merchant accounts will require an up front application fee. This
fee, supposedly, is to cover their costs for processing your application.
In case you choose not to open an internet merchant account, they still
cover their initial costs. Although common, many providers waive these
fees and I recommend that you choose a provider that does not require
an up front fee.

On
Going Fixed Fee

Most
all internet merchant providers require a monthly fixed fee or "statement
fee" as it is commonly named, which is simply another way to cover
their costs and make money. You will be hard pressed to find a provider
that does not require this type of fee on a monthly basis. However, do
not choose an internet merchant account that requires more than $10 per
month. Additionally, most internet merchant providers require a monthly
minimum (usually $25). The bottom line is that you will be paying at least
$25 per month (on top of the monthly statement fee) for your account.

Discount
Rate

Usually,
the discount rate will be between 2 and 4 percent. The discount rate is
the sales commission the provider earns on each sale. For example, if
the discount rate offered is 3%, and you receive a sale over your web
site for $20, you will owe 60 cents to your internet merchant provider.

Fixed
Transaction Fee

Usually
between $0.20 and $0.30, the fixed transaction fee is the fixed fee portion
of each sale. Unlike the discount rate, the fixed transaction fee is the
same for every transaction. Whether you get a $1 sale or a $100 sale,
the transaction fee will be the same.

Termination
Fee

A
bit more hidden in the small print, a termination fee can apply if you
cancel your merchant account within a specified period of time (usually
within one year). But beware, some merchant providers require a three
year commitment!

Miscellaneous
Fees

If
a customer requests a refund and they want their credit card credited,
an internet merchant provider will charge you a separate fee (usually
between $10 - $20). Read the contract carefully, as other special fees
may apply.

What is a Gateway?

In short, a gateway connects your ecommerce Website to your merchant account.

The gateway facilitates online payments by connecting your secure order form with your specific merchant account at a processing bank. The gateway takes the submitted form data and presents it to the processing bank. When it receives a response from the bank, it presents that return data to the site of origin for appropriate handling.

The gateway itself doesn't provide ecommerce features such as shopping carts, Web hosting, or merchant accounts, although, as you'll see, many larger gateway providers do offer additional services like these.

Today’s moving parts

Ok, so how do we do all this? First off, we have a merchant account. A merchant account is needed to accept credit cards. Every business that accepts credit cards needs to have a merchant account. We’ve used a few companies in the past, but currently we’re using an account provided by Chase bank. You should basically look for a reputable company you can trust that has good rates. The rates may not make all that much difference early on, but once your daily volume picks up a few basis points can make a big difference on your bottom line. But at first I’d pick trust over rates. You can always negotiate for better rates down the road.

Next we have an account with Authorize.net. Authorize.net is the gateway that our systems talk to. They take the credit card charge information from us, process the charge, and then deposit the money into our merchant account. If the charge doesn’t go through they send us a denial code which we then wordsmith and present to our customer.

The engine to process the recurring monthly charges is something we built custom. If you use Rails, Active Merchant would give you a good place to start. We don’t use Active Merchant because we built our stuff before AM was released, but it’s definitely a nice library.

While Bodine cited Authorize.Net, Cybersource and VeriSign as the big three in the payment-systems marketplace, vendors such as PayPal and Google have made significant headway into what experts call the alternative payment-solution marketplace. In fact, Google has decided not to charge processing fees through the end of 2007 in order to help its Checkout product reach critical mass.

Google's Checkout system allows consumers to enter billing information one time in order to make online purchases a one-click process on ecommerce sites that have made themselves Checkout-capable. While Google has seemingly eliminated the need for a merchant account with its solution, Bodine cautions that it's not the same as an all-in-one payment gateway/merchant account solution.