Ecommerce - How to Take Payments Online

Learn how to get a merchant account and payment gateway, and how to take payments without a merchant account. Also explains how to integrate payment systems with your store, and looks at fees and charges.

Credit cardsIf you're setting up an online store then you'll probably want to take credit card payments online. Most customers like to pay for online products and services using their credit card. Not only is it quick and convenient for the shopper, but it makes life easy for you too!

In this article you'll find out how to take card payments via your online store.

There are many different ways that you can accept credit card payments over the internet. As a general rule you need 2 things:

  • An internet merchant account. This is an account that can be used to receive funds for goods or serviced purchased over the Web.
  • A payment gateway. Also known as a payment provider, this is an online service that connects your online store to your merchant account so that shoppers can pay you.

Getting a merchant account

In simple terms, there are 2 main ways that you can get an internet merchant account:

  • You can get an account directly with a bank. Many banks offer internet merchant accounts, and you can apply to any bank (it doesn't necessarily have to be the one you currently bank with).
  • You can use a merchant account provider. Also known as a merchant service provider, or an ISO (independent sales organization). This is a company that acts as a go-between, sending your customers' card transactions off to the bank to be processed.

As a general rule, banks tend to have higher fees, and their application procedures are stricter and can take a long time. Merchant account providers tend to offer a better deal with quick setup times, and are less fussy in their requirements.

Your available options depend to some extent on the country you're in. In the US, for example, it's becoming more common to use a merchant account provider.

In other countries such as the UK and Australia, options are more limited and you usually need to apply directly to your bank (although there are alternative approaches — see "Other ways to take payments online" below).

Some well-known US internet merchant account providers include:

You can find a comprehensive list of US providers over at InfoMerchant.

If you're not in the US then RBS WorldPay offer internet merchant accounts as part of their Business Gateway Plus package, which also includes a payment gateway (see below).

Getting a payment gateway

Once you have your internet merchant account, you need to find a payment gateway. This is a service that takes customer card details from your online store and sends them securely to your merchant account provider for processing.

Many banks and merchant account providers offer a payment gateway as part of the service (and vice-versa), which makes life easier.

Popular payment gateways include:

Make sure your chosen payment gateway (and ecommerce software, if appropriate) conforms to the Payment Card Industry Data Security Standard (PCI DSS). This standard helps to ensure that shopper details — such as card numbers — are stored and processed securely.

Other ways to take payments online

What if you don't want the hassle of setting up a merchant account, or you can't find a suitable bank or merchant account provider that will approve you? Fortunately there are a range of payment services available that let you take credit card payments without needing a merchant account.

Typically these services have higher fees than a payment gateway/merchant account combination. However, they're an easy way to start taking payments, especially if you're just starting out with your online store. This can be very useful for testing out a business idea before committing to a full merchant account.

There are 2 well-known payment services that don't require a merchant account:

Another option to consider is Yahoo! Merchant Solutions. This service can provide everything from a hosted online store through to payment processing facilities, all in one package.

Integrating with your ecommerce system

Once you have a payment gateway or payment provider in place, you need to integrate it with your online store's ecommerce software. This allows your shoppers to move through your checkout process and pay with their credit card at the end of the process.

Integrating ecommerce and payment systems is a complex topic, and it depends very much on the ecommerce software or solution you're using:

  • Most hosted ecommerce solutions support a range of payment gateways . Speak to your hosted ecommerce provider to find out if they can support your chosen gateway.
  • If you're using licensed ecommerce software — for example, Magento or X-Cart — you'll find that there are a range of payment modules available that can link your checkout process to various payment gateways.
  • If you're writing your own custom ecommerce software then you will, of course, have to write your own code to integrate with the payment gateway. Usually this process is fairly simple, and involves exchanging a small amount of XML or plain text data. Consult your payment gateway's integration guide for details.

Understanding fees for online payment services

Merchant account providers, payment gateways and other payment services often charge a bewildering array of fees for their services, and they can all add up. Make sure you're aware of all the fees involved when you sign up for a service.

Here are some common fees and charges that you may encounter:

Application/setup fee
A one-off charge for setting up your service. If you have a separate merchant account and payment gateway then you'll probably have to pay 2 separate fees.
Discount rate
The main per-transaction fee. It is a percentage of the total transaction value. Your provider might have a single rate, or they may have 2 or more rates, such as:

  • The qualified rate. This is the lowest rate, and is used for all "normal" transactions.
  • The mid-qualified rate. This is higher than the qualified rate, and is used for certain high-risk transactions (such as those using company cards).
  • The non-qualified rate. This is the highest rate of all, and is commonly used with very high-risk transactions or other exceptional circumstances.
Transaction fee
A fixed fee per transaction (in addition to the discount rate).
Authorization fee
Another fixed fee, charged each time a transaction is sent to the bank for authorization (regardless of whether authorization was successful).
Statement fee
A monthly account handling fee for running your merchant account.
Annual fee
A per-year fixed charge for the merchant account.
Gateway fee
This is a fixed monthly charge for using the payment gateway.
Chargeback fee
A chargeback can occur when a shopper disputes a card transaction and the funds are returned to the shopper. This can happen with fraudulent transactions, or if the shopper doesn't recognize the transaction on their statement. Chargeback fees can be quite high, so chargebacks are best avoided.
Monthly minimum
Some services have a minimum monthly charge. If the discount rate charges and transaction fees for a month don't meet the monthly minimum then the charges are rounded up to the minimum amount.
Cancellation fee
Also called a termination fee. This is charged if you close your merchant account. Some providers have an early termination fee, charged only if you break a fixed-term contract (say, 1 year).

Most providers won't charge all of these fees, but you're likely to encounter at least a few of them. Some providers list these fees separately on your invoices or transfer statements, while others — particularly the non-merchant-account payment services — consolidate the various fees into 1 or 2 charges.

You've now looked at how to take online card payments for your store. You've explored merchant accounts and payment gateways; looked at alternatives to merchant accounts; seen how to link your online store to your chosen payment provider; and learned about some of the charges that you may encounter when taking online payments. Good luck with your store!

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Responses to this article

4 responses (oldest first):

26-Oct-09 10:41
This is a nice guide for those considering taking their business to the next level.
26-Oct-09 22:34
Thanks mauco! The world of online payments and merchant accounts is pretty confusing, so I thought an article that outlined the main options would be helpful.

13-Aug-12 15:55
Even though article is several years old I still found resourceful as helping a guy like me who doesn't understand the ins and outs of setting up a e-commerce store. very well put together.
22-Aug-12 04:07

If you’re a small business, another way to take payments online in a flash is to sign up for FreshBooks. They have a very seamless way to a) invoice clients and b) set up all the steps for online payment (above) in a very simple, very efficient way.

I’d highly recommend FreshBooks for any entrepreneur who is just starting up a small business.


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