An Overview of Taking Credit Cards

When I started learning about e-commerce, all the terms were confusing and blended together. To help you, here are some basics. I’ve split this into the two main services your client will need from you and I linked them to separate articles to help clarify the process for you:

  • They will need a “Merchant Account” to process* credit cards.
  • They will need a “Gateway” to interface your shopping cart with their merchant account.

* Just to make it a tad confusing, a “Credit Card Processor” and “Merchant Account” are almost the same thing. Technically the “Merchant Account” is the account you set up with your “Credit Card Processor” but often, people use those terms interchangably.

In broad terms, there are really four pieces you should consider in order to help your clients to start taking credit cards:

  1. Your client needs a shopping cart or on-line store which hopefully you’ll be providing.
  2. They need a bank who handles the deposited sales (usually their own).
  3. Their credit card processor who deals with the credit card companies (they may already have one for their store)
  4. And optionally, their gateway seamlessly integrates their shopping cart to their credit card processor.

With those bases covered, your client should be able to take credit cards for their e-commerce store. You can explain it to them this way (but only if you feel they really want that much detail):

  1. Their customer buys something from their e-commerce site.
  2. The customer opts to pay with their credit card.
  3. The e-commerce site contacts their gateway to see if the card is valid.
  4. The gateway contacts the credit card processor to make sure the customers card is valid and that there are funds available.
  5. If the gateway perceives the card as valid and with adequate funds, the gateway has the processor put a lock on the customers’ account for that amount.
  6. At the end of the day (typically), the gateway batches up all of the sales for the day and submits them to the credit card processor.
  7. The credit card processor takes those funds and deposits them in your clients’ bank account.

And that is a simplified version of how it works. Naturally there are plenty of variations on this. With PayPal, they wrap the processor and the gateway together. With a Yahoo store, they wrap the store, the processor, and the gateway all together as a package. But for the most part, if you understand the basics of how it works, the variations will become clearer to you as well.

If you wish, I also have created an article on credit card processors and on gateways with some more details. Leave me comments or questions below.

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