With an SSL secured site, your customers will have the confidence to purchase your products and services. But enabling customers to pay you online takes more than just collecting their credit card numbers or other payment information. What will you do with customer payment information once it's sent to you? How can you verify that customer's credit card information is valid? How will you go about processing and managing those payments with a complex network of financial institutions?
You could simply set up a credit card terminal and process orders manually. But why invest the time and effort to build an e-commerce site without taking advantage of the efficiency of online payment processing? To offer a complete e-commerce experience to customers and to efficiently manage payments for your business, you need to implement an "Internet payment gateway" that provides Internet connectivity between buyers, sellers, and the financial networks that move money between them.
The Internet Payment Processing System
Before you implement a payment gateway, you need to understand how the Internet payment processing system works. Participants in a typical online payment transaction include:
Your customer: Typically, a holder of a payment instrument such as a credit card, debit card, or electronic check—from an issuer.
The issuer: A financial institution, such as a bank, that provides your customer with a payment instrument. The issuer is responsible for the cardholder's debt payment.
The merchant: Your e-commerce site, which sells goods or services to the cardholder via a Web site. A merchant that accepts payment cards must have an Internet Merchant Account with an acquirer.
The acquirer: A financial institution that establishes an account with you, the merchant, and processes payment authorizations and payments. The acquirer provides authorization to the merchant that a given account is active and that the proposed purchase does not exceed the customer's credit limit. The acquirer also provides electronic transfer of payments to your account, and is then reimbursed by the issuer via the transfer of electronic funds over a payment network.
The payment gateway: Operated by a third party provider, the gateway system processes merchant payments by providing an interface between your e-commerce site and the acquirer's financial processing system.
The processor: A large data center that processes credit card transactions and settles funds to merchants, the processor is connected to your site on behalf of an acquirer via a payment gateway.
The basic steps of an online payment transaction using a payment gateway system include the following:
The customer places an order online by selecting items from your Web site and sending you a list. Your site often replies with an order summary of the items, their price, a total, and an order number.
The customer sends the order, including payment data, to you. The payment information is usually encrypted by an SSL pipeline set up between the customer's Web browser and your Web server's SSL certificate.
Your e-commerce site requests payment authorization from the payment gateway, which routes the request to banks and payment processors. Authorization is a request to charge a cardholder, and must be settled for the cardholder's account to be charged. This ensures that the payment is approved by the issuer, and guarantees that you will be paid.
You confirm the order and supply the goods or services to the customer.
You then request payment, sending the request to the payment gateway, which handles the payment processing with the processor.
Transactions are settled, or routed by the acquiring bank to your acquiring bank for deposit.
So how do you implement a payment gateway to process payments on your e-commerce site? Building your own dedicated pipeline to connect all the players isn't a practical option, so for small and medium sized businesses, outsourcing to a payment service provider is the best solution.
Set Up Your Internet Merchant Account
After you've selected and set up your payment processing solution, all you need to start accepting online payments is an Internet merchant account with a financial institution that enables you to accept credit cards or purchase cards for payments over the Internet.
