Build Your E-Commerce Store: Choosing a Merchant Account and Payment Gateway


Here’s the second installment in our “Build Your E-Commerce Store” series.  Check out the intro here

Most shopping experiences are pretty unique. You go to different kinds of stores, with different objectives. Sometimes you just need some milk and eggs. Other times you want to buy a new pair of pants. Or maybe you’re ready to upgrade your computer.

Regardless of how unique your shopping experience was, it probably ended the same way. You handed over a credit card, a check, or even a few dollar bills to the cashier and you in turn received your item. The process was so quick and seamless that you probably didn’t even think about it as part of your shopping experience.

But for the retailer, the moment when money changes hands is critical. Checkout, or, what retailers call the point of sale is an essential element of any successful business operation. In addition to being able to provide the usual services—correct change, easy interface with credit and debit card providers, and ability to process such old-fashioned things as checks and money orders—the point of sale is where people take care of returns, exchanges, and similar matters.

For e-commerce sites you don’t have to deal with some of the more obnoxious things about checkout machines, like purchasing hardware and software and training staff to use them, but don’t worry, there are plenty of other problems that arise. While you might occasionally get someone trying to pass a bad check at your store, fraud is rampant online, so you need to be careful about who you accept money from. If your checkout machine is having a bad mood, you can switch to another and your customer will forgive you. But if your online checkout system is broken, your customers might just take their business elsewhere.

In e-commerce, the point of sale is even more important than it is in traditional commerce. Not only is a functioning and versatile sales process essential to your business’s success, choosing good software can save you significant time and money in fees and returns. Here is our introduction to setting up your sales operations online.

Two Requirements: Merchant Accounts and Payment Gateways

In order to be able to receive payments online, you need to have two things: a merchant account, and a payment gateway. Some payment solutions combine these two into a single service, but you’ll pay extra. Even if you decide to go the easier route, it’s helpful to understand just what you’re getting into

merchant account is an account that you cannot directly access, but serves as your connection between the credit card companies and your company’s account. Although the money is transferred from the merchant account to your company account within a few days, it technically can be returned at any time, which is why you pay a fee to use it. If you get a lot of returns, you’ll pay higher fees as you’re asking the bank that holds your merchant account to take on more risk.

The payment gateway is how you access your merchant account. With a payment gateway you can issue refunds, process returns, check on your transaction history, and even set up recurring billing. More advanced payment gateways also provide services like fraud detection. Most payment gateways also charge fees based on the amount of business you do with them.

How to Choose a Merchant Account

Merchant account providers, also called payment processors, come in all types, from major, well-known companies, like Chase’s Paymentech and PayPal, to more specialized companies likeTransFirstMerchant Warehouse, and Flagship Merchant Services.

When choosing a merchant account, you’ll want to pay attention to the fees they charge. The first fee to watch for is the so-called discount rate, which is usually expressed as a percentage take of all transactions conducted using the account. You’ll also have service fees, one for each transaction and one for each month you use the service. Depending on your business, you may opt for a service that charges more up front but allows for a high volume of transactions, or you might want a service that charges more for each transaction, but doesn’t hit you with high fees.

While fees are the most important thing to consider when choosing a merchant account, you’ll also want to make sure there aren’t hidden restrictions or charges that will impact your business. For example, if your merchant account places daily or monthly caps on transactions, you could find your account shut down just when you need it most. You also should use reputable companies, preferably ones that specialize in managing merchant accounts for e-commerce sites, in order to ensure that you have safe, reliable, and trustworthy service.

How to Choose a Payment Gateway

Once you’ve set up your merchant account, you can start looking for payment gateways. While you never access your merchant account directly, you will spend time using your payment gateway, so it’s important to find a service that’s easy to use. Payment gateways also cost money, although their fees tend to be flat rather than a percentage of sales. Some of the more popular payment gateways include Authorize.netTrust CommerceUSA ePay, and PayPal.

With a payment gateway, customer service and interface matter, so you’ll want to learn how they work before choosing one. Fortunately, unlike merchant accounts, it’s pretty easy to switch payment gateways, so if you’re unhappy with one service you can choose another. Many payment gateways also offer extra services, like recurring billing and fraud detection, which will help you keep your business going.

All-in-One Solutions

If you find yourself a bit overwhelmed at this point, don’t worry. There are all-in-one solutions that effectively combine the merchant account and payment gateway into a single package. While these services charge extra, if you’re not ready to dive into the world of discount rates and monthly fees, you can stick with something simple.

Once again, the big player here is PayPal, but they have some hefty competition in this area, including Amazon Payments, and Google Wallet, which only accepts payments for digital items. You can also consider smaller companies such as BraintreeDwolla, and Stripe. Because these services are focused on the consumer, they’re easier to use than the alternatives above and are competitively priced.

Paying It Forward

When it comes to choosing a merchant account provider and payment gateway two things come in play. You want services that won’t charge you exorbitant fees, and you want to be able to trust them when it comes to process payments and refunds. While it’s unlikely that you’ll be defrauded outright by any of the services listed above, you need to feel comfortable with your payment services just in case something does go wrong. After all, regardless of what business you’re in, you rely on the point of sale to get paid.

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