Understanding eCommerce Online Payments
As a provider of eCommerce solutions for our customers, we find ourselves many times explaining to our clients what they need to do to setup their online merchant accounts to be able to process credit card transactions online. There’s actually quite a bit of confusion out there with the different terminology so hopefully, this will clarify it a little bit.A merchant account is an account that allows businesses to accept payments by debit or credit cards. A merchant account is always linked to a business bank account. Credit card payments go into the business bank account and refunds, charge backs, and fees come out of it. A merchant account requires an agreement between a business and a merchant bank for the settlement of credit card and/or debit card transactions.
A payment gateway is a service that authorizes payments for a merchant account, acting as a middleman between the merchant account and the actual credit card companies. No one but payment gateways “talk” to the actual credit card companies.
To help you understand this, think of it this way. Most businesses that accept credit cards have two or more merchant accounts. One for Visa/Master Card and a separate one for American Express. Those businesses will typically have only one payment gateway that will handle both merchant accounts.
Third party processors are what e-Commerce merchants get when getting third party merchant accounts. Basically, third party processors are connected via an additional secure payment gateway to a direct credit card payment processor. A third party processor contributes to the work of the direct processor, sharing its expenses, i.e. paying much less. Many third party processors make up a network of e-Commerce merchants sharing one secure direct merchant account. Third party processors are great for beginner e-Commerce.
To sum everything up, and to differentiate the mixed up terms e-Commerce merchant accounts, payment gateways and third party processors:
An e-Commerce merchant account is a whole service, a solution allowing e-Commerce merchants to accept credit card payments over the Internet; a payment gateway is one fragment of a whole system (chain of elements) involved in online credit card processing, functioning as a secure relay; a third party processor is a type of e-Commerce service which makes up a network of direct merchant account affiliated e-Commerce merchants.
If you have any questions, feel free to drop me a line or contact us at MGR Consulting Group to help you with your eCommerce Solution.
Until next time, this is Manuel Gil del Real (MGR)