The word ecommerce gets thrown around these days left and right. What does it really mean for you the small or solo business owner? If you are selling products and/or services online through your website and allowing customers to pay for them online you have an ecommerce website.
In order to sell products on your website and collect credit card payment information securely you need the following:
- Merchant Account
- Shopping Cart
- Payment Gateway (Software that sends the information to all parties involved)
Merchant Account
A merchant account allows you to accept credit cards as a form of payment. Typically you can accept credit cards three ways: swiping the card, keying in the numbers, and online via a website. For the purpose of this article I’ll be focusing on the via a website scenario.
There are various charges associated with accepting credit cards. These include costs such as:
- Transaction charge (a % of the sale)
- Monthly fixed costs
- Monthly minimum fees
- Statement fees
- Setup fees
- Batch fees (charged to “settle” transactions each day)
- Discount rate (series of fees based on sale amount and the interchange rate paid by banks to offer Visa/MasterCard services)
- Chargeback fees (fees charged on disputed transactions)
The important point to remember about merchant accounts is that you need one in order to accept credit cards as a form of payment regardless of whether you ever plan on selling anything on a website.
Shopping Cart
A shopping cart in and of itself does not have any payment capability. If you think of going to the local department store to shop, you grab a cart on the way in. As you browse the store, you put things in your cart. It is a place for you to put your stuff. Nothing more, nothing less. Online it serves the same purpose. It gives you the ability to take items from the virtual storefront and put them in a pile somewhere so you can have all your stuff in one place when you are ready to pay.
Features you want to look for in a cart include things like:
- SSL (secure socket layer) capabilities (this is what allows it to interface securely in the next step of the process)
- Interfaces with online authorization and payment services
- Adding and removing products from the virtual cart
- Inventory tracking
- Shipping and sales tax calculators
- Easy administration and management of your store
- Sales reporting
- Customer and contact management
- Automatic response and email support (order notifications, etc)
- Digital product delivery
- Design flexibility to accommodate your existing branding
- Order reviewing and confirmation
Payment Gateway
While people rarely talk about this key component (must not be as sexy as a shopping cart I guess), it is the bridge that facilitates the transfer of information between the storefront (in this case website) and the bank. Without this bridge nothing happens.
The actions a payment gateway takes are invisible to the user but include things like:
- Encrypts the data for transmission over SSL
- Forwards the information from the website to the merchant account’s bank
- Forwards the information to the card association (Visa/MasterCard)
- Routes the transaction to the card association’s bank
- Routes and forward’s the card association’s bank’s response
- Forwards this information back to merchant originating the transaction (in this case the website)
- Response is relayed back to the customer (via a “Success” or “Failure” type message on the website)
In order to complete the entire transaction cycle, the merchant must deliver the product (digitally or physically) and then settle the transaction within the merchant account.
Payment gateways sometimes also do additional fraud related and tax related calculations.
Additional technical note: If you plan to use these ecommerce capabilities on you website make sure your hosting plan includes support for SSL. SSL stands for secure socket layer and is a communication protocol that allows the payment gateway to do its job in a secure manner using encryption.
Obviously there are numerous vendors and approaches you can take to choosing a an ecommerce solution that works best for you.
Need assistance choosing a solution for your website? Contact me to chat.
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