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Gateways, Merchant Accounts, Bank Accounts, Oh My!

The Myriad Pieces Needed for E-Commerce

Accepting credit card payments online is more difficult than it seems it should be, and matters are complicated by new and evolving systems that not only combine previously distinct aspects but also are redefining the payment process and creating entirely new options. We'll attempt to explain what is needed and why.

Please note that in this discussion we will not cover things like mobile payments, peer-to-peer payments, or “marketplace” systems. While they can be extremely beneficial in certain circumstances, they are worth exploring in depth if your e-commerce journey requires them.

All the Pieces: The "Traditional" Approach

In order to accept credit card payments online, a merchant typically needs all of the following:

  • A website. Small websites can be static and hardcoded (like in Dreamweaver), or larger and/or dynamic and built on a CMS(Content Management System) like MODx, ExpressionEngine, Wordpress, Drupal, Joomla, or etc.
  • An ecommerce platform. FoxyCart is an obvious example. Nearly all ecommerce systems have an integrated CMS. FoxyCart is different in that regard.
  • The payment gateway. The ecommerce system sends requests to the payment gateway in order to authorize transactions. The gateway responds indicating success or failure (and the corresponding error code). Most gateways have a monthly fee as well as a small (~$0.05 USD) per transaction fee. Gateways typically send transactions to your merchant account to capture once a day as a “batch”.
  • The merchant account. The merchant account actually collects (“captures”) the money from the transactions that the gateway processes. This is where you get docked the 2-4% transaction fee for processing credit cards, as well as fees for the transaction and occasionally other fees. Once a day your merchant account deposits all its money into your bank account in a “batch”. Depending on your merchant account provider, your fees may be taken out when payment is batched (daily), or the fees may be taken out all at once, once a month.
  • The bank account. This is where you finally see your money.
  • Accounting, inventory, marketing, and etc. There are countless systems to help you manage your business. Most don't actually involve themselves in the actual transaction process, so they don't matter to this discussion.

For what it's worth, we at FoxyCart generally recommend CDG Commerce for most merchants in the US. PayPal's Website Payments Pro is also a decent option, though the monthly fees are higher.

Other Gateway + Merchant Account Systems

In some systems you can get two or three of the above functionalities combined. We'll focus on services that combine the payment elements first:

* PayPal Website Payments Pro rolls together the gateway and merchant account quite effectively, and could also be considered a “bank account” (though it is important to note that it is not necessarily regulated like a bank account). In addition, PayPal offers some basic cart and checkout functionality, which makes it somewhat of an “ecommerce platform”. * Google Checkout and 2Checkout offer limited cart, gateway, and merchant account functionality as well. (Please note that neither GCo nor 2Co are currently supported by FoxyCart.)

Ecommerce Platform + Merchant Accounts or Gateways

Worth noting is that there are many ecommerce platforms that offer their own merchant account and gateway services. In the vast majority of cases these providers are simply white-labeling another company's services. There's nothing wrong with this, but you're unlikely to get any sort of competitive pricing with this situation.

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