How To Process Credit Cards Online.

How To Process Credit Cards Online  

The subject of how to actually collect money online is one which often confuses people. In this guide, I'd like to hopefully simplify things.  

Your Options You have many different options when it comes to how to process credit cards.

In my view, they tend to fall within 3 different categories:

1. Paypal. Paypal tends to fall within a category of its own. They are easy to deal with. Often, you end up using your own shopping cart system or, at the simplest level, you just put a Paypal button on your site (they provide the code). With Paypal, everything stays within their environment.

It is basically a kind of online bank. Money goes into your Paypal account. You then spend it via their debit card or by occassional withdrawals to your bank account.

2. Third-Party Processor. This type of company will provide a full end-to-end solution for processing orders. Essentially, they provide the online store and the order processing capabilities, via Paypal or credit card. Options in this space include Click bank or 2Checkout.

You usually get your money by them sending you a check or through direct deposit.

3. Your Own Merchant Account. With this option, you sign up for a merchant account in your own name. Once hooked up to a payment gateway and a shopping cart, the money charged is directly deposited to your bank account on a daily basis.  

Which Way To Go? Paypal is easy to set up and work with. That said, some people out there are unfamiliar with Paypal and therefore don't trust it. This depends on your market. If you're dealing with customers who aren't really Internet-savvy, you may be scaring them with Paypal. Usually, I recommend Paypal be an option, but not the ONLY option.

If you're going to set up a membership site, Paypal can introduce difficulties. Many recurring payments are processed with Paypal. However, you have no real control of subscriptions, no ability to edit them. Not only that, Paypal has been known to proactively cancel subscriptions for internal reasons, leaving you and your customer wondering why the membership was mysteriously cancelled.

The third-party processors have their strengths. Click bank is popular primarily for access to their affiliates and for the automation. If you want a massive army of affiliates without the hassle of paying them manually, Click bank can be a real help.

They are more expensive, however, and they'll charge you roughly 8% of gross sales. The thing to keep in mind with 3rd-party processors is that you are essentially using THEIR merchant accounts. For that reason, they are touchy about anything that could potentially threaten their reputation. Generally, you won't have a problem with this unless you're doing something... weird. :-)

A direct merchant account is by FAR the most flexible way to go. You have total control of how you conduct your business (within reason, of course). You can use any shopping cart you want, any pricing you want.

In my opinion, any REAL business online will have their own merchant accounts and have the ability to process cards directly. How A Merchant Account Works A merchant account is essentially a line of credit for your business.

This is because each credit card charge is actually a short-term risk for the merchant account provider. For this reason, you will go through an underwriting process in order to get a merchant account. The process is very similar to getting a loan at the bank, but easier.

The merchant account will be hooked up to your bank account for the purposes of deposit. You will also hook up with a payment gateway. The gateway is basically the in-between system which actually verifies and charges the credit card.

Think of the payment gateway similarly to a card swipe terminal at any retail store. Your shopping cart is a different component. To understand this, let's equate it to a standard retail store at the mall...

• The store itself is equivalent to your shopping cart. It is where the offer is actually made.

• The cash register where the credit card is swiped is equivalent to your payment gateway.

• The merchant account is equivalent to the bank.

These 3 things are what is needed to process orders. The good news is that they are VERY easy to set up. Typically, when you get a merchant account, they will automatically set you up with a gateway. Authorize.net is, by far, the most popular gateway out there and pretty much all shopping carts work with it.