#1: Third Party CC Processing
This is where one has an ecommerce
site (selling products or services) and uses
a third party credit card processor such as
Paypal, 2Checkout, or CDGcommerce.
In this scenario, the site
owner is contracted with the third party to
conduct ecommerce (credit card or money transfer
transactions). Though one makes sales, the site
owner in this scenario is not actually the seller,
as they are not actually conducting the CC transactions.
In reality, the third party
is the "true" merchant because they
are the ones making the actual CC transaction.
The site owner does however receive the bulk
of the sale price.
There can be two basic methods
used in making sales in this scenario. The first
is where the consumer is taken off the site
owners site to the third party's site to make
the actual CC transaction (the consumer may
be directed back to the site owners site if
set up that way), and the second is where the
consumer stays on the site owners site through
the whole process while just the actual CC transaction
is done (transparently to the consumer) via
the third party's CC processing "gateway"
(see * below).
Here, the site owner is charged
either a percentage (for offsite CC processing),
or a flat fee + percentage (for onsite CC processing).
Offsite CC processing does
not require a shopping cart and usually employs
some sort of "Buy Now" button, with
the code needed to generate said button.
Onsite CC processing requires
either a shopping cart preconfigured to utilize
the third party's CC processing gateway, or
the programming of a non-preconfigured shopping
cart so that it will be able to hook into the
third party's CC processing gateway.
Whichever method is set up,
in this scenario, only the third party is the
"true" merchant.
#2: True Merchant CC Processing
This is where one has an ecommerce
site (selling products or services) and contracts
with both a bank (for a merchant account) and
a "gateway provider" (see * below)
and becomes a "true" merchant.
In this scenario, the site
owner must have or obtain a merchant account
through a bank or financial institution. As
well, the site owner must have or obtain a "gateway"
(see * below).
Often, these two services
(merchant account and gateway) can be obtained
through a single source. Some providers of these
services are Authorizenet.net and Cardservice
International.
* A gateway is, put simply,
a connection from the site owners shopping cart
to the "Processing Network." This
processing network is called an "ACH"
(automated clearing house) and its job is to
know if a buyer has funds or not, therein approving
or declining a CC transaction, and then passing
this info back to the site owners shopping cart.
It should also be noted that
a merchant account can sometimes be a regular
"personal" bank account.
When a site owner is a true
merchant, the consumer never leaves the site
owners site, with the CC transaction approval/declination
process being completely transparent to the
consumer.
For this setup a shopping
cart is required. Most shopping carts, either
commercial or free, come preconfigured to interact
with the available gateways. Gateway providers
will usually have lists of shopping carts that
are preconfigured, or "recommended."
Fees involved in this scenario
will be higher for the site owner (until higher
numbers of sales are made) and will usually
include a gateway fee, a monthly fee, and per
transaction fees.
Reasoning
Now, the reason I've explained
all this is so that those getting into ecommerce
will have the ability to choose wisely which
method of conducting ecommerce will be most
in alignment with their financial abilities
and product/service offerings.
It is my recommendation that
those just starting out, especially if ones
site is brand new and has not built up a sufficient
amount of sales traffic, go with #1 above.
The reason is that until one
gets to the point where sales are in sufficiently
high enough numbers, one will not be able to
afford being a "true" merchant. Without
a sufficient amount of sales, the fees associated
with having a merchant account can eat up all
your profits.
In other words, in most cases,
being a true merchant only becomes financially
feasible when sales reach a certain "bulk"
point. This bulk point will vary, of course,
depending on your business model.
In closing, I highly
recommend that anyone considering getting into
ecommerce specifically take the time to throroughly
research all of the above information. Do
the math! Only you, or maybe your accountant,
can determine through researching not only your
sales trends but the costs involved therein,
where your point of higher sales numbers will
equal the point wherein you should change from
third party to true merchant status.
Also see:
How
Ecommerce Works
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About the Author
******************************
John Bates (AKA: Blue) is
the owner of MOR Designs, a firm specializing
in Web Design, Web Hosting, and Web Consulting.
MOR Designs has been in business since 1996.
As well, John has the unique
distinction of being the longest standing active
member of the I
Help You Forums, having joined two days
before the forums actually opened. He is now
a Super Moderator.
John is also a co-owner in
the quality human edited family safe web directory
WebSavvy.cc.
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Article by John Bates,
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