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ALL ABOUT ECOMMERCE AND PAYMENT GETWAYS

Seema Gupta, Marketing & Sales Manager Schogini Inc., CA, US seemagupta@schogini.com August 19, 2011 Introduction Online shopping allows acceptance of credit card payments in a card-not-present environment. This is made possible by a payment gateway. The payment gateway is the e-commerce equivalent of the point-of-sale (POS) credit card terminal used in brick-and-mortar retail outlets. Both serve as a means of communication between merchants and acquiring banks. Payment Gateway Payment gateway is an e-commerce application that provides transaction authorization and clearing services to Internet based payment portals such as a website, mobile phone or IVR service. The gateway encrypts transaction information and transmits it between the website and the merchants acquiring bank. It integrates with the e-commerce websites shopping cart and activates once a visitor places an order. When a customer orders a product from a payment gateway-enabled merchant, the payment gateway performs a variety of tasks to process the transaction: 1. The visitor provides her card account information for payment. 2. The information is SSL-encrypted and sent to the merchants web server. 3. The payment gateway now collects the data and, SSL-encrypts it and transmits it to the acquiring banks server. 4. The acquirer then transmits the data to Visa or MasterCard (the Card Associations). 5. The Associations transmits the data to the card issuer. 6. The issuer either approves or declines authorization for the transaction and sends its response back to the acquirer. 7. The acquirer then sends the issuers response to the payment gateway. 8. The payment gateway transmits the response to the e-commerce website where it is displayed to the cardholder. If the issuers response is an approval, the transaction is completed. For Discover and American Express transactions the process is much simpler, as the issuer and the acquirer are the same and stages 4 through 6 from the above list would be combined into one.

Ecommerce Payment Methods Merchant Account A merchant account is needed with the Ecommerce website. A merchant account provides legitimacy and integration for the online business. Provider and Fees should be carefully considered. Plenty of services are available without setup fees or contracts. However better rates are available with a contract. Fees run about 2.5% per transaction plus 10-25 cents on top of the percentage. Fraud Orders are available with the account. They cost the same per transaction fees. Chargeback fees should also be considered. A chargeback occurs when a customer denies or questions a transaction. Chargebacks have a penalty of about $25 if the customer disputes a charge and wins the dispute. One of the most widely used Merchant Accounts is Authorize.Net. Authorize.Net gives access to an online platform for merchants to monitor all transactions, disputes, charges and security features. It implements security features using CVV codes and address verification. Visa MasterCard and AMEX cover 99% of buyers while Discover covers only 1-2% of transactions. PayPal PayPal is an online payment gateway system. Its not a merchant account. PayPal is popular and has many security features, including buyer and seller protections. Roughly 20% of orders use PayPal. Google Checkout This is Googles competitive response to PayPal. Google Checkout fees are reasonable. Google Checkout is definitely a player since over 80% of online traffic is routed via Google. Their interface is very user friendly and they make it easy to charge credit cards. They also have a buyer and seller protection features, which provides peace of mind to both the merchant and the buyer. Google Checkout has no setup fees. Most merchants: a) Get a REAL Merchant Account which accepts Visa, MasterCard and American Express. b) Integrate PayPal into the shopping cart c) Integrate Google Checkout into the shopping cart. Security Having a secure payment gateway is very important for any business, especially for a small business. Without it, they risk the vitality of their business and the safety of their customers

identification. Experienced e-commerce developers can analyze a websites security, check the code and make sure the payment portal is integrated properly. Payment Card Industry Data Security Standard (PCI DSS) provides an actionable framework for developing a robust payment card data security process including prevention, detection and appropriate reaction to security incidents. Compliance with the PCI Data Security Standard (PCI DSS) is vital for all merchants who accept credit cards, online or offline, because nothing is more important than keeping the customers payment card data secure. Compliance is a matter of following 12 requirements in the standard, working with the acquiring bank and using the tools offered through the Council. PCI DSS compliance is an ongoing process that includes continuously assessing operations, fixing any vulnerability that is identified, and making the required reports to the acquiring bank and card brands the merchant does business with.

How Payment Gateway works Following diagrams show how a transaction is processed. In these diagrams, Authorize.Net is shown as the Payment Gateway. Step1: The Customer submits his credit card for payment

Step2: Payment Gateway, Authorize.Net in this example manages the complex routing of the data on behalf of the merchant through the following steps/entities.

Step3: Payment Gateway passes the secure transaction information via a secure connection to the Processor. The Merchant Bank's Processor submits the transaction to the credit card network (like Visa or MasterCard). The credit card network routes the transaction to the bank that issued the credit card to the customer.

Step4: The issuing bank approves or declines the transaction based on the customer's available funds and passes the transaction results back to the credit card network. The credit card network relays the transaction results to the merchant bank's processor. The processor relays the transaction results to the Payment Gateway.

Step5: Payment Gateway stores the transaction results and sends them to the website for the customer and merchant to see.

Step6: The merchant delivers goods or services to the buyer.

Step7: The issuing bank sends the appropriate funds for the transaction to the credit card network, which passes the funds to the merchant's bank. The bank then deposits the funds into the merchant's bank account. This is called 'settlement', and typically the transaction funds are deposited into the merchant's primary bank account within two to four business days.

References Authorize.Net http://authorize.net What Every Merchant Needs to Know about Payment Gateways http://blog.unibulmerchantservices.com/what-every-merchant-needs-to-know-about-paymentgateways/ What is a payment gateway? http://en.wikipedia.org/wiki/Payment_gateway Data shows importance of reliable online payment gateway http://www.eway.com.au/ecommerce-news/post/2011/05/09/Data-shows-importance-of-reliableonline-payment-gateway095.aspx http://www.shopmotion.com/e-commerce/en/sicherheit.html Importance of Payment Gateway Security for a Small Business http://www.dotcomweavers.com/blog/2011/04/21/importance-of-payment-gateway-security-fora-small-business/ PCI Standards https://www.pcisecuritystandards.org/ Credit Card Processing: How It All Works http://www.practicalecommerce.com/articles/168-Credit-Card-Processing-How-It-All-Works E-commerce payment system http://en.wikipedia.org/wiki/E-commerce_payment_system Ecommerce Payment Methods http://www.optimum7.com/internet-marketing/online-payment-methods/ecommerce-paymentmethods.html

http://schogini.biz - Payment Gateway Integrators

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