We now live in an era where you can sell almost anything online, from real jetpacks to Han Solo phone covers. Regardless of how crazy some ideas may seem, selling online is not as simple as setting up shop and slapping the virtual “Open” sign on the door. If you’re going to create an online store and accept virtual (card not present) payments, you have to have the capability and security to do so (see our SSL article for more detail on security). In a place where bitcoin is more common that cash, this can be as confusing as an LA freeway.
Payment processors don’t exactly make this process any easier. Some include merchant accounts, some require extra fees to set up a merchant account, pricing structures are inconsistent, and the features each payment solution offers can vary. (Side note: Cart66 posted a solid overview of fees you can watch out for here.) We’ll try to point out some common questions to ask yourself when selecting a processor and list some major companies to consider for your online store. Curious about how the online payment process takes place? Authorize.net has a good diagram to show how online payments are handled.
How are Merchant Accounts and Payment Gateways Different?
First of all, online stores must abide by some of the same rules as brick-and-mortar stores. Your store has to have a merchant account to process credit card payments. Your merchant account has nothing to do with the way that you accept payments; it’s your “bank account” for accepting credit card purchases, and involves an agreement between you and the credit card company establishing your ability to accept payments and the fees associated with doing so. The money involved in a payment transfer is held in your merchant account until it’s transferred to your bank account.
There are two types of merchant accounts: dedicated and aggregated accounts. Setting up a dedicated account, which is an account set up for only your business, can be an involved process, but it allows you to negotiate customized rates for your transactions. If you’re processing really large transaction volumes, this may be a worthwhile process for you, but chances are you should never have to do this. If you’re just starting out, an aggregated merchant account will suit you better and will probably be what you stick with unless your store gets pretty huge. Aggregated accounts are typically managed by a processing company (such as Stripe), where your money is held in a large account until being transferred to you. Setup is far less involved than a dedicated account, but you won’t be able to negotiate rates or how quickly transfers occur. However, you’ll at least know exactly what your costs will be and can plan accordingly.
So where does the payment gateway come in? All the payment gateway does is replace the physical point-of-sale terminal, allowing you to send sensitive information to the processor or acquiring bank, and sometimes reducing the responsibility on your website for security. The payment gateway is essentially your virtual swipe machine. However, while that sounds simple, the process behind gathering and sending sensitive payment information is complex, and investing in a quality payment processor may be one of the most important decisions you make for your store. Still confused? Cart66 posted a good overview of the differences between merchant accounts and payment gateways that I’d recommend checking out.
Which Payment Processor is for me?
My favorite payment processor to use is Stripe (see our Stripe article for more details). Setting up an account is easy, and they handle almost every step of setting up a merchant account and payment gateway for you. They also have integrations with almost every eCommerce platform for WordPress. However, Stripe is currently only available for merchants in the US, Canada, UK, and Ireland. They’re in the process of supporting merchants from other countries, but that may eliminate it for some of you.
Some questions I would ask myself before settling on a payment processor include:
- Do I have a merchant account already? If not, I’d select a service that provides one since it will save you a lot of headache.
- What card types do I want to accept? If you already have a merchant account, this may already be determined for you, and you may have different fees for different card types (for example, American Express typically charges higher fees than Visa). However, if you’re looking for a new payment processor and merchant account, you’ll want to consider this.
- Does the payment gateway / merchant account operate in my home region? If you’re in the US you probably won’t have to worry about this, but if not you’ll need to check.
- Am I willing to pay a monthly cost or setup fees?
- Do I need the ability to save cards (tokenization) or process recurring payments?
- Will I be processing a lot of international transactions? (Some services, such as PayPal, charge high international fees even though the payments are accepted)
Instead of going through a rundown of payment processors to check out, I’d invite you to check out this document, which presents a spreadsheet of processors with some notes so that they’re easier to compare. If you’re new to the game, just use Stripe. If you already have a merchant account, then take a look at the document and see which gateway you’d prefer instead; I’d probably go with Authorize.net or Payflow in that case.
As always, if you have other suggestions or companies you’ve had good experiences with, please let us know in the comments 🙂
PS: I find my wacky online purchase ideas from This is Why I’m Broke. You will never be the same again once you see all the marvelous things one could buy with a credit card and internet connection.