Page 177 - DCAP306_DCAP511_E-COMMERCE_AND_E-BUSINESS

E-Commerce and E-Business

2. Debit or Prepaid: Users pay in advance to the banks or financial institutions.

Prepaid payment mechanisms are stored smart cards and electronic purses which
store electronic money.

3. Credit or Postpaid: Server authenticates the customers and checks with the bank if the funds are
sufficient before purchase.

Postpaid mechanisms are credit or debit cards and electronic cheque.

Most of the e-commerce Web sites accept credit cards. Merchants require two components to accept
credit cards online:
1. Merchant Account: This allows the customers to accept credit cards, online or otherwise. For this
purpose, the merchant will have to set up a merchant account with a bank. A merchant account is
a term used for a business banking relationship where customer and the bank arrange to accept
the credit card payments. Establishing a merchant account usually involves understanding the
business and also working with a third-party processor to arrange a mechanism for accepting the
payments.
2. Payment Gateway: This is an online payment service, which connects users of the Web site with
the merchant account to process the payment. It is the link between the Web site and the bank.
When a merchant submits a payment transaction to the payment gateway, it is sent through a
secure connection from the Web site. When the customers submit their order they get some type of
notification that the order has been submitted. The transaction data is then routed from the Web
site to the merchant’s bank processor, which then submits their information to a Credit Card
Interchange (CCI). The CCI is an organization responsible for managing, processing, clearing, and
settling credit card transactions. The CCI routes the transaction to the customer’s credit card
issuer, where it is either approved or rejected based on the balance available on the card. The
transaction again goes to the payment gateway which is responsible for saving the data and
sending the results of the transaction to the customer and merchant. In the last step, the CCI will
send the funds to the merchant’s bank for deposit. While the payment processing routine might
seem long, the whole process normally finishes in a few seconds.
Merchants must have a merchant account with the financial institution and must choose an appropriate
shopping cart software as well as payment gateway to handle the transaction.
Integrated merchant accounts have a merchant account and payment gateway integrated into one
service. These are more convenient, but often charge high fees.
Merchant accounts mostly charge a percentage of the transaction. They also charge:

1. Setup fee
2. Monthly or annual fee
3. Fixed amount per transaction
The user should know the number of transactions before shopping and the average value of each
transaction. Normally, higher volume transactions have lower fees. Some banks may be reluctant to
provide merchant account to a business with no trading history.
Most payment gateways have the same fees. Many charge a fixed amount per transaction rather than a
percentage. They will sometimes provide extra features like fraud detection.

Did you know? Payment gateways service can be scripted using scripting languages like PHP, Perl,
and dot-Net.

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