So what is a merchant account? A payment gateway? Do you need a shopping cart or e-commerce system and what's the difference? The tech behind e-commerce can baffle the most skilled programmer or designer. It's not as complicated as it seems, though. Take a look at the following diagram:
So what's going on here? Well, your customer only sees your website and shopping cart, but you can't function all by yourself. You need the payment gateway and merchant bank to make sure the customer's credit card information is valid and there are the funds available to purchase the items on your site.
A merchant bank account is just that, a bank account. It allows you to accept credit cards such as Visa, MasterCard and American Express. The merchant bank does all the work, verifying the card information with the credit card company and crediting your account. A payment gateway is a company that specializes in interfacing with merchant banks. Most banks have different proprietary computer systems; a payment gateway can communicate with all of them.
The shopping cart or e-commerce system on your website will contact the payment gateway and transfer the customer's information securely (see SSL later). The payment gateway then contacts your merchant bank on your behalf who verifies all the information, processes the transaction and credits your account when the transaction is complete.
One important thing to note is that many merchant accounts now include the payment gateway, so you can get a one-stop solution for your credit card processing. Companies like Authorize.NET (the payment gateway) partner with merchant banks (like Wells Fargo) to provide you with an all-in-one solution and save you money on monthly fees and charges.
Merchant accounts can be expensive though, and are only really worth the money if your revenues are over $2000 per month. If you are planning on selling a lot less, you may want to consider a third party payment processor such as Paysystems, 2Checkout or WorldPay. They use their merchant account, host the payment forms on their secure server and process all transactions for you. They have higher per transaction and percentage charges but usually have no monthly fees and low setup fees. If you are expecting low revenues while you get started this may be an alternative to an expensive merchant account.
Some third party payment processors also include a shopping cart. Paysystems, 2Checkout, WorldPay and Paypal are all third party processors that offer shopping cart services. If you choose to go with a third party processor, be sure to get an online demo first. Some let you customize the look and feel to match your own site while others force you to use their proprietary look. Make sure it has the features you need before signing up.