E-Commerce Options Primer

So, you want an online store. But how do you get started? What are the options? This article will try to address some of those questions and more.

First of all, what is e-commerce? Simply stated, e-commerce is a way for customers to make payments for a product or service online. Most often that includes a virtual storefront, shopping cart and payment processing via credit/debit cards, and/or ACH (Automated Clearing House) electronic funds transfer.

Third Party vs. Merchant Account

Basically, there are two main ways to handle e-commerce payments, each with multiple options and variations.

With a third party merchant, your users will typically be taken to a separate hosted payment processing site for checkout or in some cases, the entire site is hosted on the third party’s server. With this method, the funds usually go to the third party merchant first, then they are transferred to you, either manually or automatically. Examples of third party merchant systems include PayPal, Google Checkout, Network Solutions, Yahoo Store or Volusion.

Pros: Third party merchants are easy to sign up for. Implementing them is simple and inexpensive. They don’t generally have extensive financial qualification requirements. They typically have secure checkout processes in place already, including an SSL certificate.

Cons: Third party merchants often have design and/or feature limitations, because you’re using a pre-made system. Per transaction fees are usually higher. Taking users to a separate site upon checkout can be confusing and affect customer confidence adversely. Some third party merchants do not employ Web standards and as a result, don’t get great SEO (search engine optimization) rankings. It takes longer to get your money.

Private Merchant Account

With a private merchant account, the checkout portion of the site is hosted on your server. Your site may be built custom from-scratch or customized from a pre-built platform. Some pre-built platforms include Magento, Zen Cart, osCommerce. With a private merchant account, the funds are automatically deposited into your bank account, usually within a couple of days. A private merchant account also requires a payment gateway and SSL certificate.

Pros: A private merchant account allows your user interface to be built custom, or at least significantly customized. Users remain on your site through the entire purchase process. It takes less time to get your money.

Cons: Merchant banks can have stringent qualification requirements, especially for certain industries like travel. Up-front development costs are usually higher. There are sometimes up-front fees for the merchant account, payment gateway account and SSL certificate, as well as ongoing fees.

Payment Gateway Account

A payment gateway account is sort of like a middle man who communicates between your site and the merchant bank. A payment gateway allows merchants to electronically submit payment transactions to the payment processing networks (Credit Card Interchange and ACH Network). Payment gateways also provide merchants with transaction management, reporting, and billing services. Examples of payment gateways include Authorize.net and Verisign.

SSL/TLS

SSL and TLS are what protect your users confidential information. SSL (Secure Sockets Layer) and its successor, TLS (Transport Layer Security), are cryptographic protocols that provide security and data integrity for communications over the Internet. That means your users can provide sensitive information such as a credit card, address and phone number, and the data will be encrypted to protect against theft. SSL or TLS Certificates are digital documents which allow servers to prove their identity to Web browsers, because they are issued by an authentic certificate authority like COMODO, Verisign or GeoTrust.

Which one is right for me?

The first step in deciding on a plan of action for an e-commerce site is deciding which of these options is best for you. If you are looking for lower up-front cost for a lower volume store and you are not too particular about the interface, then a third party merchant is probably the best way to go. If you are planning for higher volume or a custom interface, then a private merchant account will be best.

Talk to your developer in detail about all of these issues to make sure you decide on the right plan for your site.