Ecommerce is where consumers can purchase goods and services over the web using their credit card. The basic process of how this works is shown below.

Overview Of How Ecommerce Works

	A consumer visits your website and uses your online store to make a purchase. The transaction is conducted over a secure connection (SSL) to your web hosting server.
	Payment Processing Gateway handles the secure, real time encrypted credit card information and co-ordinates the transaction
	Merchant account processes the movement of funds
	Funds are debited from the consumers credit card account
	Funds are deposited into your designated bank account

What You Need To Handle Ecommerce

There are different levels of ecommerce integration. You can make it very simple by letting a 3rd party such as Paypal handle all your ecommerce processing, or you can integrate everything into your own website.

To integrate everything into your site, you need a website setup to display your products

• You can use a shopping cart type system
• You can create your own system with a database and custom designed website

If your site is going to accept credit cards then you need to have SSL (Secure Socket Layer) capability. This encrypts any information sent between the consumers PC and the webserver. When a SSL connection is in place you see the lock icon on the browser on the bottom right hand side.

• You can use the hosts shared SSL area - this way you do not need your own certificate
• You can buy your own SSL certificate (around $100 a year), you will need a hosting account with a Unique IP. This looks far more professional than using a system like PayPal.

If you intend to do everything from your site and not use a 3rd party like paypal, then you will also need a merchant account and an account with a processor. For tips on how to choose a merchant account read this imrankhalid.5u article Choosing An Internet Merchant Account

Surf to Google and perform a search on "Internet Merchant Account". The results are staggering (472,000 results!) If you have created a web based business and need to accept credit card payments, your choices are limitless. Before you partner with a provider, take time to understand the different components of internet credit card processing, and know what to look for in a merchant provider.

How It Works

Accepting credit card payments through your web site actually requires multiple components. Between a paying customer and your bank account, three layers exist:

Payment Gateway - This is the code that will transmit a customer's order to and from an internet merchant account provider. The payment gateway provides you the ability to accept customer billing information (credit card number, credit card type, expiration date, and payment amount) and the necessary validation steps that must be followed before the credit card is actually billed.

Internet Merchant Account - A Merchant Account is an account with a financial institution or bank, which enables you to accept credit card payments from your clients. The payment gateway actually transmits the billing information to the internet merchant account provider. Unfortunately, most local banks do not provide internet merchant account capability.

The main reason why most local financial institutions or banks do not want to provide online merchant accounts is because transactions conducted over the Internet are totally different from face to face transactions where a signature is required to authorize the purchase. This makes online transactions prone to credit card fraud. Fraud protection should be one of your primary considerations when choosing an internet merchant account provider.

Web Site - Regardless of which merchant provider and gateway service you choose, your web site will need to integrate with your service providers. Most providers include detailed web integration instructions.

How Much Does It Cost ?

Understanding the total costs of your merchant provider can be tricky. Remember my Google example - there are more merchant account providers than there are people looking for internet merchant accounts so ask questions and be picky! Typically, an internet merchant account will have three types of costs:

• Up Front Application Fees
  
• On Going Fixed Fee
  
• Discount Rate
  
• Fixed Transaction Fee
  
• Termination Fees
  
• Miscellaneous Fees

Let us discuss each type of cost:

Up Front Application Fees

Many internet merchant accounts will require an up front application fee. This fee, supposedly, is to cover their costs for processing your application. In case you choose not to open an internet merchant account, they still cover their initial costs. Although common, many providers waive these fees and I recommend that you choose a provider that does not require an up front fee.

On Going Fixed Fee

Most all internet merchant providers require a monthly fixed fee or "statement fee" as it is commonly named, which is simply another way to cover their costs and make money. You will be hard pressed to find a provider that does not require this type of fee on a monthly basis. However, do not choose an internet merchant account that requires more than $10 per month. Additionally, most internet merchant providers require a monthly minimum (usually $25). The bottom line is that you will be paying at least $25 per month (on top of the monthly statement fee) for your account.

Discount Rate

Usually, the discount rate will be between 2 and 4 percent. The discount rate is the sales commission the provider earns on each sale. For example, if the discount rate offered is 3%, and you receive a sale over your web site for $20, you will owe 60 cents to your internet merchant provider.

Fixed Transaction Fee

Usually between $0.20 and $0.30, the fixed transaction fee is the fixed fee portion of each sale. Unlike the discount rate, the fixed transaction fee is the same for every transaction. Whether you get a $1 sale or a $100 sale, the transaction fee will be the same.

Termination Fee

A bit more hidden in the small print, a termination fee can apply if you cancel your merchant account within a specified period of time (usually within one year). But beware, some merchant providers require a three year commitment!

Miscellaneous Fees

If a customer requests a refund and they want their credit card credited, an internet merchant provider will charge you a separate fee (usually between $10 - $20). Read the contract carefully, as other special fees may apply.

Putting It All Together

Now that the different fees have been explained, let us look at an example set of transactions to help understand what an internet merchant account may cost your business on a monthly basis.

I have created a simple formula to help you calculate your monthly charges:

Total Charges = Statement Fee + Number of Transactions x (Average Sale x Discount Rate + Fixed Transaction Fee) + (Number of Chargebacks x Chargeback Fee)

For example, let us see you sell widgets over the internet. The sales price for each widget is $10. You typically have 100 sales per month and about 5 people request refunds (chargebacks). For this example, let us assume you have signed up with Jones&Jones internet merchant account services and have the following terms:

Discount Rate - %2.5
Statement Fee - $10
Fixed Transaction Fee - $0.30
Chargeback Fee - $15

Using my formula above, your monthly Jones&Jones charges will be:

Total Charges = 10 + 100 x (10 x .025 + 0.3) + (5 x 15) = $140

You can calculate your monthly sales revenue by multiplying your sales volume by your price:

Monthly Sales Revenue = 100 x $10 = $1000

Your internet merchant provider is costing you 14% of your total sales.

Making Your Decision

Before you choose and internet merchant provider, understand all of the cost components. Use your current or projected sales data to forecast what your internet merchant account costs will be. Planning ahead can save you time and money.