One question I recently got from a forum member was about e-commerce merchant accounts and processing credit cards online, specifically, how does it all work?
Merchant accounts are like bank accounts that process credit card payments and then deposit those payments into your local bank account, less any transaction fees.
There are basically 3 types of merchant accounts:
– Retail Merchant Accounts
These are the merchant accounts that restaurants, stores, hotels and most offline brick and mortar businesses use. They charge lower rates but also expect a higher percentage of sales to be made.
Also the credit cards must be present or 'swiped' through a physical machine.
– Mail Order/Telephone order Merchant Accounts
These merchant accounts are used for transactions that can't take a physical credit card like phone orders, mail orders, etc. but someone is available to physically enter the credit card numbers into a transaction terminal.
This charges for these are a little higher than for retail accounts.
- Online or e-Commerce Merchant Accounts
These merchant accounts are similar to the mail order/telephone order merchant accounts with the exception that no one is entering the numbers into a terminal. Instead it uses a payment gateway to process the payments.
If you will be accepting credit cards online this is what you will be using.
Setting up An e-Commerce Merchant Account
You can set up an e-Commerce merchant account in a few different ways. Either through your own bank or through a third party e-commerce merchant provider.
A common problem that small businesses can face with setting up a merchant account through your bank is if you are just starting out or have bad credit, etc. your bank may not grant you a merchant account.
If that's the case, you can go with an online e-commerce merchant account, the fees may be a bit higher but many of them also provide shopping cart software that you can use on your website that will integrate with your payment processor.
Who you choose will most likely depend on how secure you feel with the service, their various features and the transaction fees that they will charge.
One popular third party alternative is PayPal. This is a popular option because it doesn't require an application or credit check to get set up.
PayPal accepts both digital and tangible products but the main thing to note about using PayPal is that they are not a payment gateway themselves meaning you won't be processing the credit card transactions directly on your site, your customers will be transferred to the PayPal site to make their payment.
Even though PayPal has a shopping cart service and is easy to setup, your site may lose some of its professional look and feel because you are not processing the credit payments directly on your website. Not necessarily a problem, just something to consider 
Also using PayPal means you will have to specifically request to transfer your money from PayPal to your bank account and that can take about 3 or 4 business days.
On the other hand, PayPal has no setup fees. Their charges are .30 cents for each credit card transaction plus about 2.9% a month on $3000.00 worth of transactions. For more than $3000 a month the fees do drop.
Clickbank is another option, although note they only handle digital products and services, they don't process tangible items.
Clickbank has a one-time $49.95 activation fee and the charge for each transaction is $1 + 7.5%. I've been using Clickbank myself for a few of my e-books primarily because of their affiliate recruitment feature but I have to say that after looking into this more I found that PayDotCom may be a better option.
Paydotcom has a one time $29 activation fee for multiple products and that fee lets you set up as many products as you want, unlike Clickbank where you can only sell one product per account which means you will pay $49.95 each time you want to set up a product.
Also Paydotcom allows you to sell both physical and digital products, and they have an excellent affiliate program set up for your products. Hmmm, I may have to consider switching
In Summary…
If you will be setting up a retail store where you will be selling tangible items I'd say go with a Payment gateway e-commerce merchant account that offers a shopping cart service and will allow you to process the credit cards right on your site.
These types of merchant accounts are designed for the retail store that will be taking lots of different orders a day. You'll also get your money in about 1-2 days depending on what service you use and your money can be automatically be deposited into your bank account.
Hope that helps 
{ 13 comments… read them below or add one }
This is confusing:
“Paydotcom has a one time $29 activation fee for multiple products and that fee lets you set up as many products as you want, unlike PayPal where you can only sell one product per account which means you will pay $49.95 each time you want to set up a product on Clickbank.”
You lost me here….what do Paypal and Clickbank have to do with each other?
Thanks.
Ooops, my bad, I meant to say Clickbank, not PayPal. I’ve corrected that, thanks Tom
Thanks for the clarification, Liz. I find this blog very helpful.
…and thank you for calling that error to my attention
Hi here i want to start an e-commerce site for selling Computer products related to Microsoft & Adobe. please reply me with the details.
Paydotcom seems to have more advantage to paypal, need to gather some info on it before proceeding further
sounds interesting products, need to check it out in detail
You can create an awesome e-commerce site with SBI and get step-by-step training as part of the package. Here’s a link to some case studies, scroll down to Louann Shenberger and read about the store she created, it’s pretty awesome and she did it all just by following simple directions.
If you’re serious about selling on the Web you need to be able to accept payments from your customers.
If you are serious about selling on the Web you must have the ability to accept payments out of your prospects.
I think the one thing that I would like to see more of is companies that are more open regarding the credit card processing rates. Sometimes there seems to be a lot of ambiguity, and being someone that works int he industry, that can be frustrating as it reflects poorly on other companies that do that right thing.
Thanks for sharing I enjoyed your post!
Mary Reese
Hi Mary, You’re right ambiguity is something to definitely watch out for. Thanks for your feedback.
Interesting post. I already knew about the credit card companies and Paypal, but Clickbank and Paydotcom sound new to me so I’ll have to check them out and see which work best.