Shopping Cart Comparison | The Payment Process | e-Commerce In General
Understanding the payment process.
When starting out trying to know where to begin, people often have lots of questions. Questions like:
- "What's an Acquiring Bank?"
- "What's an Issuing Bank? And what do they do?"
- "What's a Merchant any ways?"
- "What's a Gateway? What does this do for my site?"
Without going into all of the techno lingo of precisely what makes it tick, we'll try to give you a fairly straight forward explanation of how a typical shopping cart processes payments.
The Players
There are 5 players to any transaction that takes place online. These are:
- The Customer (the individual or company purchasing from the website)
- The Merchant (person or company that owns the ecommerce site)
- The Gateway (a script owned by a company that connects the ecommerce site to the Acquiring Bank; Verisign, Authorize.net and Paypal Website Payments Standard/Pro are examples of this)
- The Acquiring Bank (typically a regular bank; examples are HSBC, Bank of America, Key Bank)
- The Issuing Bank (typically a credit card company; MasterCard or Visa for example)
Placing an order
Is the lingo a little confusing? Don't get hung up on it, we'll explain it more in depth later. So, now that you know the players, here's how a typical scenario will work.
You (the Merchant) own an ecommerce site called awsomesunglasses.com Good friend Jack (the Customer) is looking to buy a pair of really cool sunglasses. He types in some key-words in Google, and viola! Up pops your site, awsomesunglasses.com. After searching through your inventory for a few minutes he finds a pair that he really likes. Perfect! Time for a sale.
The Payment Gateway
After Jack types in his payment details and clicks "Submit", the purchase details are passed from your website via secure SSL encryption to what is know as the Gateway.
The Gateway is a script that receives all of the order and payment information from the Merchant website (a.k.a. your website).
A few examples of Payment Gateways are:
- Authorize.net
- Pay Pal Website Payments Standard/Pro
- Plug 'n Pay
- Verisign
In our example, we're going to assume you're using Verisign for your gateway. After receiving the order and payment information, the Gateway then forwards the transaction details to the merchant's Acquiring Bank.
The Acquiring Bank
The acquiring bank receives the payment information from the gateway. The Acquiring Bank is usually whatever bank the Merchant (you) chooses to use.
A few examples of Acquiring Banks are:
- HSBC
- Bank of America
- Pay Pal
- Key Bank
In our example, we'll just assume you went with Key Bank for your Acquiring Bank. After receiving the order and payment information, the Acquiring Bank then forwards the transaction details to the merchant's Issuing Bank.
The Issuing Bank
The Issuing Bank receives the payment information from the Acquiring Bank. The Issuing Bank is the bank that issued the credit card to the Customer.
Typical examples are:
- MasterCard
- Visa
- Discover
- American Express
Basically, whatever card the Customer uses for his or her purchase is what the Issuing Bank will be. And it will vary from customer to customer. In our example, we'll just assume our customer Jack used an American Express card.
All of the credit card payment details are verified for accuracy by the Issuing Bank, and then a response is sent back to the Acquiring Bank which forwards the message and details back to the Gateway.
The payment gateway receives the response, and passes it on to the website where it is interpreted and a relevant response then displayed to the customer. (e.g. "Your credit card was declined because: The card number was not valid" or "Purchase Confirmation. Your card was accepted.)
Overview
So here's the whole process again a little bit faster.
Jack (the Customer in our example) purchases a pair of sunglasses from you (the Merchant in our example) Your website encrypts the order information and passes it on to Verisign (the Gateway in our example).
Verisign receives the data and passes it on to Key Bank (the Acquiring Bank in our example).
Key Bank receives the data and passes it on to American Express. (the Issuing Bank in our example)
American Express verifies the accuracy of the credit card, and then passes the order details along with a card accepted-or-declined message back to Key Bank.
Key Bank passes the data back to Verisign.
Verisign passes the data back to your website and the Jack reviews the result.
The whole process usually takes 3-4 seconds to complete.
At the end of the bank day or settlement period, the Acquiring Bank deposits the total of the approved funds into the merchants nominated account. This usually is an account with the Acquiring Bank processing the details, although it can be with whatever banking entity the merchant chooses.
