The Hostinghosting.co.uk Guide to the private networks of Payment Gateways and Merchant Services:

How best to transact business on the Web is the hottest topic in the Internet industry. Along with the new medium have come new problems, and, new solutions. Constantly new payment systems are being announced, each boasting features that set it, and the company that promote it, a step ahead of the rest. Or do they? We now have Digital money or E-cash, Electronic Cheques, Internet credit card payments, Micropayments and even DoughNET (E-commerce for kids!).

Setting standards for security and business practices is an issue that financial institutions, government and Internet professionals will debate well past the year 2000. Though many of the new systems may find utility -- when the smoke lifts and the E-commerce terrain becomes clearer, for the time being credit cards will be the main form of E-commerce currency. Aside from fine-tuning, the system already functions, consumers understand it, and the basic security measures are already in place to protect it.

Introduction to the search for a total E-commerce solution

In an E-commerce transaction, credit information travels back and forth, through four links, in two distinct environments: One, the Internet where information is relayed through a public network between the consumers computer and the server on which a site is hosted; two, a private network linking together what is called a Payment Gateway and a Merchant Bank. Essentially, a request for credit approval goes from the consumer's computer, through the server, through the Payment Gateway and to the Merchant Bank. The Merchant Bank then in turn responds to the request and sends its decision back through the chain to the consumer.

For more information on the Internet connections that make up public network see the Hostinghosting.co.uk guide to Turnkey E-commerce Hosting.

What you need to know about your Payment Gateway and Merchant Service:

How the Payment Gateway links to the net

The Payment Gateway links into the net through a secured server (See SSL). Depending on the Payment Gateway, the Web pages (not necessarily the whole Web site) into which Credit information is entered can either be hosted at the Payment Gateways facility or at an SSL enabled server that your Web host provides. Often this 'cash register' page appears and is clearly marked as a page belonging to the Payment Gateway, in other systems it can be made to appear as part of your Web site with your logo and company information on it.

After this point all information enters the private network and dedicated communication lines of the Payment Gateway and the Merchant Bank.

The private network

After credit card information leaves the Web hosts server, it leaves behind the open information highway and enters a private network maintained by the Payment Gateway and its Merchant Bank. Here, all data transmissions take place over dedicated lines and are protected by the same kinds of systems that banks use for PIN's shipped from ATM networks. This is the credit card processing system, known as the 'back end' of your E-commerce business and consists of two integrated parts. The Payment Gateway is an Internet specific E-commerce institution that links to the traditional banking system represented by the Merchant Bank that holds the Merchant Account.

Who sets up my Merchant Account?

All the necessary leg work and credit checks are managed by the Payment Gateway offering the package. If they don't then think twice about the added hassle of building this link yourself! Most of these packages work with the major credit cards and you will be credited directly by the Payment Gateways Merchant Bank.

The private network

Although, The Payment Gateway and the Merchant Bank are two separate entities the services are bound together. When you choose a Payment Gateway you choose their Merchant Bank. In essence the Payment Gateway has pre-arranged the credit approval system and payment system of the Merchant Bank for you. The Merchant Bank checks with the issuer of the Credit Card and has agreed to honour that credit and pay you.

Some Merchant Banks will send you a monthly lump sum to your bank, some will pay on every transaction as it happens and some can directly deposit into your account This all depends on your bank and the Merchant Bank your gateway works with. These are important details and should be thoroughly investigated when purchasing a Turnkey E-commerce package or when you are dealing with a Payment Gateway directly.

Summary:

Many potential E-commerce merchants are turning to Turnkey E-commerce packages offered by Web hosting companies. These offer end-to-end service and 'real time' credit card processing. Even in this context it is important to know the details of the service being purchased. Security and methods vary, and linking into one of these systems predisposes E-commerce merchants to using the software provided with the package. However, most E-merchants are not interested the details -- they want to know that it works, that is all -- and they are increasingly turning to hands-free Turnkey E-commerce solutions.

In the future we will see easier more comprehensive, more reliable -- not to mention cheaper -- E-commerce packages but in the mean time, whatever system you choose, expect a few bumps on the E-commerce road.