Online Payment Systems
An online payment system allows two parties to conduct business transactions online. Online payment transactions include but are not limited to:
- Paying for online purchases
- Receiving secure, instant payment for auctions
- Sending a payment request to a customer
- Sending money to friends and family
- Receiving charity donations
- Collecting money for a group gift, an event or a dinner bill
Five Different Online Payment Methods
All online payments require four components to complete a transaction: online payment interface (shopping cart), Secure Certificates (Security), payment gateway, and an online merchant account. There are five different online payment transaction options that implement these four components in different ways:
Direct Payment Gateway
To conduct an online payment transaction, the customer provides their information to the merchant’s online store who in turn, using direct payment gateway software automatically processes the customer’s information.
An advantage of a direct payment gateway is that a merchant has the ability to customize the client interface. However, additional programming skills are required to implement and maintained such a system.
Additional requirements for a direct online payment gateway include a Merchant Account and a Secure Certificate.
Examples of firms that provide direct payment gateway include www.e-xact.com and www.versapay.com
3rd Party Payment Gateway with Merchant Account
To conduct an online payment transaction, a customer provides their payment information to a 3rd Party payment gateway who in turn, processes the customer’s online payment information.
An advantage of a 3rd Party online payment gateway is that little or no programming is required since it will be the 3rd Party online payment gateway’s responsibility. However, information access and formatting options are limited to the merchant. Also some customers may be confused or suspicious when their online payment is redirected to another website.
An online merchant account is required but not a Secure Certificate which will be provided by the 3rd Party payment gateway. Fees are also lower if the merchant provides its own Merchant Account
Examples of firms that provide 3rd Party payment gateway include www.2checkout.com and www.beanstream.com
3rd Party Payment Gateway without a Merchant Account
To conduct an online payment transaction, a customer provides their information to a 3rd Party online payment gateway who in turn, processes the customer’s information.
An advantage of a 3rd Party online payment gateway is that little or no programming is required since it will be the 3rd Party online payment gateway’s responsibility. However, information access and formatting options are limited to the merchant. Also some customers may be confused or suspicious when their online payment is redirected to another website.
No Merchant Account or Secure Certificate are required since these are provided by the 3rd Party payment gateway. Fees are higher if the 3rd Party payment gateway provides the Merchant Account.
Examples of firms that provide 3rd Party online payment gateway include www.internetsecure.com and www.novainfo.com
Manual Online Payment Processing
To conduct an online payment transaction, a customer provides their online payment information through a secure form (usually Paypal). The merchant then receives the online payment information (commonly by email) and manually authorizes the sale. This method of online payment is commonly applied in internet auctions (eBay)
An advantage of manual online payment processing is that each order can be scrutinized by the merchant. However, it is a very slow process since the merchant will have to manually authorize each order.
A standard Merchant Account and a Secure Certificate is required for this transaction. This method is ideal for low volume merchants.
Manual Online Payment Processing is often used in conjunction with PayPal
Alternative Online Payment System
To conduct an online payment transaction, a customer provides their online payment information to an alternative online payment provider like PayPal, WorldPay, Money Bookers, or gPay who in turn, processes the customer’s online information.
An alternative online payment system is affordable and simple to setup. Another advantage is that a merchant can use an established alternative online payment system provider such as PayPal or WorldPay to assure their customer’s security. However, some customers may be confused or suspicious when redirected to another website. Information access and formatting options are limited in an alternative online payment system. An additional disadvantage is that Alternative Online Payment Systems have high chargeback fees when a payment is recalled by the customer.
No Merchant Account or Secure Certificate are required which are provided by the alternative payment providers. Fees are the highest of all 5 transaction methods.
Examples of alternative online payment include PayPal, WorldPay, Money Bookers, and gPay.
Each online payment methods have its advantages and disadvantages. Knowing the business will help in selecting an appropriate online payment method.
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