Payment Gateways: Introduction

Modern market environment constantly calls for new solutions in the area of credit card processing.

For many merchants in today’s market it is extremely important to make the right decisions concerning merchant accounts, merchant services and merchant relationships. Unfortunately, many merchants are stuck with the misconception that when it comes to merchant services the only thing that matters, the only determining factor while making a decision, is the price. Or, to put it simply “whoever offers a better deal in terms of costs is going to be the preferred choice”. While the cost actually is the most important aspect, it is far from being the only one.

Feeling the need for informing the key players of merchant services industry about various aspects of credit card processing, we’ve decided to publish a mini-series of posts intended to help individuals and organizations facing the task of credit card processor\payment gateway selection. Each of these posts will be dedicated to some specific aspect to be considered while selecting a payment gateway.

The series is addressed to the two groups of entities we are going to refer to as merchants and resellers. Merchant’s and reseller’s viewpoints will provide the two key payment gateway selection perspectives. In order to ensure clear understanding of our terminology, it is appropriate to start by defining these two terms.

Payment gateway selection perspectives: merchants and resellers

A merchant is a business that needs to process transactions for itself. Let us consider a health club as an example of a merchant. The reason for choosing a health club as the most illustrative example among potential ones is because a health club has multiple uses for credit cards.

A health club needs to process transactions (a retail “card-present” transaction) at the point of sale (for instance, a member buys a protein shake). On the other hand, any decent health club has a web-site where customers can also make payments and buy things online – so here’s where e-commerce comes into play. And, finally, sometimes club representatives might contact their clients by phone to collect past dues – that is another example of card-not present transaction, beside online payments. As we can see, a health club usually conducts transactions involving several so-called industry types, both card-present and card-not-present (retail, e-commerce, direct marketing, mobile and others).

Alongside merchants, there is an emerging group of entities (people or organizations) functioning as intermediaries between merchants and processors. Here we are going to call this group resellers. Resellers help merchants to get their merchant accounts or contribute to processing of the transactions in some other way. Examples of resellers include software companies, ISOs and, potentially, franchise owners.

Since a health club is chosen as a merchant example, a fitness software company should provide a suitable example of a reseller to refer to. Most club management software packages today have credit card processing as their component. People using the club management software automatically become prospects for the sale of merchant services. This provides the software company with an opportunity to partake in residual revenue. It becomes the link to connect the club with the processor\payment gateway (in technical terms) or the ISO\underwriter (in business terms).

Now that the play-field is defined, it’s time to move to analysis of specific features to be considered during payment gateway selection. The next installment is going to cover the processing costs.