Online Payment: The Tip of the Iceberg?

Figuring out how to set up an e-commerce website is quite like figuring out an iceberg. What is visible is only one-third of the actual size. A lot is submerged below the surface, and one needs to fathom that to understand the size, scope and potential of the iceberg. The same is true with mastering the nuances of e-commerce and creating a successful e-business.


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"Look and feel" and technology are only the obvious aspects of an e-commerce website. A successful website entails a lot more than that. Not only do these include business strategies, promotion and marketing but also tools and techniques--better known as picks and shovels--of e-commerce. Some of these could make or break a website mostly because although their incremental impacts are so minuscule that they may not appear on the radar screen, their combined impact on the bottom line could be so significant so as to make the business unprofitable. Like water drops from a bucket. A single water drop may look harmless but if it is not checked, then the combined might of all the water drops could empty the bucket pretty fast.


In last few features we covered the behind-the-scenes tricks and techniques of search-engine placement to increase the visibility of your website. Another important part of the e-commerce business is accepting payment online.

Why Accept Online Payments?

One critical success factor for an e-business is how easy it is for customers to pay you. You can create a business that interacts with the customers online and provides almost all services through the Internet but then it does not accept the payments online. To pay, the customer either has to send you a check through the regular mail or call your customer service reps. Chances are that such a system would dissuade potential customers from making an immediate decision to purchase from you. And any decision that is postponed means that you need to start all over again to close that sale. Success depends upon closing sales, and the earlier it is done the better it is for the health and wealth of your business. So if you are running an e-business, then it behooves you to provide online payment mechanisms to ensure early closing.

What Accepting Payments Online Entails

One obvious part of accepting payment online is the user-interface through which the customer can provide you with the details of whatever instrument--usually the credit or debit card--that he or she is using to make the payment. Prior to that you have to earn the trust of the customer that the transaction would be secure because when it comes to money security rules, not only should your system be secure but also it should be perceived as secure--but that could be the topic of another feature.


Collecting the customer's credit card or payment information is only the visible part of the online-payment iceberg. The submerged part is what to do next. What would you do with that payment information? How could you verify it? How would you process payments and interact with the complex network of financial institutions? You better learn the nuts and bolts and the entities of the process or you may lose money.


Different entities involved in the online payment process are:


·           Customer: Obviously he or she is the reason that you are reading this.

·           Payment Instrument: The customer provides you with information about the payment instrument--such as a credit card, debit card or electronic check

·           The Issuer: A financial institution, such as a bank, that has issued the payment instrument to the customer. The customer maintains a card-account with the issuer from which the payment is made.

·           The Merchant: You, who are selling goods or services to the customer.

·           The Merchant Account: Like the customer, you also need to have an account into which you could accept the payment by the customer.

·           The Acquirer: A financial institution with which you establish the merchant account. The acquirer processes, authorizes and makes the payment. It provides you, the merchant, with authorization that a given customer card account is active and that it has enough funds to pay you. After the transaction the acquirer enables the electronic transfer of payments to your account, which in turn is reimbursed by the issuer.

·           The Payment Gateway: A payment gateway system is a highly essential part of accepting payments online because it provides the interface between your e-commerce site and the acquirer's financial processing system that processes payments.

·           The Processor: This is part of the financial network. A processor is a data center that processes credit card transactions and settles funds to merchants. It is connected to your site on behalf of an acquirer via a payment gateway.

What You Control

Not all parts of the online payment loop are in your control. Obviously, which instrument the customer wants to use to pay you is not under your control. However you may influence that choice. You may enable the customer to pay you online or may force him/her to pay off-line. You may accept only credit cards, debit cards, e-checks or their combination. You may accept only Visa and MasterCard and not American Express and Discover card as they have few differences. All of this may affect the customer's decision to do business with you.


Similarly, you do not have control over the issuer and the processor. But you could always control with which acquirer you should open the merchant account and what should be your payment gateway. Just like credit card accounts and card-issuer, not all merchant accounts and acquirers are created equal. Whom you deal with will have significant impact on your cash flow and other aspects of payment processing. All merchant accounts come with associated cost and service issues. So you should evaluate as many offerings as possible before selecting one. Some of the things that you need to consider are: rates, processing charges, monthly fees, approval process, transaction settlement process, customer service and payment processing integration.


Setting up an e-business and an online presence can help you tap into a bigger market segment and increase your profitability. However, doing so requires you to master many tasks--not only website development and design. One of them is to make it easier and faster for your customers to pay you. This includes accepting a customer's payment information, securely handling this information and interacting with financial institutions to complete the transactions. How well you understand the process and implement it will significantly affect your success.

Strategic and results-oriented, Sunil has more than fifteen years of experience in management and IT consulting. An entrepreneurial consultant, he had founded a business-to-business eCommerce company, Sunil has provided consulting services to large and small firms in the UK, Far East, India, Europe, and the United States. His area of expertise includes strategic management, strategic marketing and business planning for high-tech firms. An avid mountain climber and runner, Sunil has climbed Mt. Kilimanjaro and various peaks in Himalayas and finished Detroit marathon. He holds an MBA degree from the University of Michigan, Ann Arbor, and a BS in Electronics and an MS in Mathematics from the Birla Institute of Technology and Sciences, Pilani, India. Voice: (703)-395-9812; Email:


'Human existence must be a kind of error. It may be said of it: "It is bad today and every day it will get worse, until the worst of all happens."'

- Arthur Schopenhauer