How Does E-commerce Work?
Understanding e-commerce is quite easy when you look at it from the following perspective. There are 3 major components that make up an ecommerce transaction on any ecommerce site.
The Shopping Cart
The shopping cart is essential to any eCommerce store. Shopping cart software has to be integrated into every eCommerce store to allow visitors to add products they wish to buy into the shopping cart for eventual purchase. All products on an eComemrce website are connected to the shopping cart through “Add to Cart” buttons. Once a customer adds a product to the shopping cart, they can then checkout to make the purchase.
Shopping Cart Example
Once the visitor is ready to make a purchase the shopping cart securely encrypts customer data, such as credit card details, and sends these details to the payment gateway to be processed. There are a large variety of shopping carts, with different features and capabilities which can be used for your eCommerce website. Some of the more popular shopping carts include but are not limited to: Magento, OsCommerce, ZenCart, Bigcommerce, Volution, Shopify, & 3dCart. At Wisevu we would suggest the best shopping cart based on your individual business needs.
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The Payment Gateway
Just like a sales clerk at a brick-and-mortar store swipes your credit card to complete a transaction, a payment gateway does the same thing as the electronic credit card swiping device that the sales clerk uses in a brick-and-mortar store. Once your customer provides their credit card details on your website the payment gateway electronically connects to your customer’s card issuing bank and checks if the funds that are required to complete the online transaction are available on the customer’s card issuing bank.
If the funds are not available on the customer’s card issuing bank then a message will be displayed to your customer informing them of the insufficient funds. Your customer can then try a different card to complete the purchase or they can contact their card issuing bank to fix the insufficient funds issue. However, if the funds are available an authorization will be granted from the customer’s card issuing bank and the funds required to pay for the online transaction will be debited from your customers account. These funds then have to go somewhere. This is where the merchant account comes handy.
The Merchant Account
Once the payment gateway has checked and made sure that funds are available on the customer’s card issuing bank, those funds are transferred to your merchant account or are authorized to your name, which means you have the right to these funds for a certain amount of time, usually 30 days. Whether funds are captured right away or authorized for a certain period of time depends on how you wish to process online transactions. The choice is yours! The account into which the funds will be transferred to is called a merchant account. Therefore, all your online transactions are transferred from your customer’s card issuing bank and held in your merchant account. Then usually once a week these funds are sent to your bank account.
Typical eCommerce Process
The 2 most popular Canadian merchant account providers are Beanstream and PSiGate. These Merchant Account providers also offer payment gateways as a part of the same package, which makes it convenient as you get to kill two birds with one stone. A payment gateway and merchant account package usually costs from $20-$40 per month plus a small transaction fee. That’s really all a merchant account is… A bank account that holds funds from your credit card sales and then transfers them to your regular bank account.