Path 1: Using your own merchant account

Using this path a company must create its own merchant account and then subscribe to a credit card payment gateway service. It is important to make sure that the credit card payment gateway service provider is compatible with your merchant account provider. This process works in the following manner:

A customer goes to your website, adds some item(s) to the shopping cart and goes to the check out page of your website. There he enters his credit card information which is send to the credit card payment gateway. Credit card payment gateway performs the verification process using AVS or other such systems. Upon successful verification, the financial institution that issued the credit card, debits the amount charged from the customer's credit line. The payment gateway than instructs the financial institution to transfer the amount to the company's merchant account.

Pros:

•  The whole process is automated. There is no need for extra human resources for credit card processing.

•  The whole process is instantaneous. It only takes a few seconds for the verification process to complete and to allocate funds from the customer's credit line.

Cons:

•  Complex fee structure – separate fees charged by the payment gateway and the merchant account provider.

•  Tougher requirements for a merchant account – Banks are usually very selective when providing a merchant account. Usually individuals or companies with not so sound financial condition are either rejected or they end up with higher rates and fee structure.

•  Takes longer to set up the whole system – One must wait for a merchant account before subscribing to a payment gateway service provider.