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Table of Contents

Lead Story

Agents of change


Industry Update

Private label, public dilemma

Fed insures open loop cards

Reading Black Friday tea leaves

PCI help on the way

Boost online loyalty with new tales


From restaurants to revenue streams

The archetype in the mirror

The archetype in the mirror

The archetype in the mirror

The archetype in the mirror

The spend of Holidays past


Consumers' new mantra: Shop smart

Patti Murphy
The Takoma Group

Embracing PA DSS compliance

Dave Faoro

Gear up now for PCI PED compliance

Biff Matthews
CardWare International

The case for collecting fees

Ken Musante
Humboldt Merchant Services

The case for collecting fees

Ken Musante
Humboldt Merchant Services


Street SmartsSM:
E-commerce essentials

Jason Felts
Advanced Merchant Services

Shifting focus for 2009

Christian Murray
Global eTelecom Inc.

Recruiting top college grads

Curt Hensley
CSH Consulting

A little analysis, significant rewards

Jeff Fortney
Clearent LLC

Looking beyond PCI

Tim Cranny
Panoptic Security Inc.

Preparing risk departments for the holidays

Deana Sellens
Take Charge Business Consulting LLC

10 ways to prevent credit card loss

Gino Kauzlarich

Company Profile

On-line Strategies Inc.

New Products

Lift that tradeshow burden

Jelco Inc.

POS in a box

HP rp3000 POS bundle
Hewlett-Packard Co. LP


Ditch the holiday roller coaster





Resource Guide


A Bigger Thing

The Green Sheet Online Edition

December 08, 2008  •  Issue 08:12:01

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Street SmartsSM

E-commerce essentials

By Jason Felts

A few short years ago, a company called was introduced to the world during a Super Bowl game. Not many people had a clue who the company was or what it did, but the commercial generated enough interest and publicity to cause plenty of people to find out what was all about.

Imagine signing that merchant account.

And how about Do you remember William Shatner's now famous line, "This is going to be big, really big"? Indeed it was. has turned into one of the busiest travel portals online - with a merchant account that processes astronomical volume.

Defining the opportunity

This article is dedicated to merchant level salespeople (MLSs) who want to jump into selling electronic commerce (e-commerce) solutions and need an easy-to-follow guide. First, let's review some definitions:

How does a payment gateway actually work?

Now, let's get into the nuts and bolts. With a virtual terminal, a merchant logs into a gateway and submits a credit card transaction to the gateway on behalf of a customer via a secure connection from a Web site, retail store, MO/TO center or wireless device.

After receiving the transaction information, the payment gateway passes the data via a secure connection to the merchant bank's processor. The merchant bank's processor submits the transaction to the credit card acquirer, which routes the transaction to the customer's credit card issuer.

The card issuer approves or declines the transaction, based on the customer's available funds, and passes the transaction results and, if approved, the appropriate funds, back through the acquirer. The acquirer then relays the transaction results to the merchant bank's processor.

The merchant bank's processor relays the transaction results to the payment gateway, which stores the transaction results and sends them to the customer and/or the merchant. This communication process averages three seconds or less.

The credit card acquirer passes the appropriate funds for the transaction (minus fees) to the merchant's bank, which then deposits funds into the merchant's bank account. A virtual terminal is a good option for a merchant who is not doing a high volume of sales online but desires to process transactions anywhere in the world by accessing the Internet.

As for choosing a gateway, Anna Solomon (known as FastTransact on GS Online's MLS Forum) recommends that you match the appropriate gateway to your customer. "Don't sell on price but on features," she said. "Not all gateways are created equal and can offer solutions where others cannot. Check what type of reporting capabilities the merchant is looking for.

"How many users may have access to the gateway? What are the fraud controls? Is it just a switch running the backend or is it a virtual terminal in a call center?

"So do your homework, learn the different gateways so you can sell the best fit for the merchant, and find an ISO that can not only educate you on how to be successful in this market but can take care of your merchant so they can be successful as well."

How does real time e-commerce with shopping cart work?

A payment gateway facilitates the transfer of information between a payment portal and the front-end processor or acquiring bank. When a customer purchases a product online using a real-time processing Web site, the transaction is approved online without the merchant needing to log in (as required when using a virtual terminal).

A customer places an order on a Web site by pressing the Submit Order (or equivalent) button found on the site's order page. The customer's Web browser encrypts the information to be sent between the browser and the merchant's Web server. This is done via secure sockets layer (SSL) encryption.

The merchant then forwards the transaction details to the payment gateway. This is another SSL-encrypted connection to the payment server hosted by the payment gateway. The gateway forwards the transaction information to the processor used by the merchant's acquiring bank. The processor forwards the transaction information to the card brand (Visa or MasterCard).

If an AmEx or Discover card is used, the processor acts as the acquiring bank and directly provides an approved or declined response to the payment gateway. The card brand routes the transaction to the correct card issuing bank. The issuing bank receives the authorization request and sends a response, including a response code, back to the processor (via the same process as the request for authorization).

In addition to determining the fate of the payment, (i.e. approved or declined), the response code is used when transactions fail to define the reason for the failure (such as insufficient funds, or bank link not available). The processor forwards the response to the payment gateway.

The payment gateway receives the response and forwards it to the Web site (or whatever interface was used to process the payment) where it is interpreted, and a relevant response is relayed back to the cardholder and the merchant. All of this takes place typically in two to three seconds.

The merchant must ship the product before being allowed to request to settle the transaction. The merchant submits all approved authorizations in a batch to the acquiring bank for settlement. The acquiring bank deposits the total of the approved funds into the merchant's designated account. This could be an account with the acquiring bank, if the merchant does banking with the same bank, or an account with another bank.

What should I expect in terms of pricing?

First, a potential merchant must have a valid merchant account. Typically, a gateway fee varies from $5 to $10 per month; you may expect to pay up to an additional 10 cents per transaction. Most gateways offer the ability to submit sales via virtual terminal, and they offer real-time e-commerce as described herein.

With real-time processing, merchants need shopping carts. The cost of a shopping cart can vary drastically from free to over $500, based on the needs of individual merchants. For example, some merchants sell one product, for one price, with no shipping cost to calculate. Others like Inc. sell millions of products and have multiple shipping options. In the latter type of environment, merchants need a much more robust shopping cart.

What about underwriting and risk?

Anna Solomon had the following thoughts to share about underwriting and risk:

I concur with Anna's advice. I would also suggest you include accurate information on the merchant processing application, including a valid e-mail address, fax number, true average ticket, expected high ticket and estimated monthly bankcard volume.

It is up to the MLS to educate the underwriter about a merchant's operations and plans for growth. One of the ways to accomplish this is to prepare a cover letter with every application submitted, giving an overview of each merchant's business and future plans.

Who are e-commerce prospects?

E-commerce merchants fall into three categories:

  1. Brick-and-click merchants who have traditional storefronts and sell products and services via the Internet.

  2. Internet-only merchants with no storefronts. These merchants rely on their Web sites for all their sales. They may inventory and ship items themselves or use fulfillment houses.

  3. Web-based auctions. Many merchants and individuals are selling via online auction sites such as eBay Inc., and higher-volume sellers are looking for alternatives to PayPal Inc. for many good reasons, including the high fees and inconvenience to customers.

Selling e-commerce

While I've provided a generic overview, selling e-commerce is a contact sport that requires education on your part and an interview with your potential merchants to understand what they need.

Until you know what you have available and what individual merchants need, selling e-commerce will remain highly challenging.

Recently, one of our sales partners signed a large association with a group of merchants who had typically called their offices from the field to run credit card sales. This association was presented the idea of using a virtual terminal and gave it a try.

The association's salespeople now collect money at the POS and can log in via a secure portal and receive authorization online using their laptops.

These merchants are producing an average of $42,000 per month in processing volume and find it is much less expensive in the long run than paying wireless fees for a fleet of trucks.

I'd like to thank everyone who contributed resources for this article. I challenge all MLSs to research selling Internet-based solutions. This is a tremendous niche market that can prove very lucrative.

Should you have any questions about this or any article I've written, please feel free to contact me directly.

The number of success stories for those who understand and harness the power of selling e-commerce is unlimited. Are you ready to write your success story?

Jason A. Felts is the founder, President and Chief Executive Officer of Florida-based Advanced Merchant Services Inc., a registered ISO/MSP with HSBC Bank. From its onset, AMS has placed top priority on supporting and servicing its sales partners. The company launched ISOPro Motion, its private-label training program, to provide state-of-the-art sales tools and actively promote the success and long-term development of its partners. For more information, visit, call 888-355-VISA (8472), ext. 211, or e-mail Felts at

Notice to readers: These are archived articles. Contact names or information may be out of date. We regret any inconvenience.

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