A payment gateway is basically a virtual credit card machine, designed to work using the internet as your telephone line. One of the benefits of using the internet instead of a telephone line is the faster processing time, in which most transactions only take 2 to 5 seconds, instead of around 13 to 18 seconds for a phone line.

Since the payment gateway is a virtual credit card terminal, there is no equipment to purchase, rent or lease, but instead requires a monthly fee for the service, plus several levels of transaction charges.

In order to use a payment gateway, you must have a merchant account from a front end processor first. Once you obtain this merchant account, you can then apply for a payment gateway service.

The use of a payment gateway may seem more complex than it really is, but it does offer many more benefits than using an integrated service, in which we will discuss more in detail below. Some of the benefits of having separate services in that you can customize your merchant account by fine tuning your agreement with the front end processor. You can negotiate rates and fees charged to you, and save some money by fine tuning the actual type of cards being used by your customers. Cards come in many flavors, such as reward type cards, and just regular cards.

Many factors will contribute towards your decision in choosing a payment gateway system. Your initial decision will make or break your online store, in terms of customer perception which directly affects your sales revenue.

One of the main influences towards the common payment gateway selection comes from the programmer, in which they recommend a gateway that they feel comfortable in programming to. Many of today’s programmers will insist on using PayPal, because PayPal provides pre-written code modules that the programmer can cut and paste to get the mechanics working.

Personally, I think the distrubution of pre-written code modules cheapens the payment gateway product, in which the programmer never really gains a full understanding of the process, and how it works. What I mean by this, is that you must have experience using a credit card terminal before you can just go out and write credit card processing software. Writing code to just process payment transactions is one thing, but you still have to handle voids and credits as well.

The reality is that you need to pick merchant processor that will accept your business first, and then choose a payment gateway that they support. If your store sells gun supplies, then you can't choose PayPal because refuse to support gun supplies. Many people don't know that.

So rule number one is don't let your programmer choose your payment gateway for you. It's OK if they offer you several choices that are acceptable financially. If your only choice is PayPal, then that means there a newbie to eCommerce, and are just getting their feet wet.

Now Payment gateways come in 2 flavors, AIM and CIM. AIM is when you stay on the same website, and the credit card processing is done internally. CIM is when you website redirects to another website, and then brings you back based on the response.

When you put the two up against each other, the scales tip to AIM in my opinion. I think sites that use CIM are cheap, and will lose the trust of the customers when they leave your site to go to another one. It confuses them, and it's not hard these days to scare off a customer. Sites that use AIM stay with the exact same look and feel, so the customer does not get confused. It only takes 1 thing to scare off a customer, and then they abandon their cart and go somewhere else. The sale is now lost.

AIM is complex programming code that sends a named value pair request, or a XML format request to get a response back from the payment gateway. The response then has to be decoded, and a series of program logic has to run to complete the process.

CIM is just taking a little bit of information about the sale, and passing it to the CIM website in the form of a page post back event, in which the values inside the textboxes are the input for the CIM Program. In return, the CIM program will send you back to the original website, in which some new data will be posted in new textboxes, which the CIM programmer will read. Then the CIM programmer can run some program logic to decode the anwser.

The choice is up to you to decide. However I will give my opinion on AIM versus CIM. If you’re young of age, and you’re just dabbling in ecommerce, then go with the CIM. You have to start somewhere, and it's a great starting point. It's low cost, and will get your program up and running..

If your of age and are working with higher dollar amounts, then go with AIM. Otherwise you’re just throwing your investment money in the trash. The difference is whether you’re running a lemonade stand, or running a serious business. Sorry to be so blunt about it, but I know I made my point.

So now that we are past AIM and CIM, let's go to the next topic. Which Payment Gateway should I choose.

Choice One

Well my first choice would be Chase Payment tech using Orbital Salem processing. Why do you ask, because in the long run, I can save around $10.00 USD a month in processing fees, and work my way towards a generous transaction discount. But the caveat is, you need a program or programmer that can support Chase Payment Tech and Orbital, and you need to get approved to use their services.

Choice Two

So now we come to choice number two. I would use Authorize Net, and tie it to a First Data Merchant Account. That will cost me around $26.00 USD a month, but I would still be able to work my way towards that discount. Of course once again, you have to have a program that supports Authorize Net, or a programmer that can write some NVP or named value pair code.

Choice Three

Choice number three, would be a specialty processor, that specializes in let's say gas stations. They can integrate a single merchant account into payment terminals, ATM Machines, and online sales. An example would be Secure Net of Maryland, and HSBC in San Jose, also known as US Merchant. HSBC does the ARCO Stations in CA and NV, with an ARCO Credit Card, Debit/Cash Machine. Those companies are capable of putting together complex payment processing packages for companies dealing with billions of dollars.

Choice Four

Choice number four would be a service like Merchant Plus. It's a Wells Fargo ISO; they have a great rate, and a choice of 2 payment gateways that you can use. I think it can be done for around $24.00 a month, plus transaction fee's of course. But setup is free. There great for a serious online store doing 1 to 2 million a year in sales. I believe the front end merchant proccessor is First Data, and they support Authorize.net and a new payment gateway service, in which I can't remember the name.

Choice Five

Choice number five would be a PayPal Pro Account. But they are very expensive, at $30.00 USD a month, plus up to $3.40 for each AVS Transaction, and all kinds of other fee's as well. I would estimate $30.00 a month plus 5% of the sale. When I looked at their pricing structure, I noticed that they charge for everything. If your selling low margin products, and forced to give away free shipping because you don't have a method to calculate it, then this service will dig deep into your pockets. You could be looking at losing $24.50 on the first hundred dollars of each sale.

Now on the flip side of the coin, PayPal is great for those with poor credit and lttle capital. You can at least get started online so you can generate some revenue and build some savings, while getting your feet wet at the same time. Then when your ready, you can upgrade to better software and a payment gateway that is lower in operating cost.

There's a price to pay for any of the merchant processors and payment gateways that you choose. That's why shaving every penny you can, off of payment processing and shipping will make or break your online store.

The choices are sort of complex, but were trying to make it easier for you. I know that I have just given you enough information that would take you years to figure out, so please check out our marketing partners and advertisers in return for the information.

Each person of decision within an organization will have a different view, or list of objectives when selecting a payment gateway.  Some members will go with what they can program to, others will be brand loyal or go with their perception of how people pay for things on the internet, while accountants will select the cheapest service on the market that gives them the best reports for balancing the account.

Now keep in mind that there are some restrictions for accepting credit cards online. Most Merchant Processors will not underwrite pawn shops, sex toy shops, pornographic websites, gambling websites, even some hard liquor and wine sites. That's where you have to go to a off shore Merchant Processor in the Cayman Islands, United Kingdom, maybe the Middle East like Dubai or Hong Kong.

We may have some off shore processsors available next year. Were looking into it right now, in case a customer requires it.