Once you decide which products you are planning to sell on the Internet, and what type of web store you are going to use in order to display your products, next vital decision that you have to take is to figure out how your customers are going to pay you. Whatever you plan to sell online, accepting credit card transaction is a must! A full 90 percent of all online sales occur through credit card payments.

There are two ways you can add e-commerce capabilities to your website:

1. Having your own merchant account

2. Using third party processors

What is a merchant account?

A merchant account is a special kind of bank account where funds received from credit card transactions are first routed to the special account and held there before being remitted to your business account. You as an online merchant will need an account called Card Not Present Merchant Account.

Having the merchant account is, actually, the first step in processing credit cards online. You will also need a payment gateway. A payment gateway is a service provided by billing processor which allows real time authorization of online transactions. The payment gateway you choose to work with has to be compatible with your shopping cart. Three top payment Gateway providers are AuthorizeNet (http://www.authorizenet.com/), Verisign (http://www.verisign.com/) and USAePay (http://www.usaepay.com/). All payment gateway providers have their own merchant solutions. Most banks, today, work with partner payment gateway providers and are fully capable of furnishing with a merchant solution.

If you are just starting an online business and you dont think that your sales will generate more than a thousand dollars a month, you will be better of with a third party processor. However, once your sales become a few thousand you will save a bundle by switching to a merchant account.

PayPal

With 72 million accounts worldwide and payment volume which is growing at a rate of 44 percent each year, PayPal by far is the most popular third party processor on the Internet.

PayPal is a simple and affordable payment solution for those online merchants who are unable to or dont want to go through the complex process of setting up a bank merchant account.

At present, PayPal has four unique solutions for merchants.

PayPal Website Payments Standard: This solution allows you to accept credit cards on your website. However, the transaction is processed on the PayPal secure server. The customer can choose to pay either by credit card or PayPal. If you dont have shopping cart as yet, you may get one from PayPal; or you can integrate PayPal solution to your existing shopping cart.

Cost: No monthly fee. No setup fees. No cancellation fees. Transaction Fees are 1.9% to 2.9% + $0.30 US$.

PayPal Website Payments Pro: This solution is virtually same as having your own merchant account. If a customer pays by a credit card, PayPal works as a payment gateway for you. The customer does not leave your website at anytime if she pays you by a credit card.

Cost: $20.00 US$ monthly fee. No setup fees. No cancellation fees. Transaction Fees are 2.2% to 2.9% + $0.30 US$.

PayPal Email Payments: This is the payment system PayPal started with. You send invoice to your customers by email and get paid on PayPal.

Cost: No monthly fee. No setup fees. No cancellation fees. Transaction Fees are 1.9% to 2.9% + $0.30 US$.

PayPal as an Additional Payment Option: If you already have a merchant account and you would like to add PayPal to your existing payment solutions, you can use this option.

If you are planning to sell products through eBay, you definitely should have PayPal option. According to eBay, three out of four eBay customers choose to pay by PayPal.

When you use PayPal as your primary processor, make sure that you have at least one more alternative payment solution handy. The reason is many disgruntled former users of PayPal claim that PayPal might freeze your account anytime without any apparent reason. Read http://www.PayPalsucks.com for more information.

However, According to a new report, Merchant losses from fraud on PayPal are now only 0.17% of revenues, vs. 1.8% for online merchants that accept credit cards through merchant accounts. This gives one more reason to use PayPal.

WorldPay

If you are facing problems to get a merchant account due to the factor that you are not located in the US, WorldPay could be the solution for you. WorldPay is a one-stop solution for your merchant account, payment gateway and store front. The payment option comes with fraud protection and risk management applications to safeguard your business. Based in England, WorldPay is a division of Royal Bank of Scotland.

Cost: If you compare with PayPal, WorldPays fees are pretty stiff. 50 US$ monthly fee. 400 US$ setup fee. Transaction Fees are 3.25% + $0.40 US$. The charge for multicurrency processing is 5.25% per transaction.

2Checkout

2checkout.com works as an online distribution center. When customer buys a product from your website through 2checkout, you actually make your sale to 2checkout for immediate resale to your customer. Customers are billed by 2checkout not you. 2checkout accepts vendors from virtually all over the world. You can also set up recurring billing through 2checkout.

Cost: No monthly fee. 49 US$ setup fee. Transaction Fee: 5.5% + $0.30 US$.

ClickBank

For selling e-books, reports and other similar digital products, ClickBank.com is probably your best option. The great thing about ClickBank is it has over 100 thousand affiliates promoting products available on the ClickBank marketplace. By listing your product with ClickBank, you automatically tap into a huge potential market. ClickBank accepts all major credit cards and PayPal.

Cost: 50 US$ set up fee. Depending on the percentage of the commission you pay to your affiliates, transaction fee varies from 2.5% plus 0.33 US$ to 7.5% plus 1 US$.

There are many other third party processing companies available on the Internet. Two of them worth mentioning are http://moneybookers.com and http://www.ikobo.com.

Since fees fluctuate considerably from one solution to another depending on your location, products and other needs, make sure to do a thorough research before signing up with any of the mentioned providers.