The Internet Payment Processing System

Understanding how best to address the need for Internet payment gateway services
requires first briefly examining the participants in an Internet payment processing system.
Participants in a typical online payment transaction include:
· The customer: typically, a holder of a payment card—such as a credit card or debit
card—from an issuer.
· The issuer: a financial institution, such as a bank, that provides the customer with a
payment card. The issuer is responsible for the cardholder’s debt payment.
· The merchant: the person or organization that sells goods or services to the
cardholder via a Web site. The merchant that accepts payment cards must have an
Internet Merchant Account with an acquirer.
· The acquirer: a financial institution that establishes an account with a merchant and
processes payment card authorizations and payments. The acquirer provides
authorization to the merchant that a given card account is active and that the proposed
purchase does not exceed the customer’s credit limit. The acquirer also provides
electronic transfer of payments to the merchant’s account, and is then reimbursed by
the issuer via the transfer of electronic funds over a payment network.
· The payment gateway: This function, operated by a third-party provider, processes
merchant payments by providing an interface between the merchant and the
acquirer’s financial processing system.
· The processor: a large data center that processes credit card transactions and settles
funds to merchants, connected to the merchant on behalf of an acquirer via a payment
gateway.
The basic steps of an online payment transaction include the following:
1. The customer places an order online by selecting items from the merchant’s Web site
and sending the merchant a list. The merchant often replies with an order summary of
the items, their price, a total, and an order number.
2. The customer sends the order to the merchant, including payment data. The payment
information is usually encrypted by an SSL pipeline set up between the customer’s
Web browser and the merchant’s Web server SSL certificate.
3. The merchant requests payment authorization from the payment gateway, which
routes the request to banks and payment processors. Authorization is a request to
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charge a cardholder, and must be settled for the cardholder’s account to be charged.
This ensures that the payment is approved by the issuer, and guarantees that the
merchant will be paid.
4. The merchant confirms the order and supplies the goods or services to the customer.
5. The merchant requests payment, sending the request to the payment gateway, which
handles the payment processing with the processor.
6. Transactions are settled, or routed by the acquiring bank to the merchant’s acquiring
bank for deposit.

E-Commerce Opportunity

A secure e-commerce Web site can provide businesses with powerful competitive
advantages, including increased online retail sales as well as streamlined application
processes for products such as insurance, mortgages, or credit cards. E-commerce credit
card sales can be especially lucrative: according to independent analysts, cash

By offering products and services on the Web, businesses can gain unique benefits:
· New customers: Anyone with an Internet connection is a potential customer: millions
around the world are already using the Internet for business transactions. Web
storefronts are open 24 hours a day, and require no investments in brick and mortar.
· Cost-effective delivery channel: Many products and services, such as software or
information, can be distributed directly to customers via the Web, enhancing the
customer experience and increasing profitability by eliminating the shipping and
overhead costs associated with order fulfillment.
· Streamlined enrollment: Paper-based enrollment workflows are fraught with delays.
Applications for insurance, a mortgage, or a credit card, for example, can be held up
in the mail. And once received, application information must be entered into
computer systems manually, a labor-intensive process that can introduce errors. By
accepting applications via a secure Web site, businesses can speed application
processing, reduce processing costs, and improve customer service.
· Better marketing through better customer knowledge: Establishing a storefront on
the Web positions enterprises for one-to-one marketing—the ability to customize
products and services to individual customers rather than large market segments. The
Web facilitates one-to-one marketing by enabling businesses to capture information
about demographics, personal buying habits, and preferences. By analyzing this
information, enterprises can target merchandise and promotions for maximum impact,
tailor Web pages to specific consumers, and conduct effective, tightly focused
marketing campaigns.
No business can afford to ignore this opportunity. But businesses also can’t ignore the
potential pitfalls. Before entering the fiercely competitive e-commerce arena, businessesmust carefully assess and address the accompanying risks.

E-MAIL AND SMS MARKETING

In December 2003 new rules came into force
covering marketing e-mails and SMS
messages to individuals.
The Privacy and Electronic Communications
Regulations introduced an opt-in consent
procedure for commercial e-mails – which
means you can only target people who have
agreed to be contacted. This is a change
from the previous rules, which only required
that customers be given the opportunity to
opt out of being marketed to.
To save having to contact all your existing
customers to get consent, the rules apply
only to new customers. You can continue
marketing to your current customers
provided they can opt-out of future
messages and the messages cover similar
products and services.
The other main point is that you must clearly
mark you e-mails with your contact details
and include a valid return e-mail address.

SEARCH ENGINES

While search engines are far outstripped by
direct referrals, they can still prove useful
for attracting customers if you are in a very
price sensitive market or you provide a
niche product.
Over 90% of all referrals to e-commerce sites
come from the four largest search engines:
Google, Yahoo, MSN and AOL1. Competition
for a high ranking on these sites is intense
because only 10% of web users look beyond
the second page of results2.
If you are expecting your website to generate
significant commercial returns it may well be
worth spending the extra to engage the
services of a professional search engine
placement agency. If you are a small
company with a limited budget, and your
website is just one of several channels to
market, you may be better off with a DIY
approach. If things go well you can always
revisit your search engine placement
strategy at a later date.
Different search engines rank websites in
different ways – some by a site’s popularity,
some by relevance and some by quality.
Many also offer the option of paying for a
place on the first page.

The benefits e-marketing

GLOBAL REACH
If you build a website you can reach anyone,
anywhere in the world, provided they have
internet access. This allows you to tap new
markets and compete globally with only a
small investment. This can be particularly
useful for niche providers, companies whose
products can be posted easily, or businesses
who are looking to expand geographically
but cannot afford to invest in new offices
or businesses.

LOWER COST
A properly planned and effectively targeted
e-marketing campaign can reach the right
customers at a much lower cost than traditional
marketing methods. You can build a website
for as little as a few hundred pounds or send
e-mail for a fraction of a penny.

TRACKABLE, MEASURABLE RESULTS
Marketing by e-mail or banner advertising
makes it easier to establish how effective
your campaign has been. If someone clicks
on a banner advert, or a link in an e-mail or
on a website, you can see how they arrived
at your website. This detailed information
about customers’ responses to your
advertising allows you to assess the
effectiveness of different campaigns.

24-HOUR MARKETING
With a website your customers can find
out about your products even if your office
is closed.

SHORTER LEAD TIMES
If you have a website or an e-mail template,
you can react to events much more quickly –
giving your marketing a much more
contemporary feel. If one of your products is
in the news or something important happens
in your industry, you can capitalise on it
without having to print or post anything.

A LEVEL PLAYING FIELD
With a well-designed website, you can show
yourself to be as professional and credible as
your larger competitors.

PERSONALISATION
If your customer database is linked to your
website, then whenever someone visits the
site, you can greet them with targeted
offers. The more they buy from you, the
more you can refine your customer profile
and market effectively to them. A great
example of this is Amazon’s website which
suggests products based on your and other
people’s previous purchases.

ONE-TO-ONE MARKETING
E-marketing lets you reach people who want
to know about your products and services
instantly – you don’t have to wait until they
come home from work and switch on the TV
or open their mail. People have a different,
more personal relationship with most new
technologies. For example, many people take
mobile phones and PDAs wherever they go,
and a surprising number feel lost without their
e-mail. Combine this with the personalised
aspect of e-marketing, and you can create
very powerful and targeted campaigns.

MORE INTERESTING CAMPAIGNS
E-marketing lets you create interactive
campaigns using music, graphics and
videos. You could send your customers a
game or a quiz – whatever you think will
interest them. One of the great successes of
e-marketing has been film companies letting
people download trailers for forthcoming
movies. Other small companies have picked
up this idea – a radio controlled car
company sends customers designs or
photos of new products in development
while clothing companies send out sneak
previews of the new season’s range.

BETTER CONVERSION RATE
If you have got a website, then your
customers are only ever a few clicks away
from completing a purchase. Unlike other
media which require people to get up and
make a phone call, post a letter or go to a
shop, e-marketing is seamless. The change
from reading an e-mail to buying on a
website is negligible – no special effort is
required, meaning that your call to action
can be much more direct.
Together, all of these aspects of e-marketing
add up to one thing: more sales. Read on for
more details of the different types ofe-marketing technology.

What is e-marketing?

Obviously these figures don’t tell the whole
Story – not all sales made online are the
Result of e-marketing and not every business
has benefited equally. What is certain?
though, is that many businesses are
producing great results with e-marketing and
its flexible and cost-effective nature make it
particularly suitable for small and medium
sized businesses.
It is no exaggeration to describe e-marketing
As a revolution for the marketing industry.
For the first time,
it gives businesses of any size access to the mass market
at an affordable price and, unlike TV or print advertising,
it allows truly personalised marketing. Specific benefits of

e-marketing include:

The benefits
· global reach
· lower cost
· trackable, measurable results
· 24-hour marketing
· shorter lead times
· a level playing field
· personalisation
· one-to-one marketing
· more interesting campaigns
· better conversion rate