If you want to do business online - you are going to need to accept credit cards as they are the primary method  for payment.  The first thing you will need is a merchant account with a bank. The next thing you will need is a payment gateway which is essentially a service which connects your Web site with the merchant account.

When a potential customer enters their credit card details on your web site, that information goes to the payment gateway first (I say potential as they are not really a customer until the order is approved).  The payment gateway does all the checking and approves or rejects the transaction. Then the gateway tells yous ecommerce software whether payment was accepted or rejected. Finally, the money is transferred to your merchant bank account.

There are three types of payment gateways:

1. An API (Application Programming Interface). With this approach the customer never sees the payment gateway Web site – your ecommerce system talks to it in the background. This may sound hard, but your shopping cart vendor should have done the hard work to support this.  However, you will need to get a secure certificate installed on your server to ensure visitors that you are securing the transaction.
2. Third-party payment gateway. The customer starts the checkout process on your site, but completes payment on the payment gateway site. The upside is ease of setup, the downside is an unsettling experience for the customer.  Some third-party payment gateways provide opportunities for you to customize the page design - hoping that the potential customer never even notices the change to another site.
3. Integrated payment gateways. With this option, you don’t need a merchant account from your bank – the integrated payment gateway fills the role of merchant bank and gateway. For a start-up businesses this can be attractive in terms of saving time but beware as the fees are higher for an integrated service. PayPal and Google Checkout are integrated payment gateways.

How to Choose a Payment Gateway?

The killer selection criteria is to match your ecommerce software with the payment gateway.  The costs of developing your own integration are  way too high.  So your best bet is to select a payment gateway supported by your ecommerce system.  You also need to check out this article on fraud detection as your payment gateway is your primary tool for fraud detection.

Finally you need to consider fees - setup (often waived); monthly fees, fee per transaction (fixed or percentage), chargeback fees (these occur when customers dispute the charge on their credit card), fraud detection fees and possibly more.   Payment Gateways are well known for hidden fees - read the contract or rate cards very carefully!

Related posts:

1. Merchant Accounts - Your Key to Online Business
2. Preventing Fraud on Your E-commerce Site
3. Adding PayPal to a WordPress Site
4. 10 Reasons to Love Magento