If you are new to online business, you best bet might be to outsource credit card processing. PayPal is the best example of outsourced credit card processing. Online vendors using this service don't have to worry about buying or renting credit card processing machines. In addition, they don't need to create a merchant account because PayPal is the gateway.

More established businesses usually opt for an in-house credit card processing solution. There are two basic methods of accepting credit cards online, real time processing and deferred processing.

Real Time Processing

The biggest advantage of real time credit card processing is that there is no delay in the buying process. The customer immediately knows if the order went through. This method is especially effective with companies selling downloadable products such as audio, video, or e-book. As soon as the credit card is authorized, the customer can download the product. The real time processing fulfills the need for instant gratification. If you are looking for automation, real time processing is for you. It requires more complex set up than deferred processing, but once it has been set up, credit cards are processed quickly, efficiently, and most importantly automatically.

Real time processing simplifies selling online because customers receive instant feedback. For example, if they enter an incorrect credit card number, the transaction will fail and the customer is notified instantly. Declined credit card transactions are immediately reported back to the buyer.

Secure payment gateways are the most important components of real time processing because they provide a secure connection between your website and your merchant account. Some of the largest secure payment gateway providers are authorizeNet and VeriSign.

How does payment through a secure gateway work?

?Your customer adds the product to the shopping cart.

?The connection enters secure mode, as the customer is required to complete payment information. The customer's browser encrypts the data between the web server and the customer computer.

?The website forwards the encrypted payment information to the secure payment gateway.

?The payment gateway forwards the encrypted payment information to the vendor's acquiring bank account.

?The acquiring bank forwards payment information to the customer's bank account.

?The customer's bank responds to the payment request. It either approves or declines the charge.

?The payment gateway received the response and forwards it to the vendor's website.

?Order completed or failed message is communicated to customer.

Please keep in mind that the above process is highly simplified version of the actual process. The entire transaction described above should take less that ten seconds.