You may find our other article titled “Retailers Beware of Purchasing Mobile Magnetic Stripe Only Readers” highly relevant too.

We have finally entered an era where most Internet users are comfortable making payments online or through mobile technology. One of the key findings from the 2010/2011 Multipurpose Household Survey (MPHS) and the 2009 Survey of Disability, Ageing and Carers (SDAC) was that “Of the 13.3 million people who reported accessing the internet at home, the top three reported activities were: Emailing (91%); Research, news and general browsing (87%); and Paying bills online or online banking (64%). A 2011/2012 Communications Report put out by the Australian Communications and Media Authority said that there were “…49 per cent of adult Australians using a smartphone at May 2012…” which was “up from 25 per cent at June 2011.” Fast forward to 2013, factor in the take-up of mobile use since then, it is not hard to see that almost all resistance to making payments online has disappeared and mobile payments are clearly on the rise. The moral here is that if your business is ‘not yet in this space’ it needs to be in order to remain competitive.

Even the big banks (ironically not really known to be early adopters in the online payments area) all have banking apps and being able to pay back a friend when you haven’t any cash or splitting a restaurant bill is as simple as a few clicks on your smartphone.

In addition to personal payments, the banks have cottoned onto business payments through apps and mobile technology too.

The banks are not the only ones to offer payment solutions. In fact, when Internet payments for businesses first became available, third-party solution providers were the ones who forged the new ground. For a variety of reasons the banks ‘sat on the fence’ and let others develop secure processes and technologies.

What we do know now is that electronic payment (or epayment) methods are constantly evolving. In recent years, we’ve seen physical payments move beyond the old manual, swipey, credit card machines to electronic credit card processing terminals to paypass for certain chip-enabled credit cards and now it seems, to payments linked to your mobile phone. And in amongst all of that, as noted above, many of the big banks have implemented ‘apps’ that help facilitate the epayment processes.

The rest of this article is going to look at real-time transaction processing. This means the payment process is automated without any manual intervention. For example, a customer adds some items into your online shopping cart, proceeds through check-out, enters their credit card details and the payment is automatically processed without you needing to physically do anything except, in the case of physical goods, package and ship them out.

Before going further, it is important to understand the difference between a payments processor and a payments gateway. A payments processor simply processes payments (eg. Credit cards) on your behalf. You do not need a merchant account with a bank. A good example is PayPal. A payments gateway, however, interfaces between your business and your bank, and facilitates the transaction payment process. You need to have a merchant account with a bank (the acquirer) for this. As eluded to before, many banks offer their own payment gateways so there is a blurring of lines and one of the big questions if you opt to use a payment gateway, is whether you use a ‘middleman’ (third-party) or you go direct to your bank. Third-party payment gateways are having to re-invent their businesses constantly to avoid being disintermediated (or in simple terms, avoid being made redundant in the payment process).

Some examples of payment gateways in Australia are:

Payment Gateway	Since	History
Camtech	1983	Initially a partnership with Adelaide University as an ISP then began concentrating on ecommerce solutions in 1993. Keycorp Limited purchased Camtech in 2001 then sold it to SecurePay in 2006.
eMatters	1998	Previously Card Merchants (Australia) Pty Ltd and Computing Matters Australia Pty Ltd.
eWay	1998	Previously Web Active.
Card Access Services	1987	Previously Bionic Holdings Pty Ltd.
SCNet / iPayBy	1998	Started off consulting in ERP.
SecurePay	1990	Now owned by Australia Post.

The big question then is why would you pay for an intermediary payment gateway rather than go direct to your bank instead? Some of the pros and cons of this are provided below and keep in mind that these are of a general nature and don’t necessarily apply to all intermediary payment gateways:

Pros	Cons
Most intermediary payment gateways have already built ‘hooks’ for the majority of online shopping carts so the development cost is low and the speed of integration is quick. Changes at the bank end are quickly picked up and solved at the intermediaries end.	Your shopping cart may not be supported by the intermediary payment gateway. This may incur extra costs.
You are free to change banks (or acquirers) easily using an intermediary. If you do, they simply re-direct the payments to your new bank.	You double-up on transaction fees and ongoing fees. Ie. Most intermediary payment gateways will charge some sort of monthly or annual fee/s plus a transaction fee and you will also pay a variety of fees, including transaction fees, to your bank (acquirer) for your merchant account. Make sure you factor in the merchant fees on top of the intermediary payment gateway fees.
	May not support your preferred bank (acquirer)

One of the acronyms you will come across over and over again is PCI DSS. This stands for Payment Card Industry Data Security Standard and is a worldwide information security standard put together by the Payment Card Industry Security Standards Council (PCI SSC). If you go down the payment gateway path, most banks (acquirers) will expect (and/or provide) PCI DSS compliant solutions. This is for good reason as it “provides an actionable framework for developing a robust payment card data security process — including prevention, detection and appropriate reaction to security incidents”¹.

Getting back to whether to use a payment processor or a payment gateway, it appears that the general consensus is to use a payment processor (like PayPal) in the early stages of a start-up business and then move to a payment gateway (intermediary or direct to your bank) as your transaction count increases. If you are an established business simply expanding online then the use of a payment gateway is likely to be more cost effective. That said, there are potential downsides to using a payment processor such as withholding funds, having a manual process for pulling money out of the payment processor’s virtual account and into your bank account, a risk of them freezing your virtual business account indefinitely, etc. However, more detailed analysis should be performed based on your specific business requirements and sales.

Some of the questions that you might ask yourself include:

• Are my methods for accepting payments in my current business acceptable and competitive in today’s marketplace?
• Do any of the methods outlined in this article make sense for me to adopt?
• I am currently using PayPal for my online payments but should I be considering the move to a payment gateway option?
• Should I use a payment processor (such as PayPal) and a payment gateway to give my buyers more choice? Eg. Kogan do this.

Acknowledgements:

• Australian Bureau of Statistics, (2011, December), “8146.0 – Household Use of Information Technology, Australia, 2010-11”
• Australian Communications and Media Authority, (2012), “[rokbox text=”Communications Report 2011-12″]http://www.acma.gov.au/webwr/_assets/main/lib550049/comms_report_2011-12.pdf[/rokbox]”
• IP Payments, (n.d.), “What is PCI?”
• ¹ PCI Security Standards Council, (n.d.), “PCI SSC Data Security Standards Overview”