Adding online payment to an e-commerce site


There are roughly two options to let customers actually pay for items they order on your e-commerce site: Traditional banks, and new players like PayPal etc. known as Payment Service Providers (PSP).

Setting up an account with PSP's is easier since you don't need a so-called "merchant account" (which are required if you go through a traditional bank; A merchant account is actually just a line of credit) and they are less regulated than traditional banks.

Both rely on a payment gateway (the online equivalent of a POS terminal; Some are front-ends to money services like Paypal or Google Checkout) + payment processor used by the merchant's acquiring bank + card association (eg. Visa or MasterCard) to deliver the money from the customer's account (issuing bank) to the merchant's account (acquiring bank).

Here's the idea: merchant ↔ payment gateway ↔ acquiring bank's payment processor ↔ card association (Visa, MC) ↔ card issuing bank

To reduce the risks involved in online payments (refunds due to canceled or disputed transactions), acquiring banks set up security standards such as PCI-DSS or SPVA.

If you want to expand and let others use your site to make their own sales, look into setting up an "affiliate system" (ClickBank, Avangate, Plimus, DigitalRiver/RegNow, etc.)

Note that several sites (ShareIt, RegNow, etc.) are actually part of Digital River, which has quite negative press.

As for VAT, it will be charged if the credit card processor is a reseller (PayPal isn't, so it won't).

Things to check

Payment Processors



Instant Payment Notification (IPN), so that users can receive a license key right after buying a license.








Google Checkout



Customer can pay with a credit card without going through the long processes of opening an account

Amazon Payments







(stay away) Part of the Digital River network


(stay away) Part of the Digital River network


What is a merchant account?

Do I need a business bank account to receive online payments?

What's the issue about PayPal freezing accounts?

What's the best deal to sell an application?

Saving money by leaving money in PSP's like Paypal?

Eg. both the customer and provider have a PayPal account; The customer transfers some money to his PP account to pay for eg. travelling expenses; PP transfers money from the customer's account to the the provider's account; The provider only withdraws money from his PP account in big chunks; Both parties reduce transaction costs.