Payment processing can be divided into two major phases or steps: Authorization and Settlement.
There are also other attendant Fees.

Authorization verifies that the card is active and that the customer has sufficient credit available to make the transaction. Settlement invloves transferring money from the customer's account to the merchant's account.

Authorization Steps:

1. Customer decides to make a purchase on the Merchant's Web Site, proceeds to check-out, and inputs credit card information.
2. Merchant's Web Site receives customer information and sends transaction information to Payment Processing Service.
3. Payment Processing Service routes information to the Processor.
4. Processor sends information to the Issuing Bank of the Customer's credit card.
5. Issuing Bank sends transaction result (authorization or decline) to the Processor.
6. Processor routes transaction result to the Payment Processing Service.
7. Payment Processing Service passes result information to Merchant.
8. Merchant accepts or rejects the transaction and ships goods if necessary. Since this is a "card not present" transaction extra fraud protection may be required.

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Settlement steps:

1. The days transactions are "batch" processed at a set time every evening
2. Authorized funds for the transactions are transferred from the customer's bank account to the merchant's bank account.

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Definitions and approximate fees (depending on Merchant Account Solution):

Transaction Fee - The "per transaction" cost ranging from $0 to $0.35 per transaction. the fee is usually higher for a web based transaction than for a "card is present" transaction at a swipe machine.
Monthly Statement Fee - The fee charged to mail your monthly statements to you. Some companies require you receive the paper copies and the cost ranges from $0 to $29.95 per month.
Contract Length - Most Merchant Accounts require contracts although more are going "month-to-month". The date range for contracts is usually from 0 months to 36 months.
Cancellation Fee - The cost to cancel your agreement can range from $0 to $1,500.00
Minimum Monthly transactions - This can be expressed either in a minimum dollar amount of gross sales with minimum ranges from $10 to $1,000 or as minimum transaction. Some Merchant Accounts provide you with a certain number of transactions at no charge and then set a "per transaction" fee for exceeding the limit. The per transaction fees can range from $0.05 to $0.35.
The Discount Rate - The Discount Rate is the percentage that is kept by the processor every month on all your transactions. The higher the rate - the more they keep - and the more it costs you. The standard industry average discount rate is 2.80%
Gateway Fee - This is a fictional charge but becoming quite prevalent in the industry. The gateway is the code that connects the shopping cart to the credit card processor. It is written by the web developer. The fee is just another way of generating fees for the Merchant Account companies. The fees can range from $0 to $29.95 per month.
Application Fee - The fee to apply for the Merchant Account. Cost ranges from $0 to $1,500.00
Monthly Support Fee - Technical Support fee from the Merchant Account Company. Cost ranges from $0 to an hourly fee or monthly fee up to $500
Fraud Detection Fee - There is usually a set up fee of $0 to $500; a monthly fee of $0 to $89; and a per transaction fee of $0 to $0.10
Page Emulation Fee - When the purchaser is taken off the Merchant's Web Site to the Credit Card Processor's Web Site the developer can mimic the design of the Merchant's Web Site on the Credit Card Processor's Site. Costs usually range from $500 to $1,500.00

In general, the estimated monthly cost of a Merchant account averages $60 to $120 (amortized over three years) with a Discount Rate of 2.00% per transaction. The costs vary widely depending on the volume of business, solution provider, and "extras" that are purchased.

**Note: the above fees are those charged by the Merchant Account and Credit Card Processor and not your Web Developer. Your web debveloper should charge a fee to install and configure the gateway pages and site emulation pages.

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