Internet-based payments offer convenience to customers, who can pay for their products or services and receive immediate feedback on the status of their payment. Well-thought-out payment interfaces will address the payment needs of the bulk of your customers and offer them valuable features such as electronic receipts, recurring billing options, and more. For merchants, online payments can mean reduced bad debts and improved cash flow, improving the bottom line of their business.

The type of payment you choose will be dependent on your customers' needs and the type of business you operate.

E-commerce payment types

You can use many payment types in online transactions (here, I refer to transactions that use the Internet as the communications channel). The major types include:

• Electronic Funds Transfer (EFT): EFT is a system of transferring money from one bank account directly to another without any paper money changing hands. It provides a means of transferring funds to and from customers and business partners.
• Electronic checks: Different types of electronic check services are available, but all essentially provide a mechanism for paying over the Internet by enabling purchasers to use their existing checking accounts to transfer funds to another party. A secure infrastructure ensures that confidential information isn't compromised in transit.
• Debit cards: Wildly popular for offline, in-store purchases, debit cards haven't caught on as a mechanism for Internet purchases because banks and payment processors have only certified a limited number of devices for transmitting the PIN number associated with a debit card over the Internet. Limited pilots are underway using wireless debit card devices for applications such as pizza deliveries and taxis.
• Credit cards: Still the dominant online payment type, credit cards are popular because of their ubiquity and the familiarity customers have in using them in a variety of settings.
• Internet banking: Some businesses (typically large ones, such as telephone companies) enable customers to transfer funds from their bank account to pay bills. Major banks usually facilitate online bill payments; you can log on and pay your bills at your convenience.
• Alternative payment types: A large number of niche payment types have appeared over the past few years (typically, with minimal or no success). These include stored value cards, Internet (digital) cash, pseudo-currencies (e.g., Flooz), and others. No doubt, at some point one or more of these payment types will gain a foothold, but none have sufficient critical mass to be a viable alternative for most merchants.

• They're useful when your customers may be purchasing multiple items from you in a single purchase..
• Make sure you understand the features you need and that you purchase from a reputable vendor.

• They're useful when you only have a few products to sell or your customers only purchase one product or service at a time.
• Make sure the customer's buying experience is seamless and secure.

• They're useful when you're processing payments coming in by phone, fax, or e-mail.
• Make sure you have a mechanism to reconcile VPOS payments to bank deposits.

• They're useful when you're processing payments in remote locations (e.g., pizza delivery or flea markets).
• Make sure your data transmission is secure. The wireless connection should be digital to protect data.

• They're useful when the customer is present and when you need to give customers a signed receipt for their payment.
• Make sure your merchant account is configured to take advantage of the lower discount rate (i.e., credit card fee).

1. A purchaser sends a credit card and other related information to the gateway via a Web site order form, virtual point-of-sale (VPOS) terminal, wireless device, interactive voice response (IVR) system, or other Internet-enabled device.
2. The gateway receives the information, validates the credit card number, and forwards the authorization request to the purchaser's credit card issuer. Here, the consumer's credit card account and funds availability are verified.
3. An authorization (or decline) response is returned via the gateway to the payment application. The gateway securely stores all credit card and related information on its servers.
4. Upon approval, the merchant can fulfill the order.
5. After the order is fulfilled, the merchant can notify the gateway to send a settlement request to the merchant's acquiring bank.
6. The merchant's acquiring bank deposits the appropriate funds into the merchant's business bank account.

1. What are my customers' payment needs?
2. How can I accommodate those needs through the payment application?
3. Which financial institutions should I use for my merchant account(s)?
4. Does my developer clearly understand my payment application requirements?
5. Does my payment gateway support my application and connect to my merchant bank?
6. Will my payment gateway be in business 12 months from now?
7. Have I tested my payment application thoroughly using a real credit card?