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How do internet businesses work?

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Internet Business
Makes business more attractive.
Behind the scenes of an e-business there's a lot of technology going on. To start an online business you won't need to worry about most of this, but it's worth getting to grips with the basics.
An e-business offers customers the option of paying for their goods or services on the internet. Many businesses which traditionally accept payments in a high street store, by telephone or by mail order have realised the benefit - and ease - of adapting their business for e-commerce.
Enabling your customers to make a payment online involves a more sophisticated kind of website than one that is for information only. But it makes your business more attractive to customers who prefer to pay online, wherever in the world they are.

What do I need to do?

Setting up an e-business need not be complicated or costly, even if you have little or no expertise. You'll need three basic things:
  • A website that allows shoppers to select the products or services they want to buy. For small businesses with no website experience, using an 'off the shelf' website you can customise yourself is a low cost option
  • To connect the website to a Payment Gateway. Once connected to your website this service securely sends online payments for authorisation
  • A Merchant Account, which is a bank account specifically for the funds you accept online and is completely separate from your normal business bank account.

Putting your e-business together

Anyone familiar with online shopping (and that's around 80% of the UK population) knows that making a purchase online is normally pretty simple. Shoppers add the goods or services they want to buy to a shopping cart, check out when they are ready to pay and then enter their payment details.
Of course the underlying technology is not so simple. You won't need to understand the technical detail of how an e-payment is processed, but it's worth getting to grips with the basics: How does your website link to the payment processor (such as WorldPay)? How do you get your hands on your online trading profit?

Here's how it works:

  1. Shopping cart: the online shopper adds purchase items to a shopping cart, effectively the online equivalent of a high street store shopping basket. It's worth noting that some websites don't choose to include a shopping cart - for example if they sell only one product.
  2. Checkout: When ready to pay, the shopper heads to checkout. Product information in their shopping cart generates what is called a 'purchase description' that is sent to a Payment Gateway - such as WorldPay - to securely process the payment.
  3. Payment Gateway: The shopper is directed to the Payment Gateway where they choose a payment method and enter payment details.
  4. Transaction: The Payment Gateway pairs the shopper's payment details with the purchase description from the shopping cart to produce a 'transaction'.
  5. Authorisation: The Payment Gateway encrypts and sends transaction details to the shopper's card issuer for authorisation. Card issuer authorises or declines the transaction.
  6. Confirmation: The Payment Gateway notifies the shopper and the e-business that the order has been completed - normally via a confirmation screen and an email.
  7. Merchant Account: The Payment Gateway receives the purchase amount from the shopper's card issuer, and sends it to the business's Merchant Account. This can take 1-2 days.
  8. Bank account: From the Merchant Account, the funds are paid into the business's standard bank account, normally with a short delay that's specified by the Merchant Account provider.
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