Here's a great article that Jay wrote for our previous site that I'm reposting here as it is still very useful and informative! It originally had the full title, The Components of an eCommerce Package (or, what you'll be paying for).

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The following article provides a brief overview of the five components of a full eCommerce package for a website. This information comes in handy especially when comparing features and fees between different packages.

1. the online product catalog
2. the shopping cart
3. the checkout system
4. the payment gateway
5. the merchant account

1. An online product catalog is a central place to store information about products. This is essential for managing a large collection of products, but becomes more and more optional as the number of products gets smaller. The product catalog is both an administrative interface for the site manager, and also (usually) is integrated in the website itself as the "add to shopping cart" links, price info, product descriptions, etc. Generally, a product catalog makes it easier to add / edit / delete products on the website. But, integrating the product catalog into the site can be a big deal.

2. The shopping cart is the familiar interface one uses to select products for purchase. The shopping cart just holds information about the products that the customer is preparing to purchase.

3. A checkout system collects necessary information from the purchaser, such as shipping address and credit card numbers. It may also generate shipping rates, tax, handle coupons or discounts, or itemize or calculate other changes to the final price. Usually, checkout systems are built-in to shopping carts—paying for a shopping cart almost always pays for a full, integrated, checkout system as well.

4. A payment gateway is a mechanism that transfers the payment and credit card details from your website (or another physical or virtual terminal) to a merchant account bank that processes the transactions. The gateway also handles any response from the bank, for example, when the purchaser's credit card has insufficient funds. Payment gateways can be virtual or physical (i.e., a box where you can physically swipe a credit card). Payment gateway fees can be different depending on whether credit card transactions are manually entered, are part of a batch, are initiated from a website, or initiated from a physical or virtual terminal. These fees are also separate from both shopping cart and merchant account fees.

5. A merchant account is a special bank account through which funds from credit card charges are transfered into (charges) or out of (refunds) your actual bank account. Merchant account banks charge fees per transaction, and those fees vary not only between banks, but also between credit card types (Discover, Visa, etc.) and transaction types (online, in person, etc.). These fees are partially based on the bank's assumption of risk to collect money on your behalf.