For many online businesses, payment processing is a major headache. The whole process seems unnecessarily complicated and it can be a nightmare to set up. (Don't even mention the horror stories that are circulating about dodgy credit card companies.) In this page we will explain how online payment processing works and point out some of the pitfalls to avoid.

Credit Cards

Credit card processing is the first thing that comes to mind when considering online payments. Some people remain reluctant to use their cards online, but in general credit cards have become the standard method of payment on the Net.

It is possible to run an online business without accepting credit cards, but this is really only viable if you are in a situation where you are not likely to get an impulse buy. (If you're selling yachts or executive jets for example.) For most E-businesses, accepting credit cards is essential.

How Credit Cards Work Online

So how does it work? The desired result is to transfer funds from the customers credit card account (held at an Issuing Bank) to the seller's bank account (held at an Acquiring Bank). The first problem is that the seller can't use any old bank account, it must be a Merchant Account - in fact a particular type of merchant account called an Internet Merchant Account.

The typical sequence of events (slightly simplified) in an online credit card transaction is as follows:

1. The customer enters the credit details onto a secure online form, which is usually part of the shopping cart system provided by the Web-Store Service.
2. The next stage is basic fraud avoidance such as checking that the card number is valid and verifying the address.
3. The details are then forwarded from the transaction-processing system on the Web-store site to the Credit Card Association (e.g. Visa or Master Card) via a Payment Processing Network.
4. The transaction is either Authorized or Declined, depending on the state of the customer's credit limit. If it is authorized, funds are reserved to cover the transaction.
5. The results are communicated to the merchant. After the goods ship, the merchant can issue a Capture Request which is a request for Settlement, the final stage in which the funds transfer to the merchant takes place.

Merchant Accounts

You’ll need an Internet Merchant Account to accept Credit Card payments. Merchant accounts are accounts that accept and hold credit card transaction monies. These accounts can be established through merchant service providers (MSPs) such as banks or via independent service organizations (ISOs). For more, check out this article at ecommerce-guide.com.

If you have an existing Merchant Account, check whether your merchant provider will "broaden" your account into an Internet Merchant Account.

Problems With Credit Cards

Most problems with credit cards lie not with the credit card companies, or with the payment processing networks, but with the institutions that run the merchant accounts. It's all a question of risk. Merchant account providers could find themselves having to pay up if the merchant doesn't fulfill all the obligations to the cardholder.

Reputable banks and financial institutions limit the risk to themselves by being selective about who they give merchant accounts to. Other companies are less selective, but they insure against the risks they run by charging much higher rates. There are companies who offer 100% acceptance and low charges. These companies are taking on the risk themselves - and consequently are making themselves risky to deal with. This is not necessarily a bad thing (judgments on risk are something every business has to take) but it's important to realize that (as with most things in life) you get what you pay for.

A Transaction Processor (Payment Gateway)

The transaction processor is the one who actually processes the Credit Card transaction on your behalf. Some are better than others and prices are all over the board.

It's not unusual that there are a handful of fees. Be sure you're clear on what they are before you purchase. The typical fees include some sort of set up fee. This is usually a one-time fee. The next fee will be your monthly fee. Now it's not uncommon for the fees to be based upon services you've asked for - ala cart. You pick and choose what you want and the fee is for the sum of the services you choose. Look for and be sure you understand if the monthly service fee is a flat fee or a percentage of sales or some combination of both. Make sure you learn where the break points are for the price changes which are often based upon either $$ sold or quantities sold. DO YOUR HOMEWORK! We can't stress this enough. Check out a bunch of these folks and compare them apples to apples. Start with your own bank. A list of Transaction Providers is available at our Partner's site.

Another popular option is PayPal, an online payment service. PayPal became popular with online auctioneers, and is now owned by eBay, but also offers premium and business accounts. If you are dealing with low volume then this might be the most reasonable approach.

In some cases, you can get both a merchant account and transaction processing services from the same organization. Be careful of pricing! Make sure you understand what you’re agreeing to before you sign. Again, start with your own bank.

Conclusion

To sum up then, SecureSiteCommerce.Company can take the stress out of deploying your online store and help ensure success. If you do not currently have an Internet Merchant Account, you will definitely want us to explain this process in detail. There are enough critical considerations specific to the World Wide Web that you may want SecureSiteCommerce.Company to save you invaluable time.

Shopping. Simple. Secure.