Online Payment Systems
Taking orders on the Web involves more than just creating a form or installing shopping cart software on your site. You also need to consider several crucial questions as you decide on an online payment system.
"The payment processing arena is like an onion. You just keep peeling back the layers and find that there is more," says Colleene Isaacs, vice president of business services for Segue Systems, a leading provider of credit card clearing services. "The biggest thing is understanding that there's more than one party involved, and allowing yourself time." Here are some key layers of the onion, and questions to consider for each of them in order to have a successful online payment system.
Internet Merchant Accounts
An Internet merchant account is one of the absolute essentials in accepting payment for online transactions. The most important thing to remember about an Internet merchant account is that it is separate from a regular merchant credit card account. The reason for this is twofold, according to David Lippe, vice president of marketing for the First Bank of Beverly Hills, a provider of Internet merchant accounts.
First, there is the cost factor. For a typical merchant account, the standard fee rate is 1.5%, while for an Internet merchant account, the rate is 2.5%. This extra percentage point adds up quickly. This increased rate reflects the risk a bank takes on Internet merchant accounts. In a typical retail setting, the credit card is physically present 95% of the time, while for Internet transactions, the card is never physically present. Keeping the two merchant accounts separate reduces the risks associated with doing business virtually.
Not all banks offer Internet merchant accounts, and those that do have different levels
of experience. Make sure you
Transaction Processing / Clearing Services
Before you can begin accepting online transactions, you must select an online service that will connect your Web site with your Internet merchant account. This type of service is called a transaction processing service, credit card clearing service, or a commerce engine. Regardless of what you call it, the service will serve one primary purpose: enabling real-time credit card authorization for online transactions.
Don't make the mistake of assuming that this service is included in your Internet merchant account with a bank. It is a separate — but necessary — service. "When we talk to merchants, they think our fee is part of the bank fee, but we're separate from the bank," says Isaacs.
When selecting a company to provide you with your transaction processing service, you
need to bear in mind a number of
E-Commerce Software and Web Site Integration
It is important to do your homework up front, Lippe says. At the top of your list should be a simple question: Are all your chosen service providers (i.e., the software company, bank, and clearance company) ready to do business immediately?
"The software company may say they're linked to a commerce engine (when) they're six months away from a contract," Lippe said. That translates into at least six months that you have to wait to take your own business online.
A lack of integration among these e-commerce elements presents another major problem, Lippe says. "I had a client who couldn't process transactions for three months because he couldn't link his software to his commerce engine," he says.
Therefore, it is critical for you to ensure that your software, clearing service, and bank are linked to each other before taking your online payment system live.
Still another big problem that arises is that many merchants don't know exactly which company provides their commerce engine. Banks use different account setups for each commerce engine type. Therefore, an account might not work properly if you have it associated with the wrong commerce engine company when you set it up.
Risks of Online Payment Processing
"Fraud on the Internet is the number one risk to a merchant," according to Lippe. The solution? Get a company that can perform checks on the credit cards to authenticate the user and cut down on possible fraud. There are three ways to help reduce the risk of fraud:
- Use an address verification system. It compares the address provided online with the cardholder's billing address.
- Use a negative database. Negative databases are filled with credit card numbers that are possible risks. (These databases can be updated online.)
- Use a credit card verification service. A service such as CyberSource can perform a host of checks for each transaction, such as verifying the Internet protocol (IP) address, real address, time of day, and other factors to create a profile and build a numeric confidence rating for the credit card.
One thing to factor in when considering security risks is where your commerce information resides. Is it safely tucked away from hackers? Is it sent in an e-mail form to your computer? Does it reside on a Web page? Is it stored in an encrypted database on a secure server? Consider security precautions not only for when the information is in transit but for when it is stored; you should also consider who might have access to the information.
Control Over the Payment Process and Information
Some merchants favor a hands-on approach to their online payment solution, while others want all the work done for them, with occasional reports to keep them informed or access to an online summary of transaction information.
Before you choose the solution for your online storefront, ask yourself how important it is for you to have control over your online payment information. Ask the companies involved what the options and the related costs are. How difficult or time consuming would having control be, and what resources will you need to devote to the project and the security issues involved with accessing this information?
Other Payment Options
When selecting an online payment solution for your site, don't limit yourself to just credit card processing solutions. There are other options to consider for accepting payments from your virtual storefront. You will most likely not use them instead of credit cards but in addition to them.
It is now possible to accept checks over the Internet. Online check systems link to the merchant's Web site and send customers' checking information directly to the bank for processing. Virtual bank checks are a different approach. This software allows merchants to process checking forms from their site and print out physical checks that they can then deposit into their bank accounts. These services offer an attractive option to consumers who are still wary of sending credit card information over the Net.
Microcommerce systems, such as Digital Equipment Corp.'s MilliCent, allow merchants who are selling or distributing electronic content to unbundle this information and profitably offer it for sale online for as little as pennies or fractions of a cent. With such technology in place, new business models might open up for many merchants.
While consumers are growing more comfortable with using credit cards online, providing a secondary means of payment allows them another option that may be more comfortable or attractive. As always, carefully consider all the costs involved in providing multiple solutions, and whether the solutions you choose will be supported by your Internet service provider (ISP) or hosting service as far as technology and bandwidth are concerned.
The Bottom Line: How Much Will It Cost?
When choosing a bank for an Internet merchant account or a commerce engine for clearing services, make sure to ask for the complete cost of the service. Some companies will quote a list of fees but will not mention other costs involved. Dig deep and find out all fees involved.
About the Author:
The WorkZ staff is made up of gurus in many areas of expertise including Sales, Marketing, all aspects of the Internet, Technology, even starting and running businesses.
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