For many web merchants, finding the best way to accept payments is a confusing and frustrating task.  Because the Internet is an instant medium, it is highly recommended that your site accept credit cards and online checks as forms of payment.
 

The Payment Processor Because most of your e-store orders will take place with a credit card, it may be important for you to understand the nature of an online transaction.  Behind the scenes, credit card transactions are fairly complex.  In every transaction, there are multiple independent groups participating, including the online merchant, the customer, your bank, the bank that issued the credit card and the online processor or clearing house that manages the whole mess.

Before your customers' money can make it into your bank account, there are a series of steps a transaction must go through, including:

 

Authentication - Verifies that the credit card has valid numbers, has been officially issued, and has not been reported stolen.

Authorization - Checks to make sure adequate funds are available to make the purchase.  If they are, the funds are "reserved" or "parked" for you.

Settlement - Once you have shipped the products or completed the service, you will need to let the banks know so they can release the parked or reserved funds to your bank. You most likely cannot actually debit a customer's card unless you will be shipping the product or completing the service within 48 hours.  Even though the card may be approved and the funds reserved, you may not be able to "settle" the account until you have completed the fulfillment process.  Your online processor can help you with this, so be sure to ask about batch processing and the releasing of funds.

Payment Processor/Gateway - All a merchant account does is enable you to accept credit cards.  To process these cards, you will need a payment processor or transaction service.  Also known as "gateways", these organizations make the wheels of e-commerce go 'round.  As an Internet business, you have two options with regard to accepting and processing credit cards, Manual or Automatic Processing (Real-Time Credit Card Verification).

 

Manual Processing - If you anticipate low initial volumes or want complete control over credit card processing, you may want to consider manually processing the credit cards.  In this scenario, you would receive an order via a secure connection (SSL) complete with credit card information. The information is placed in a database, and you receive an e-mail notifying you of the order with all of the pertinent information. When you are ready to process the charge, you go into your processing software and mark the transaction for settlement. Once you have marked all of the transactions you want to settle, you settle or close the "batch" of transactions that you have marked. This actually debits the credit card accounts.

Automatic Processing (Real-Time Credit Card Verification) - Automatic Processing is a great time saver for web merchants who don't want to mess with hand entering credit card information one order at a time.  While manual entry is great for merchants with low volumes, it can get cumbersome if orders start rolling in.  With Automatic Processing, your web site works with your payment processor to verify the card and complete the transaction.  You are only notified of successful orders thereby saving valuable time.

When your customer fills out an order form and enters his or her credit card information, the information is then sent via a secure connection (SSL) to your payment processor or transaction service.  Your processor will send a secure message to the bank that issued the card to the consumer to verify that sufficient credit is available to make the purchase.  In addition, the processor will verify that the account is active and that the card is not reported stolen.  Some processors have other fraud-detection safeguards in place, so be sure to ask about available security features.

Once a transaction is authorized, the issuing bank will send your processor an authorization for the funds and reserve the monies.  Your web site will then be notified of the approval so you can accept and process the order.  You may want to consider forwarding your customer to a confirmation page to thank them for their order and acknowledge that it has been received.  If a customer's credit card is not approved, your web site will be notified so you can redirect them to an "Order Failed" page.

Just as you incur fees with a merchant account, you incur fees through your online processor.  The fee structure is almost identical, but the procedure is much easier.  There is no substantial "review" of you or your business, nor should there be any application fees. 

Electronic Check Payments Some shopping carts are set up to accept online check payments. In addition, some payment processors support electronic check payments and can verify funds much the same way that credit cards are verified.  This will enable you to accept funds via check without having to wait for the check to arrive in the mail.  Similar in procedure to credit card verification, the customer's bank is accessed to make sure the funds are available.  Through an automated clearing house, the funds are then made available to you.  This is a great feature for web merchants as it opens your site to those who either don't have a credit card or are too afraid to use one online.

Activation/Set-Up Fee
There is a considerable amount of work performed to establish your account, so expect to pay a set-up fee.  Payment processors typically charge anywhere from $200 to $500 to establish an account. 

 

Monthly Statement Fee
There shouldn't be a monthly statement fee as many provide online details, but if there is a monthly statement fee, don't pay more than $10.00 per month, especially if you are required to pay a monthly service fee.

Credit Card Transaction Fee
This is an expected and usually fair expense.  It costs time and money to process your orders, and the service these companies provide is critical to your business.  Still, you shouldn't pay any more than $1.00 to process a credit card order.  Most processing companies will charge anywhere from $.60 to $.80 a transaction and there should never be an additional percentage fee assessed (similar to a merchant account's "discount points").

Check Processing Transaction Fee
Typically, the fees for check verification range from $1.00 to $2.00 per transaction or a set percentage of the sale (don't pay both).  Check with your online processor to make sure it's available and to discuss how to integrate it with your web site.  While the transaction fee is higher than with credit cards, you do avoid merchant account charges with this method.

Monthly Minimum/Service Fee
Most online processors will require a monthly minimum or charge a flat monthly fee.  If, for example, the monthly minimum is $30 in transaction fees and you have a bad month where not one widget was sold, you will still be assessed the $30 minimum.  Don't accept a monthly minimum in excess of $50.00 unless you are getting a mammoth amount of value-added features and services.

Keep in mind that merchant account fees and payment processing fees are both incurred when conducting a transaction. 
 

Example Order Process
You sell an item for $100.00 each.  A customer purchases two of these items for a total of $200.00.  Once the customer's credit card is verified and approved, the following cycle occurs:

If your merchant bank collects 2% as its discount points and $.25 as the transaction fee the total merchant charge is $4.25.  If your payment processor collects $.75 for completing the transaction, you retain $195.00.  Obviously, the rates can differ depending on the merchant, but in this example, you paid $5.00 for the advantage of accepting credit cards as a method of payment.  While it may seem like a lot, odds are the sale would never have been made without it.
 

Back End Database
A complex web site can tap into your inventory database to determine availability and access current pricing structures, without you having to maintain a separate web database.
 

A complex web site can tap into your inventory database to determine availability and access current pricing structures, without you having to maintain a separate web database. A complex web site can tap into your inventory database to determine availability and access current pricing structures, without you having to maintain a separate web database. A complex web site can tap into your inventory database to determine availability and access current pricing structures, without you having to maintain a separate web database. A complex web site can tap into your inventory database to determine availability and access current pricing structures, without you having to maintain a separate web database. A complex web site can tap into your inventory database to determine availability and access current pricing structures, without you having to maintain a separate web database. A complex web site can tap into your inventory database to determine availability and access current pricing structures, without you having to maintain a separate web database. A complex web site can tap into your inventory database to determine availability and access current pricing structures, without you having to maintain a separate web database.

A complex web site can tap into your inventory database to determine availability and access current pricing structures, without you having to maintain a separate web database.

 

Assessing Your E-Commerce Needs:
 

Your Goal:	What you will need:
Sell products or services online	Web Site Hosting and cgi-form that e-mails orders to you.
Calculate taxes & shipping as part of your order.	A shopping cart.
Track orders, products and customers online.	A shopping cart with database.
Accept credit card payments.	A merchant account and a business bank account.
Process credit cards online and offline.	A real-time secure gateway payment processor.
Accept checks online.	Check processing software and a shopping cart configured to accept checks.
Verify check funds.	Automatic check authorization.

 

Accept Credit Cards Without A Merchant Account Optional ways you can accept credit cards on-line without having your own merchant account. Many are surprised when they find out that you do not need a merchant account or expensive software to accept credit cards on the Internet. A credit card processing service will allow you not only the ability to accept credit cards on-line but will also help you to avoid paying for special software, application fees, setup fees, monthly fees, gateway fees, a secure server, or even minimum transaction fees! The majority of third-party processing services only require a percentage of your transactions, however, this percentage may be higher than if you had your own merchant account, at the same time, it allows you to owe nothing if you sell nothing. It will be up to you to take the time to do the math. Consider the costs involved with obtaining your own merchant account, and then compare those costs to the percentages of sales that a third-party will require. It all depends on your own volume of transactions and needs. For some, having their own merchant account is the obvious choice. For others, a third-party processing service is best.
 

Third-Party processing services Paypal and 2CheckOut are examples of reliable third party processing service. There are may more from which you can choose from.
 

These are easy-to-use applications which allow you to securely send money to any e-mail user in the U.S. and a selection of International users.

Most third-party processors provide a variety of ways to transact money:

• A "Buy Now" button for product purchases

• Shopping cart functionality via a "Add to Cart" button

• Subscriptions billed daily, weekly and monthly including the ability for automatic renewals and trial periods.

• Donations, where people can choose the amount they want to give you (look under the Merchant Tools tab)

 

In addition to making payments and depositing funds by credit card, they may also accept eChecks for an additional fee. Since PayPal accepts American Express (many merchant account providers only allow you to accept Visa & MasterCard), PayPal is a great option for those buyers wishing to pay using that method. You can even specify what will appear on the credit card statement (look under Payment Receiving Preferences in your Profile).

 

Integrating payment processing systems into Your Web Site
Most systems have features that allow advanced back-end integration such as storing customer details in your own database and even allowing you to automate fulfillment. We can assist you with this aspect.
Go to www.paypal.com for a detailed guide to this payment system.
 

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Our site also uses another payment gateways called www.2checkout.com
 

To learn more about how HostAfric.com can help launch your e-commerce site, please contact us.
 

From site design to the setup of an e-commerce package, we have the experience and resources it takes to put you in business.