Online Payments for Ecommerce Businesses
diane walker asked:
The UK is leading the way in online spending and with the Interactive Media in Retail Group (IMRG) predicting that UK online sales will hit £42 billion by the end of 2007, it is now essential, if not critical for your business to remain competitive and have the ability to sell your products online.
Most mail order businesses will already have a website presence of some kind, but many are still not taking full advantage of selling their products online via a fully functional ecommerce store. Opening an online store is a natural extension to your existing business and a direct way to increase your sales and revenue.
There are numerous important decisions you will need to make when you first set out to launch your online store, like what will the website look like, how will it integrate into your existing systems, what kind of shopping cart will you use, and more importantly, how you will take online payments from your customers.
In this article, I hope to give you an overview to the different online payment options available to both existing and prospective online merchants and explain some of the pros and cons for your business.
Payment Options
The payment options available can at first be a little daunting for businesses setting out in ecommerce. Which method is the best fit for your business? Are you most interested in obtaining the lowest possible price and fees? Is cash-flow the most important factor? What else is there to take into account?
There are essentially two methods in which you can choose take payments from your website. The first option would be to obtain an Internet Merchant Account (normally from your bank) and separate Payment Service Provider (PSP). The second option would be to use an Online Payment Processing Company – these services usually provide a complete solution which is managed from just one account. We will now look more closely at these two methods below.
Internet Merchant Account (IMA) and Payment Service Provider (PSP)
As an existing business, you will probably already have ‘offline’ credit card processing facilities setup with your bank, but to trade ‘online’ and accept card payments directly; you will also need a totally separate account which is known as an Internet Merchant Account.
You will need to apply for an IMA from either your existing acquiring bank (which may be quicker and easier), or search for another bank offering a competitive deal. For start-ups and new businesses with limited trading history, it can sometimes be difficult to obtain an IMA from a bank, and the associated checks and application process can be rigorous, lengthy and stressful.
Your IMA will usually incur an initial setup and monthly and/or annual fee for operating the account, as well as having a ‘cost per transaction’ charging structure. These can be fixed, or based on a percentage of the transaction value. For merchants likely to be processing large volumes of transactions, the banks can give extremely competitive % rates which are often lower than some Payment Processing Companies.
As well as obtaining your IMA, you will also need a separate agreement with a Payment Service Provider or Payment Gateway. A PSP is like a ‘virtual’ swipe machine service, which takes the card details from your website customers and passes them securely to your IMA to complete the payment process.
There are many PSP services and vendors to choose from, and all have various pricing and security features and some IMA’s may even provide a PSP with the account. Most PSP’s work on a ‘cost per transaction’ charging structure, again, these can be fixed, or based on a percentage of the transaction value. There will also normally be a fixed monthly fee to pay.
You will also need to make sure that your choice of PSP is capable of integrating and communicating with your chosen ecommerce shopping cart software. This may need specialist help from a web developer. It is important that you can speak with PSP over the phone rather than just using email support. If for some reason the service is suddenly not available, you will need someone to look at it urgently, so make sure your chosen PSP offers good support.
The Pros and Cons of having an Internet Merchant Account and PSP
Pros
• You have your own account that you are in control of and your business name appears on your customers card statements.
• Payment processing takes place within your own website giving a professional, smooth, transparent process.
• Rates are often negotiable with the bank – and can be substantially cheaper if you are processing large volumes.
• Funds are usually within your account within three working days.
• May offer a choice of additional anti-fraud tools.
• Better for large volume merchants
Cons
• Lengthy application and vetting process (up to 8 weeks).
• Likely to have setup, monthly and/or annual fees and you may will probably need to pay extra for additional security/anti-fraud services.
• The need for a separate PSP and associated setup, monthly and/or annual fees.
• You will need to integrate your PSP into your ecommerce software and will probably require the work of a web developer.
• Typically, a portion of each transaction is retained by your bank as security against disputes and chargebacks.
Online Payment Processing Companies
The alternative to having your own Internet Merchant Account is to use an Online Payment Processing Company. These companies will usually offer a service which essentially combines the features of a separate IMA and PSP in one account. Whilst the application process is still rigorous, the chances of being accepted are higher than an IMA and without the need of detailed checks into your history. You can also usually be approved, integrated and taking payments within days rather than weeks.
Online Payment Processing Companies take payments on behalf of your business, meaning that the actual ‘transaction’ usually takes place within their own secure web page rather than on your website.
Depending on the service you use, the checkout payment pages can usually be configured to look and feel the same as your website, so subsequently giving a similar smooth experience to that of an IMA and PSP. It is also typically much easier to integrate a payment processing service into your website or shopping cart, without the need for a web developer.
Using an Online Payment Processing Company is often the most cost effective and easy way for new ecommerce businesses to enter the market, as many new businesses will not have the required amount trading history to qualify for an IMA. It may also be more cost effective than using an IMA if you are not planning on taking large volumes of transactions, as you will not be required to pay all the initial fees and monthly charges of a separate IMA and PSP.
There are a number of Online Payment Processing Companies to choose from, and they all have various fees and benefits, but here are a few key points to consider when comparing them.
• How quickly you receive your funds – do you get instant cash-flow?
• Can you customise the checkout payment pages to look and feel the same as your website?
• Do you get all the latest anti-fraud tools such as MasterCard SecureCode and Verified by Visa, known as ‘3D Secure’ (the new online version of ‘Chip and Pin’) as part of the standard service price or are they extra?
• Do you have to pay a monthly/annual account charge?
• Do customers have to spend extra time being asked to sign-up or login to the service before being able make their payment?
• Is it simple, quick and easy to integrate without the need of a web developer?
• Will you be provided with good account management and telephone support?
The Pros and Cons of using an Online Payment Processing Company
Pros
• Easier to be accepted for an account and quicker application process
• Reduced amount of fees and charges
• Just one account required to take online payments
• Easy to integrate and manage
• You are not usually locked into lengthy contracts
• Better for small volume merchants
Cons
• Transaction charges can be higher than that of an IMA
• The payment companies name will appear on your customer’s card statements.
• You may have to wait longer before you can access you received funds.
• Not all companies provide the latest anti-fraud tools.
Summary
Hopefully this article has given you an insight into the available options for taking online payments and goes some way to explaining the differences, pros and cons between an Internet Merchant Account and an Online Payment Processing Company.
The payment option that you ultimately choose to use will be dictated by your particular business requirements. While price is no doubt one of the most important factors to take into account, it is equally important to take into account additional features such as anti-fraud tools and cash-flow.
Whichever one you do choose, it is important to thoroughly research all your options by comparing a number of suppliers to make sure you make the correct decision.
Rob Harrison – Marketing Manager at Nochex. www.nochex.com
