Using the E-Commerce Internet ...getting paid  Products of ImagineNation Providing on-line stores for small and mid-size Internet businesses since 1996,   Imaginenation is a full service company meeting all of your e-commerce needs:   Storefronts   Back Office Utilities 3rd Party Processing PAYMENT METHODS Last month we covered Internet payment methods that are not especially viable for the small business just getting started. This month we'll review three techniques for taking credit cards ....the one payment method that does work. In the early years of Internet commerce, before 2000, it was the exception rather than the rule for an on-line store to process a credit card payment. For one thing, gateways onto the financial networks were scarce and dominated by CyberCash, now Verisign. And, it seemed to require a programming genius to get a CyberCash gateway set up and running without throwing all sorts of errors. Very few programmers really understood the process because the sequence of events in a credit card transaction were a mystery, well guarded at the time, by the strange syntax. Add to the programming difficulty, consumer skepticism. People were not ready to give out their credit card number to an entity that seemed less than real, a website. As with all new things though, the support infrastructure grew and improved, credit card companies started to see the potential for revenues, and through a variety of promotional efforts, people began to accept that giving out a credit card number over the Internet was probably safer than giving it out to a waiter in a restaurant. Today it is estimated that over 80% of all Internet orders are paid by credit card and that the order dollar amount is larger when a credit card is used over payment alternatives. TAKING CREDIT CARDS There are three approaches that the merchant can take if they want to accept credit card payment for orders through their on-line store:    1) Use a merchant account from an acquiring bank and establish a gateway account to connect the store to the financial networks.    2) Use a person to person e-mail system to transfer funds.    3) Use a third party processor to handle credit card payments. Each approach has its advantages and disadvantages and they are not mutually exclusive. We frequently see storefront clients offering more than one solution to their customers. Cost and time to establish will ordinarily be the merchant's main concerns when getting started. However, frequently overlooked at the outset is the time and effort required to manage a credit card processing account once set up. We'll explore all of these issues, one method at a time. MERCHANT ACCOUNT A merchant account is an account with an acquiring bank to which funds from a customer's credit card account are transferred. The major card organizations, such as Visa and American Express maintain the network infrastructure over which transactions are processed. For this service they charge a fee to the merchant called the discount rate which is shared with the acquiring bank. For Internet accounts the discount rate typically ranges from 2.2% to 2.9% of the sale amount. Usually proceeds from a sale get transferred to the merchant's acquiring bank account within 72 hours. From there, the funds can be automatically transferred to a merchant's checking account which is often not the same account or with the same bank as the merchant account. Going back a few years, a merchant account for use with Internet credit card payments was difficult to obtain by small and home business and the discount rate was very high. This was principally because an Internet transaction is a "Card Not Present" transaction with no signature by the customer. Today, with acquiring banks gaining positive experience with small Internet businesses, card not present merchant accounts are readily available. However, acquiring banks credit the merchant with proceeds from a sale before collection of the monies from the customer is assured; therefore, they still see the issuance of a merchant account as a line of credit. Hence applying for a merchant account can be a tedious process, requiring information similar to getting a loan. FREE....INSTANT ?? There are now so called instant merchant accounts. This is a little misleading as the "instant account" will require a follow on contract and possibly more information before any funds are made available to the merchant. Also there is no such thing as a free merchant account in spite of the thousands of links returned when searching for "Free Merchant Account" at Google.com. There may be application fees, statement fees, setup charges, and there are always per transaction and discount charges. The largest ongoing cost though is frequently not mentioned by providers or gets relegated to the fine print. This is the gateway charge. A gateway is a third party service for interfacing your store to the financial transaction networks. Without a gateway, the Internet merchant account is useless. Gateway services provide a virtual terminal for conducting credit card transactions subsequent to an authorization. As a minimum a virtual terminal should allow you to review transactions, make refunds, and settle authorizations. A credit card transaction takes place in two steps: authorization and settlement. Any good system will allow the merchant to manually settle a charge authorizations. This is sometimes called capture. It is the process where-in funds are actually transferred from the customer's card account to your merchant account. Manual settlement is important because bogus orders and stolen card transactions can be weeded out before any money changes hands. This can go a long way toward avoiding chargebacks. Gateway charges are usually fixed and can range anywhere from $29/month up to several hundred dollars per month. Before applying for a merchant account, determine what gateways are supported by the account and how much the gateway will cost. More often than not, the gateway fee for a small business will be the largest single fixed monthly charge the merchant will pay for taking credit cards. To use a merchant account, the merchant must integrate the gateway software with the storefront. This was once a daunting task; fortunately, more and more vendors are offering turnkey e-commerce solutions so programming is not required. However, turnkey systems may lock you into an unacceptably large hosting fee. Be sure to compare and weigh all costs before committing to a solution. Also check out the virtual terminal provided for managing your merchant transactions. As a minimum the terminal should provide for settlements and return credits and it should be easy to look up credit card transactions related to specific orders. MAINTENANCE All else being equal, with your own merchant account, you will have the ongoing task of administering the account. Retrieval requests and chargebacks from your merchant provider are the two main instances that will require your immediate attention. A retrieval request occurs when a customer does not recognize a charge on their card statement and contacts their issuing bank for clarification. This often happens with Internet stores when the billing company name on the customer's statement doesn't correspond to the Internet store name, there-by confusing the customer. The bank contacts your merchant provider which in turn contacts you to verify the charge. You must respond with an explanation accompanied by evidence of the purchase if you wish to preserve the sale. A chargeback occurs when a person complains to their bank that a charge on their card statement is in error: that they never received the order, that the items ordered are not merchantable, or that the party using the card was not authorized to do so. IE: a stolen card or an underage member of household used the card. The customer's credit card bank most often sides with their customer over complaints and will immediately reverses a transaction, deducting the funds from the merchant's account before the merchant even knows there is a problem. Responding to complaints can be a time consuming task and because the Internet merchant does not have a sales draft signed by the customer, an often futile effort. If the merchant can't substantially refute the complaint, they will be out the merchandise, the money, and a chargeback fee levied by the merchant provider. Therefore it is imperative that the merchant have ready access to all order and credit card transaction information. This information must include a positive address verification. Most banks will not even entertain arguments refuting a chargeback on Internet transactions if the customer's street number and zip code haven't been verified. The same holds true for proof of delivery, without which the merchant loses. ALTERNATIVES Fortunately there are other ways to take credit card payments without having to maintain your own merchant account. That isn't to say that having a merchant account is a bad idea, just that the merchant should be prepared for the cost and administrative duties that go with it. In fact at some level of sales having your own merchant account makes good sense. Usually though, when just starting out, it is a burden you can do without. PERSON TO PERSON PayPal is probably the best known person to person credit card payment system on the Internet. This is essentially a third party process in which the provider, PayPal in this case, uses their own merchant account to process a credit card sale from your customer. They then remit the payment to the merchant upon an e-mail request. Transactions are generally confirmed by e-mail as well. The advantage to using a person to person account is cost. There are few barriers and generally no fee for establishing the account, the transaction charges are usually low, and there are no fees when the account is inactive. This can be a good method for taking credit card payment when making occasional sales such as at an auction site for which the system was originally intended The disadvantages are several: the customer must leave the storefront and go to an alternate web site to make payment. This conveys a less than professional appearance about the merchant and gives the customer a chance to change their mind. It does not enhance customer confidence in your website as a place to shop on a regular basis. Another disadvantage is that the system seems to encourage bogus orders and credit card deceptions. Chargebacks can be a frequent occurrence and often are not refuted by the provider. Since the merchant doesn't have access to card transaction records, there is no opportunity to save the sale. The chargeback amount is automatically deducted from the merchant's account without recourse. This frequently results in a freeze on funds in the merchant's account when chargebacks exceed a certain level. It can also result in high rolling reserves on the account where-by the provider holds back a portion of the merchant's money. Taking credit cards is never free but, with an IAMS  account, we keep your cost down and the utility up. THIRD PARTY PROCESSING As with person to person processing, a third party processor uses their own merchant account to process credit card payments for the merchant. To avoid restrictions on merchant accounts the processor often acts as the merchant's representative when a credit card sale is made. The distinctions between being a third party processor and a representative are technical and do not have any effect on the services provided to the merchant. Services though should be a prime consideration when selecting a third party processor. Without a certain level of back office utility and support from the processor, the merchant may be just as well off using something like PayPal. You should look for as a minimum:   1) A system that integrates seamlessly with your storefront so the customer does not leave your website to make payment   2) An order management console where all order information is available with the credit card transaction information   3) A provider that automatically responds to retrieval and chargeback requests on your behalf, relieving you of much of the administrative burden   4) A virtual terminal for conducting subsequent transactions such as refunds and settlements Beyond these basics the processor may support a variety of other services through the order management console. A merchant just starting out frequently overlooks the need for some of these services, generally known as back office utilities. A few examples are: visitor stats, printable shipping invoices, sales summaries and analysis, customer contact forms, and fraud prevention data. The merchant gets paid on sales periodically by the processor, usually every two to four weeks. Discount charges and per transaction fees are deducted from the payout. Many providers hold back a portion of monthly sales as a contingency against extraordinary charges such as chargebacks. As always there will be a trade off between services and cost. The third party processor may have a subscription fee if the services are extensive. All providers will mark up the discount rate and per transaction charge they have to have to pay. Your discount charge can range from a couple of points above what the processor pays to as much as 15% or more for high risk transactions such as adult site subscriptions. Per transaction charges will vary as well, anywhere from 35 cents to a dollar or more. IN SUMMARY The merchant must evaluate third party processors based on needed services and the overall cost given the average size of an order and the monthly sales volume. Generally, the out of pocket cost of using a third party processor as opposed to having your own merchant account will be lower when monthly sales are under $4,000 to $6,000. A number of our IAMS clients with monthly sales above $10,000 still find our IAMS account their best choice when factoring in the services provided and the time and aggravation of administering their own merchant account. The Staff Team ....ImagineNation Tips 'n Tricks    HTML tags shown here use the caret (^) instead of braces <> for proper rendering.     Brackets are represented by the curly bracket symbols ({}).  PeddleGold Instantly e-commerce enable your entire website with this robust, award winning storefront:   webPeddle.net   Demo More tips next month. ImagineNation © 1996 - 2003 Suffering from overload?  List Removal E-ComTips is brought to you by ImagineNation because you are listed as a user of one of our storefront products or have subscribed to receive the Newsletter itself. 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