Guide to
Online Payment Acceptance
Matt Mickiewicz and Jim Conley
August - 1 - 2001
There's a myriad of different ways to go about
processing online payment, and it's very easy to
get confused. This guide considers the following
payment acceptance solutions in detail:
The guide was put together to help you
understand in detail how online payments work,
so that when you decide to purchae a solution
for your site, you know what to look out for,
and what questions to ask.
Commonly
Used Words
Throughout this guide you’ll see some words and
phrases that might confuse you. For the sake of
clarity, we’ve defined some of those commonly
used words here.
Merchant Account Provider:
This is the company that helps set you up with
the proper merchant account, and provides the
software and equipment you'll need in order to
perform credit card transactions. They may also
be able to provide other payment acceptance
services, such as debit card processing and
online checks. Merchant Account Providers are
also known as Independent Service Organizations
(ISO) or Agents.
Secure Gateway Provider:
Ensures that the connection between the Merchant
Website and the Merchant Processor are secure.
Merchant Processor:
Actually process the credit card or check
transaction.
Virtual Terminal:
This is the "online terminal" that allows you to
manually type in credit card orders via your Web
browser. It usually comes with a Real-Time
processing solution.
Credit
Cards
Credit cards are almost universal. Whether you’
sell memberships over your Website, widgets over
the counter, or office supplies through a
catalog, you should accept credit cards.
Accepting credit cards can enlarge your user
base in two ways. Firstly, it lends credibility
to your business, which is of the utmost
importance if you want to close the sale. That
credibility stems from the fact that people
believe that you have to be a 'real' or
reputable company in order to accept credit
cards. And secondly, shoppers feel safer buying
this way, as credit card companies only hold
consumers liable for the first $50 if fraud
occurs.
However, because of the nature of Internet
transactions, there is no physical credit card
present for you to swipe, nor is there a
customer to sign for the purchase. This means
that ecommerce purchases fall into a higher risk
category known as Mail Order/Telephone Order (MOTO)
transactions, or "Card Not Present"
transactions. Due to the higher risk of these
transactions compared to their in-store
counterparts, fees are higher than purchase
situations in which a card is present.
The
Merchant Account
A Merchant Account is an account at a financial
institution that allows you to accept credit
cards. You may find that you can acquire a
Merchant Account directly from your local bank,
or you may decide to use one of a number of
Merchant Account Providers that can be found
through your favorite search engine. Not all
Merchant Accounts can connect to the Internet,
and those that can may be limited to a
particular Secure Payment Gateway, so be sure to
determine how this account will connect to your
site if you're a Web Merchant.
A Merchant Account Provider will open an account
for you at a financial institution (a bank with
whom they're partnered) that can handle Internet
transactions, and approves your credit history.
Be aware that there are a lot of Merchant
Account Providers out there who aren't
reputable, so make sure you check them out
before you commit to one. Avoid all the hype and
terminology, and don’t pay more than a $100
processing fee to get the account. Most merchant
Account Providers will offer you equipment and
software with which you can process credit card
transactions, but remember: you don’t have to
buy from them if their prices aren’t within your
budget.
All Merchant Accounts will have some kind of set
up or application fee, which is usually at least
$99. Where there is not an initial fee, you can
be sure that the Provider will try to make up
the difference on a software or equipment sale,
or by otherwise marking up the transaction and
service charges.
International Merchant Accounts
If you live outside the US, you may encounter
quite a few problems obtaining a US Merchant
Account, not least of which will be the cost of
the account itself. Essentially, you have three
options:
-
Go with a 3rd party processing company (more
on this a little later),
-
establish a US presence or
-
use a company that specifically deals with
foreign firms.
To establish a US presence, you’ll need to
incorporate your company in one of the 50
states. Nevada and Delaware are both popular
choices, with over 50% of the Fortune 500
companies being incorporated in one or the other
due to their low fees and business-friendly
regulations. The best way to go about
incorporation in the US is to seek out a firm
that will set up a mailing address with mail
forwarding, and telephone number for you, and
who will fill out all the incorporation papers
on your behalf, which might cost up to $1000.
You’ll find a list of incorporation services
firms
here.
The other option is to work with a Merchant
Account Provider that specializes in foreign
firms, which is a very good alternative if you
plan to complete a large volume of credit card
transactions. One of the best and most reputable
firms for international Merchant Accounts is
PlanetPayment.com
-- they don’t require you to hold a US bank
account, and they allow you to accept Visa,
MasterCard and American Express payments.
However, if you're a non-US corporation, don’t
be surprised if you encounter extra fees. Two
other companies that set up international
Merchant Accounts are
MerchantService.com
and
iTransact.com. |
RoDI
ISOC
IWA
ARTT
RTS
WQC 2003 
ISAQ 2005