Choosing a Payment Provider
If you are running an eCommerce website, you'll need a way of accepting payments online. Welcome to the world of merchant accounts, payment gateways, and bureau services.
Tags: Starting Out, Payments
This article aims to help you understand your options for taking card payments, and how to find the best deal. The first choice to make is whether to use a simple Bureau Service or a more complex Merchant Account and Payment Gateway integration.
Option A: Bureau Services
These are companies who will take customers' card details on your behalf and, when the transaction is complete, credit the money to an account you have with them. You can later withdraw your balance to a normal bank account, but there can be a lead time of up to 30 days.
There are relatively few requirements to satisfy to sign up with a bureau service, so they can be helpful if you haven't been trading long. Also, integrating this kind of payment system into your website can be as simple as adding a button to your checkout page.
The downside is that transaction fees are relatively high, and your customer is redirected to the bureau service's website to make the payment. This can make you look amateurish, and if the customer doesn't already have an account with the service they may get confused and give up. On the other hand, bureau services can give buyers a greater feeling of security as customers often know and trust them, but may not know you. By using a bureau service their card details are never passed to you, the merchant, but stored securely with the service.
The best known bureau service is PayPal, a company owned by eBay, and often used for eBay purchases. If your customers are likely to be eBay users, PayPal could be a good option. Other notable providers are Nochex, Google Checkout, and WorldPay's WorldDirect.
As bureau services are relatively straightforward, the rest of the article talks about the other option - a merchant account and payment gateway.
Option B: Merchant Account and Payment Gateway
There are potentially several advantages to this option, including lower fees, smoother integration with your website, more control over security, and quicker withdrawals to your bank account. However, it is more complex to set up and not every business will satisfy the requirements.
Step 1: Business Bank Account
If you do not already have a business bank account then this must be your first step. Your first thought may be to go with the bank that holds your current account, but this is not always the best solution. Talk to your business adviser, business mentor (if you have one) or to friends and acquaintances that are already in business. What do they recommend?
Traditionally business bank accounts charge fees (both monthly and for transactions) but there are free accounts if you don't need to use a branch - see the Business Bank Accounts link below.
Step 2: Merchant Account
A merchant account is an addition to your business bank account that allows you to accept credit and debit card payments. Your bank handles the payment technicalities, and charges a commission of between 2% and 5% per transaction, or a fixed fee, or both. There is an element of risk for the bank, so banks that offer merchant accounts (known as acquiring banks) have strict requirements.
Getting a merchant account can be a fairly daunting process. For new businesses, failing to obtain a merchant account is a real possibility. To limit this risk go to your chosen bank as if you are asking for a loan - well prepared and armed with evidence such as:
- Business plan and cash flow projection
- Marketing plan
- Website address
- Details of products and services
- Details of suppliers
- Method of delivering your products or services
- Your terms and conditions for online trading
- Expected transaction values and estimated turnover
- Details of the payment gateway you would use (see below)
- Bank details
- Details of individuals involved in the business, with full contact information
For established businesses, the bank will also want to see your trading history and audited accounts.
If you already have a merchant account from your bank, you will also need an Internet merchant account - even if you are already able to process Cardholder Not Present (CNP) transactions.
Having your own merchant account is not always the cheapest option. As well as commission fees, you should also expect to pay transaction fees, a set up fee, and in some cases a monthly fee. The fixed fees mean that it may not be economical for businesses with a low transaction volume. Despite the drawbacks, having your own merchant account can be a positive benefit to your business, making the cost and effort involved very worthwhile. Be aware that the time from applying to actually getting a merchant account can be eight weeks or even more.
If your bank rejects your application for a merchant account, all is not lost. Approach another bank (you don't have to use your own) or take the bureau service approach detailed above.
Step 3: Payment Gateway
A payment gateway processes card payments from your site, so you can immediately confirm the transaction - the normal practice when buying online. You can think of them as a virtual version of the Chip and PIN machines common in high street shops.
There are a number of factors you should consider when choosing a payment gateway:
- Setup fees: These can vary from zero to £250+
- Annual fees: This may be free, or can be as high as £200. Alternatively, this may be a monthly fee.
- Transaction processing fees: This can be a fixed rate per transaction or a percentage.
- Lead time: Check how long it takes to receive the cash in your bank.
- Security features: Look for
use of industry standards PCI Compliance and 3-D Secure, and any other security features.
- eCommerce platform support: Find out which payment gateways your chosen package supports.
Remember that the fees above are in addition to merchant account fees, and bank charges for transfers to your current account.
Electronic Payments (link below) is a government-funded website which gives some useful information on taking electronic payments. It includes a tool that allows you to compare pricing structures from a number of payment gateways.
Credit Card Fraud
In setting up your e-commerce website you will have taken steps to protect against credit card fraud. Your payment system and the use of SSL encryption help protect you and your customers. However, you need know about some of the common scams and recognise them when they happen - because there is a good chance they will.
This is a real example from an Internet trader:
"We received an online order from an American customer, and a good order at that, asking us to ship goods to an address in Bulgaria. Being fairly new to the game we simply regarded this as an interesting order and to be honest the idea of some philanthropic Americans shipping thermal underwear to needy Bulgarians was quite heart-warming. We would have filled the order if it wasn't for the fact that in the next two hours we received four similar orders, all purporting to be from American customers asking us to ship goods to addresses in Bulgaria. Needless to say suspicions were aroused."
The perpetrator of this scam had used a credit card number generator to generate valid credit card numbers and expiry dates. Google credit card number generator - you will be amazed at the number of sites offering this software for sale.
Take some time to increase your awareness of credit card fraud. While automated systems are valuable, a human review can catch suspicious transactions that would otherwise be filled. As a merchant you are responsible for reimbursing your bank for any losses due to fraud, along with suffering a loss of stock. Card Watch (link below) is a good site for learning about credit card fraud.
More Information
Business Bank Accounts
Electronic Payments
PCI Compliance
3-D Secure
Card Watch
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About the Author
Dpivision.com Ltd is a Newcastle-based software development and web design studio. They specialise in web design, software development, and eCommerce solutions - and have developed the award-winning TradingEye ShopBuilder entry-level web store solution.
