A Guide to Online Payment Processing
Monday, January 28th, 2008
So you have decided you are going to sell online and you have found someone to build an e-commerce solution around your products. Now it is time to figure out how you are going to accept payment. This post is going to look at four options available to you; we will go through how each works and what steps you need to take to get there.
1. Off-Line Payment.
This is an often over looked option, but it is the simplest and quickest way to get trading your products. With an off-line payment option, you can accept orders online and offer one of the most flexible, albeit not the quickest, methods of payment. Many people might argue that by only having an off-line payment option you are not trading online, but this could not be further from the truth and it is the reason that it is still accepted by world leaders such as Amazon and Google.
With an off-line payment option, customers can browse your catalogue of products from the comfort of their own home, add items to their shopping cart and check out, just as they would on any other option. The only difference that you make, is that instead of presenting them with online billing options, you provide them with options to pay off-line. This can be via bank transfer or lodgement to your bank account or by posting a cheque, bank draft or postal order to your business. As with any other option, you can dispatch their goods as soon as you receive payment. While this option is not ideal for everyone, it can lend itself very well to some. It is by far the quickest payment option you can add to your e-commerce solution.
2. Fully Outsourced Solutions.
This option includes PayPal Accounts, Google Checkout and others. With this option you add an embedded form with details of your customers’ purchases to your page. The values in this form are hidden fields that can be added dynamically by your e-commerce solution or manually on each product page of your shop. All the customer will see is a button that will direct them to your outsourced solution with details of their purchases. Here the customer logs into their account with the sourced company and pays for the goods. They are then directed back to a thank you page on your site with a code to let you know payment has been made.
Setting up this style of payment can be quick and painless and is often the easiest option for sites with a low volume of sales. To get set-up, you simply register an account with your provider of choice, fill out your details and they will give you a piece of code that you add to your pages to display the “Pay with … ” buttons.
The main advantages to this option are that it is quick to set up and you can access your money quickly. With PayPal you can spend your money immediately on sites that accept PayPal and with both PayPal and Google Checkout, you can have it transferred to your own bank account the next business day. The disadvantages are that your customers may not have an account with your provider and there can be higher transaction fees. PayPal is 3.4% + €0.35 per transaction, while Google Checkout offers free processing for 10 times your Adwords spend (i.e. if you spend €1,000 on Adwords you can process €10,000 free) or 1.5% + £0.15 per transaction ( ) Google Checkout is currently only available to merchants in the USA and the UK, but it is available to buyers in all countries and it is coming to Ireland soon.
3. Combination Merchant Account and Payment Processor.
This option includes companies like WorldPay, 2Checkout and PayPal Merchant Accounts. This option adds more flexibility than a fully outsourced solution; customers do not need to have an account with your provider and can pay with a wide range of credit cards. Unfortunately, very few of these providers will support the Irish debit card Laser. These providers will provide two options to integrate with your e-commerce solution.
The first is the hosted option, with it when choosing to pay, customers are directed to a page on your provider’s servers and their purchase information is passed along with them. On this page they input their credit card details and the payment is processed. They are then returned to a thank you page on your site, with a return code to let you know payment has been made. The remote payment page can normally be skinned to match the style and look of your site.
The second option is integration with their API (Application Program Interface). To use this option your e-commerce solution will need to have a payment processing page secured by a SSL certificate. This page will pass the credit card details to your provider, normally via XML. Your provider will process these details and authorise payment and send the response back to you, either an authorisation code or a fail message, again via XML. This is all done silently in the background in one or two seconds.
To get set-up with either of these methods you will need to register for an account with your chosen provider and add your details to their account. Your provider will normally provide sample code to help you integrate with your existing e-commerce solution, including plugins for many of the popular open source shopping carts. If you are using a bespoke cart, then your developer will be able to integrate these methods for you.
The main disadvantages to this option is that many providers apply restrictions as to when you can get your money out of their account, such as time delays or minimum amounts. Providers in this category will often charge a set-up fee and/or an annual fee as well as a percentage of each transaction, generally 2-4%. There can be some more requirements to setting up with this option than with the fully outsourced solution, but it is easier than getting your own merchant account as is required in the final option.
4. Separate Merchant Account and Payment Processor.
The main company offering this service in Ireland is Realex Payments. The difference between this option and the others is that you will need a merchant account with a local bank to accept payments. This is the most difficult part of setting up this option. (You may have trouble with banks, especially in Ireland, as online payments are what banks term “customer not present transactions” see a discussion on this here.) A merchant account is different and separate to your normal business account, it is solely to accept payments into. What payments you can accept will depend on what payments your merchant account can accept. You will need different merchant agreements for the different types of payment you wish to accept (e.g. one for Visa/MC/Laser, one for AMEX, one for Switch/Solo, one for automated direct debits etc).
While you are getting your merchant account set-up, you can also begin your set-up with your payment processor. The set-up here on your side of things is identical to the combined option above, so I won’t go through it again. The difference is on your payment processors side; they will communicate directly with your bank and get authorisation for the transaction, again this done in one or two seconds. Payments will then be batched nightly and available in your own local merchant account the next business day. As soon as you receive your merchant number from your bank, you provide it to your payment processor and you can begin processing live transactions.
Using this option with your processor’s API gives you the most control over the flow of your shopping experience and what happens to your money. The fees for this however are different, you will have to pay a small percentage of each transaction to your merchant bank as well as a fixed fee per transaction to your processor. The amounts here will depend on the volume you are processing and in the case of your bank, the type of payment. Payment processors generally sell transactions in lots; in that you get 100 transactions per month for €xx with each additional transaction costing €0.xx. The overall cost will generally be cheaper than the above methods if you are doing larger volumes of transactions. To that end, this method is best for people doing larger volumes of transactions or those who want more control. The main disadvantage with this option is the longer and more difficult set-up. There will also be set-up charges with your payment provider.
3D Secure and Charge Backs.
Finally, a note on 3D secure and charge backs. 3D secure is an additional layer of security that can be used by Visa (Verified by Visa), MasterCard (MasterCard SecureCode) and JCB (J/Secure) card holders. What it does is place the burden of proof back onto the issuer instead of the merchant. What this means for you is that you are protected against charge backs due to fraud or stolen cards. You are not protected however, if the customer does not receive their goods from you or the goods are damaged in transit - so you should always send goods via a registered channel.
To implement 3D secure, your merchant account and payment processor must both support it. Your payment processor will be able to supply you with sample code to integrate it with your e-commerce solution. At the point of transaction your customer will be prompted to enter their 3D secure password. If they are not registered for 3D secure with their card issuer, you can choose to either prompt them to register, bypass it for now, or silently bypass it. Their password will be verified by the issuer and either an authorisation code or a fail message will be returned to you.
Charge backs occur when a customer disputes a transaction with their issuer and the issuer upholds the dispute. The funds are then reversed from your account and you normally incur a high fee with your payment processor and you will also lose any dispatched goods. You can protect yourself against charge backs by using CV2 (Card Verification 2 or Card Security Code) and AVS (Address Verification Service) protection. You can also use GeoIP tools to ensure that the issuing country of a card matches the user’s IP address location.
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If you are looking to implement any of the above options, then we here at Weeno Media have the experience in all of them to ensure you choose the right one and that it gets set-up with ease. Why not contact us today or see our e-commerce options.
