Selecting the best online payment option for your business
There are two main options to consider if you want to sell goods or services from your site:
- Process credit cards from a page on your own web site, using your own merchant bank account.
- Use a third party service providers such as Paypal and Google checkout who handle all billing matters from their web site.
The first option is costlier to set up but better if you want to process payments as quickly and efficiently as possible, removing as many barriers to payment as possible. Accepting payments online via a merchant account puts you in control and limits your reliability on outside payment acceptance services.
The second option is easier to implement and the initial costs are much lower. However, taking payments is more a long winded process and without using their shopping basket (which look a bit clunky) only one item can be paid for at a time. Also, transaction fees are significantly higher than for merchant accounts. The transaction from the 3rd party account to your account has a service charge. This is usually higher than option 1 (per transaction).
Option 1: Setting up an internet merchant bank account.
You should set up an internet merchant bank account if:
- You expect a fairly high number of online transactions
- You want to speed up the payment process so that transactions appear to be processed directly on your website rather than sending the user to a third party site such as Paypal.
- You want customers to only have to enter their information once to process their payment.
- Your business already accepts debit and credit card payments for face to ace transactions
In order to process credit cards directly from your own site, you need to put in place have several elements:
Secure Socket Layers and an SSL Certificate
The SSL Certificate is a piece of software that certifies that the web site is in fact owned and operated by the people that say they do. Like the code machines used in World War Two, a secure server encrypts information making it hard for hackers to decipher (and steal) credit card and other sensitive information. Together with Secure socket layers these allow your site to communicate with your visitor’s web browser in a secure and encrypted way. This is essential to providing secure and confidential financial transactions that all but eliminate the risk of electronic eavesdroppers from intercepting credit card information.
An SSL certificate costs around £225 per annum, which will also buy you a static IP address (numerical address that corresponds to the written part of www.yoursite.com, which could be 143.45.123.3)
Internet Merchant Account (IMA)
The internet merchant account is a bank account that allows you to accept credit cards online. It is important to realise that even if you are an established company that accepts credit cards in a physical store, this does not mean that your merchant account allows you to accept credit cards over the internet. You have to have explicit approval for internet transactions, and the services charges are different.
There are several banks and processors that currently offer IMAs. These are referred to as ‘merchant acquirers’ or ‘acquiring banks’. Your bank will generally charge in the region of £150 to £200 to set up an internet merchant account and there is a strict application procedure in place to prevent fraud.
Payment Service Provider (PSP)
As well as a merchant bank account, you will need a good payment services provider (PSP), such as Sage Pay / Protx. A PSP deals with communication between your web site and the credit card provider’s computer that allows a transaction to be authorised and credited to your merchant account.
PSPs generally charge in the region of £20 per month for their services which include taking care of fraud screening, card compliance (PCI DSS), payment authorisation and settlement of funds into your merchant account.
| Advantages
- Faster payment processing, better customer experience. |
Disadvantages
Higher set up costs |
Option 2: Third party online payment processing (e.g Paypal)
When a visitor at your site either clicks on a “buy” button for an item at your site or clicks “check out” from within a shopping cart program (explained below) at your site. Then they are taken to (for example) PayPal.com’s web site, where they enter their personal and credit card information (including separate billing and shipping addresses if relevant). The credit card processing takes place on PayPal’s secure servers, so there is no need for you to set up secure SSL pages on your own web site. Once the payment process is completed, your customer will be returned to your own web site.
Your customer’s credit card statements will actually show a charge to PayPal.com instead of your company. Both you and the customer get an email receipt about the purchase. Then, you can either ship the product to the customer, or send them the product information (log-in user name, passwords, or download page etc.) that allows them to complete their purchase. The credit card processing service assumes full responsibility for handling customer service for the credit card transaction.
| Advantages
No set up costs No monthly fees |
Disadvantages
Processing an order takes longer and the user may have to enter their information more than once. |
Five reasons why Electronic payments increase profitability
- Convenience – removing administrative resources required by invoices, cheques and cash
- Immediacy – credit cards enable instant purchasing (without delay)
- Improved cash flow – payment at the time of purchase reduces the pressures caused by 30-day invoicing
- Growth – open additional payment channels via the phone, mail order and Internet and increase your customer base. More customers mean more revenue.
- Competitive advantage – match and beat the services of your competitors and gain the edge
