Credit Card Processing Online

.: Complete Online Payment Process Guide
Complete Online Payment Process Guide


* How Online Transactions Are Processed
* Rates & Fees Involved
* What is different about Payment Online?
* Special Extra Info / Merchant Account
* The Alternative Choice – No Merchant Account Required
* Complaint Resources

How Online Transactions Are Processed

The process a transaction goes through is actually quite complicated, however it only takes a few seconds to complete. If you use a Real-Time Processing solution, here's how an online transaction occurs:

1. The customer elects to move to the check out with the items they placed into their shopping cart or selected from the order form on a merchant's Website.
2. The customer then selects "credit card" as their method of payment.
3. Their browser connects to the Website host's secure server, and brings up the secure payment form.
4. The customer enters in his or her credit card information on the secure payment form, and authorizes the transaction by clicking a “Complete Order” type button.
5. The transaction information flows to the Website host's secure server using SSL encryption

Rates & Fees Involved

When it comes to deciding which Merchant Account Provider you wish to deal with (there are many out there) the one factor that influences most people is the cost. Obtaining the facility to accept credit card transactions can be expensive, so make sure you compare different providers in order to get the best deal. And read all the fine print too - you may find some "hidden" charges here that are not mentioned elsewhere.

Here's a basic outline of the approximate rates and fees associated with merchant accounts:

» Application/Setup: $0 - $100+ (one time fee)
All providers have an application fee. Some charge it at the beginning of your agreement, while others add it in to the solution's purchase or lease costs.

» Hardware/Software: Purchase: $99 and up Lease: $20/month and up
Stay away from leases if it's at all possible. It's always better to purchase from the beginning than pay a lease for the next 12, 24, 36 or 48 months. Why? Because with a lease you can end up paying as much as 3 times or more than if you'd purchased the solution outright from the beginning.

While a $29.95 monthly lease for 48 months might sound good, in reality it isn't. Leases are very hard to break once you've agreed to them. If your business goes under before the 48 months are up, you still have to pay out the hardware costs until the last penny has been received by the leasing company. Also, the lease fee you agree to often does not include your state sales tax or the amount that's charged for the damage or loss waiver.

If you do decide to lease, always determine the lease's buyout clause, end of lease terms, and beware especially of clauses that allow the lease company to continue charging you even after the 48 months have passed (they'll often state that you should contact them in writing one month prior to the end of the lease, or you can just let them keep charging you).

» Programming: $0 - $100+ (one time fee)
This fee usually only applies to retail merchants who have switched from one provider to another. The programming process isn't difficult, but watch out for the cost - some providers will nickel and dime you on programming fees. Why do they charge this fee if you use your own equipment? This fee's often used by the company to try to make up for the money they've lost by not selling or leasing their equipment to you.

» Discount Rate: 1.49% - 4% per transaction
This is the fixed percentage amount that's deducted from the purchase cost. Lower discount rates are available to retail establishments, while higher rates are applied to Mail Order/Telephone Order (MOTO) and Internet-based businesses. Why the lower cost for retail? Because the instances of credit card fraud are much lower in retail situations, so banks are able to charge lesser percentages to these businesses.

» Transaction: $0.10 - $0.50 per transaction
In addition to the discount rate, a transaction fee is also deducted from the purchase cost. As with discount rates, transaction fees are lower for retail businesses, and slightly higher amounts are charged for MOTO and Internet establishments. Address Verification Services (AVS) may either be charged as an additional fee, or they might be included in the base transaction fee.

» Monthly Minimum: $20 - $25 per month
This fee is based on your transaction and discount rate fees that are charged on your credit card sales each month. For instance, if your bank charges $25 as a monthly minimum, the transaction and discount rate fees collected by the bank must equal or exceed $25 each month. If this is the case no monthly minimum will be charged. However, if the fees collected for that month do not meet the $25 minimum, you'll be charged the difference. However, not all processors have a Minimum Fee.

» Gateway Access: $0 - $25+ per month
As in most cases, the Secure Payment Gateway provider is a separate company from the Merchant Processor, they charge separate fees. An access fee is payable for each month that your account is on their system. The big three gateways (outlined previously) all charge between $15 and $25 per month for gateway access. Find a smaller provider or a Merchant Processor with their own free gateway to get the best deal, which in some cases can mean free access.

» Statement: $10 - $15 per month
At the end of each month you'll receive a statement from your processing bank, which lists all the transactions that occurred in that particular month - not unlike your credit card or telephone bill. In many cases the statement is displayed online, so there is no statement mailed, and this fee may be called an Account Maintenance or Technical Support fee instead.

» Daily Close-Out: $0 - $0.15 each day
This fee is associated with those software and terminal processing solutions that require you to close out all your transactions at the end of every business day. Most providers no longer charge this fee.

» Address Verification System (AVS): $0 - $0.05 per transaction
The AVS service checks that the billing address given by the customer matches that which is associated with the credit card. This service only works in the US - currently there's no AVS service avaialble for credit card holders outside the States. If you opt not to use AVS, VISA and MasterCard will not support your transactions, and they'll charge you an additional .17% to 1.25% on those sales. Most merchant accounts come with AVS at no extra charge. If there is a charge, it's combined with the per-transaction fee in most cases.

» Chargeback: $5 - $25 per instance
A chargeback occurs when the cardholder disputes a charge on their monthly credit card statement. A large number of chargebacks can cause you to have your Merchant Account dropped totally, and can leave you in a bind when you try to secure another Merchant Account for your business. If this is the case you may be unable to get another Merchant Account for several years.

» Reserve: Fees vary - ask specific providers for details
Some providers will require you to hold a reserve account, the balance of which is determined by your business's estimated sales receipts. A reserve is almost always charged to merchants who aren't based in the US and who are trying to obtain a Merchant Account in the States. Also, businesses that complete a high volume of sales each month may be charged a reserve fee.

In most cases, the reserve fee is used to cover the cost of any chargebacks on the merchants account.


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What is different about Payment Online?

Both Internet and e-commerce are relatively new technological evolutions, and hence there is little commonly accepted terminology (and clarity) between the companies that offer products and services in this industry.

We will attempt to clarify the types of e-commerce service providers, their business models, as well as discuss the differences between them and the Payment Online Corporation.

The clearest distinction between Payment Online and other types of providers is that Payment Online is a single-source provider with compelete and fully integrated products and services for affordable prices.

E-commerce Service Description:

Here we have described some of the main service/software descriptions involved in e-commerce in order to present and accurate differentiation between servcie providers

Credit Card Processing

Ideally, this is a real-time automated processing allowing you to manage your transactions online. Not all service providers are real-time (ie. they batch the transactions to authorize them at a set time instead of immediately. Batch processing can result in certain problems, such as authorizing an account when sufficient funds are not available. Manual processing is still in existence (in the case of AuthorizeNet), and apart from being labor-intensive, it can result in more error and wasted time and expense, and nightmate in scalability. Online management is essential to help keeping your time efficient and your company productive.

Service Provider

These are companies that offers Credit card processing to you utilizing your own merchant account for processing of your customers' credit cards online. Essentially, they are an Application Service Provider which means that they have Application Servers running credit card processing engines and utilizing your own merchant account for funds authorization and deposit. By far, this is the most popular method of processing credit cards by companies that sell online (possibly 90% of the entire market). There is usually a monthly service charge and a per transaction fee (excluding the merchant account per transaction fee).

Third-Party Processing

These are companies that offer Credit card processing to you utilizing their own merchant account for processing of your customers' credit cards online. Therefore you do not need to obtain a merchant account of your own. The problem with this type of processing service is plenty… For instance: the processing fees are anywhere around the 10%-30% of your sales (not profit but your sales); it usually takes about 30-60 days before you see the proceeds from your sales (and in the mean time the processor is making interest on your money); in addition, the customers belong to the processor (since they own the merchant account) and therefore the processor can send marketing emails and promotions to your customers (oops. actually they own the customer list asset); the processor can shut down processing of your credit cards (your account) at any time they feel like it, or if they get shut down by VISA or other card associations, or they can increase your fees or the rate of 10%-30%, anytime they want to; this type of processor is regarded as one of the poorest customer care providers in the industry due to the fact that most of their clients are ADULT sites or GAMBLING sites that cannot get a merchant account; this also results in other clients paying a premium for the company's business model and high transaction fraud and charge-back rates. In our opinion, this is the most costly and the most risky processing method out there and the only reason that legitimate businesses would use these companies instead of applying for a 2.4% merchant account of their own, is lack of awareness. You also cannot build business credit line if you do not have your own merchant account from a respectable merchant bank. Can you afford not to get your own merchant account?

Payment Buyer

There is only one major company offering this type of service and it called PayPal. Despite the security attacks against this company and FBI's involvement, we regard PayPal as a company that offers a good service for individuals that only expect a few sales per month. Payment Buyers have one major drawback and that is that both buyers and sellers are expectd to register with them in order for a transaction to be processed. Although this may work for a few sales per month, it is really not the professional way for a serious company to sell their products and services online to customers that expect to buy their products from a full-time professional and reliable business.

Indirect Channel Processing

These are companies (like AuthorizeNet) that offer Credit card processing through sales agents and resellers - but not directly to clients that intend to sell online. The problems are quite obvious. No accountability from the company that processes the credit cards; you do not have a contract with the processor and therefore cannot hold them accountable; there is a middleman (the agent/reseller) that adds to the cost of service, is an additional step in the process, and in many cases, has access to your customer information (specially when customer support is involved), and is often not a technical resource, but a non-technical obstacle. You would still have to obtain a merchant account to use this type of processor.

Merchant Account (for Internet Users)

Needed by all businesses and companies that intent to accept credit cards from their customers online - And without using an expensive and risky third-party processor. There is more mystery with merchant accounts than with space travel to Mars. Merchant accounts are nothing more than a line-of-credit for accepting credit cards from customers. Rather than waiting for the customers to make payments to their credit card issuers, you would get your sales proceeds immediately and deposited to your business bank account within a couple of days from the merchant account bank. Then you can reincorporate the proceeds into your business. The merchant bank charges a fee (around the 2.5%) to assume the risk. This also helps you build business credit over the long run.

Online Shopping Catolog

A catalog software that allows you to structure and present your products (ideally if you have thousands of products). Usually this software can cost anywhere around the $200-$500 depending on features. There also free open source eCatalogs that are low in features and functionality. Most often, it is ideal to use your Web site to present your products and not an eCatalog since search engine often do not recognize and ignore online catalogs.

Online Shopping Cart

This is an additional software that performs the task of the shipping and tax calculations and the checkout process (or order page itself). Your online customers add products they wish to purchase from you to the cart and then they checkout and pay by credit card. These are often not more than $100 or free, however integration with Web sites and eCatalogs can be a nightmare.

E-Commerce Hosting

This is hosting of the Online shopping catalog and Online shopping cart software (and ideally the secure SSL digital certificate for secure connection).

Security Hosting

The secure SSL digital certificate for secure connection that securely the hosting to checkout/order page that submits the sensitive credit card processing. This does not often include secure hosting of Web site - since there is no such thing. Web sites are not secure, because they are designed to be accessible by everyone over the Internet.

Payment Gateway

This is essentially a software code that submits credit card information through to the banking networks with the merchant account for processing of the credit card transaction. It is what achieves the transaction authorization and the settlement (fund transfer) and carries the messages from processor to the banking in real-time.

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Special Extra Info / 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.

* If you are starting a business or are not satisfied with the company that are providing merchant service for you, we can recommend a company that we work with them. »

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. 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.

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The Alternative Choice – No Merchant Account Required

If you have little cash on hand, or sell a limited number of products, you can try one of the alternate processing companies (called third party processors). Instead of paying setup fees, transaction fees, statement fees, discount fees and the like, you’ll simply pay 10-20% of the sale price of each product. We don’t recommend using these companies in the long-term. They're excellent if you are just starting out and you don’t need the cash from sales right away (Pay Pal and Click Bank for example, withholds part of the proceeds from a sale for up to three months to protect against charge backs) but in the long run they will end up costing you a lot more.

Once you’ve generated enough capital to support a real merchant account for your company, get one. If you’re a non-US based business, the best way to go is to use a 3rd party processor, at least until the cost for a real merchant account drops. Many of the companies below support both US and Non-US based businesses:

• I-Bill
• CCNow
• PayPal
• Revecom
• WorldPay
• 2CheckOut
• ProPay

Chargebacks and Fraud

Chargeback - the word that Internet merchants fear. A chargeback is when a transaction is reversed. In other words, rather than adding money to your account, it is deducted. Chargebacks can occur for a wide variety of reasons, such as double-charging, credit card expiration, bank errors, and customer disputes. If your Merchant Account incurs too many chargebacks, there's a possibility that you will loose your account. Once this happens you'll be placed on the Visa/MasterCard MATCH list for several years. All Merchant Account Providers have access to this list, and if they find your name on the list, they'll usually decline to issue a Merchant Account to you. But if you're one of those merchants who have lost their Account, there's still hope. Bank Card Law specializes in helping companies who’ve lost their Merchant Account due to excessive charge backs.

Here are some tips that can help eliminate chargebacks:

1. On your order confirmation page, make a note to the customer as to the name (phone number, email address, etc.) that will appear on their monthly credit card statement.
2. Also include a note about these details in the email confirmation that your customers receive when an order is placed (they do get one don't they? If not, they should... it's good for keeping records).
3. Use Address Verification. People who order products with a stolen card number will never use the real cardholder’'s billing address, so this is your chance to stop the order before its too late!
4. Scrutinize orders from foreign countries. A large percentage of fraudulent Internet purchases are made from Indonesia, Russia, and other eastern block and developing countries.
5. If an order seems suspicious, call or email the customer and attempt to verify anything you can about them. Pay attention to strange orders and then follow up.
6. And lastly, if you ship a product, attach a note to the customers invoice.

And always keep copies of transactions, so that, if you're ever challenged, you have some kind of defense. Unfortunately, online credit card fraud is very prevalent on the Internet. The best thing that you as a merchant can do to reduce the cost of fraud is to be informed. I highly recommend that you dedicate several hours to the exploration of the Websites bellow and to the implementation of as many of the suggested strategies as possible within your e-business:

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Complaint Resources

The following government agencies and private organization Web sites contain information on complaining about an online merchant: The Internet Fraud Complaint Center and the National Fraud Information Center . Additional Resources should be Shop safely online (Be “cyber” safe when you shop online), Internet tips (Get tips on credit card safety, online auctions, buyers clubs and online travel offers from the Internet Fraud Watch).

www.fraud.org/ifw.htm , www.internetfraud.usdoj.gov , Also www.cmu.edu/police/internet.htm

In almost all cases, you'll be held responsible when a fraudulent credit card is used on your site, and you will be charged for the sale. Alas, authorities are unlikely to get involved in a fraud case unless very significant amounts are involved, although you should not hesitate to report each and every case of fraud that occurs.
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* This mini report was edited by Lindenberg Jr., from different sources through articles/authors in the field of internet providers, marketing and Credit Card Processing, as well government official sites as the SBA. Lindenberg is a marketing specialist, Brazilian culture consultant, journalist and the Soul Brasil magazine editor (www.soulbrasil.com).


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