Choosing a Vendor To Process Your Online Transactions by ScoreSMB

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									Choosing a Vendor To Process Your Online Transactions
By Delilah Obie
workz.com

To process online orders, you must offer online payment options. The most widely used form
of payment currently is the credit card. Marketing studies show that you'll lose 60 percent to
80 percent of your potential orders if your Web site is not set up to accept credit cards; they
also show that if you offer credit card payment, not only will you receive more orders, but
those orders will be substantially larger.

Credit cards enable impulse buying, reassure customers of your legitimacy, and simplify your
billing. Other methods of collecting payment are becoming available and include charging
purchases to a phone bill, using electronic funds transfers (EFT), paying by electronic check
and various forms of prepayment. Each of these methods requires payment processing either
in the form of software added to your Web site or by linking to a payment processing service.

Understand Merchant Accounts and Their Fees
To accept credit cards, you must establish a merchant account, a special bank account for
handling the revenue (and fees) from credit card transactions. Your merchant account
provider (MAP)—a bank or other institution that processes online credit card transactions—will
verify the credit card, process the transaction, and deposit the results into your account,
usually within two to four days.

Evaluate Alternative Online Payment Methods
Credit cards still reign as the leading method of payment for online purchases, but other
payment options are available. Your product and your customers' buying preferences will
influence which payment methods you accept. In other countries, credit cards are not as
pervasive, so you may want to consider offering alternatives for your international customers.

Offering multiple payment options on your Web site, if you can afford it and maintain your
profit margin, is a means to increase sales by increasing customer convenience and
confidence. Many alternative methods are better suited to micro-payments, charges under $1,
because the processing costs are often lower and credit card merchant-account fees don't
apply.

Determine The Fee Structure That Maximizes Your Profit Margin
Not every product sells the same way, and not every merchant account provider charges you
the same way. Choose a provider that suits your business. Begin by considering the nature of
the products you sell—are they large and expensive? Perhaps then you ought to seek a MAP
that offers a higher flat-rate transaction fee and minimizes the discount rate, since even a
hefty $1 transaction fee will be far lower than a 2.5 percent deduction from the charge. On the
other hand, if you rely on small, high-volume sales, even a $0.30 transaction fee can erase
your profits.

Specify Your Technical Requirements
Different MAPs require different “gateways” on your site. These gateways are the pieces of
code that transmit your customers’ orders to and from your bank’s transaction authorizing
agent. If you plan to manually process your orders, a secure Web form might be good enough
to capture credit card information that you can process offline.
Evaluate Your Business's Credit-Worthiness
MAPs, like most banks, pay close attention to the companies with which they do business.
Such factors as your company's length of time in business, outstanding debt, debt payment
history, goods and services offered and even your personal history (for new businesses) will
affect the fees your company pays to process credit card transactions on the Net.

Find MAPs You Can Work With
Many merchant account providers refuse accounts to start-up firms or firms and individuals
with bad credit histories. Some MAPs will not accept "high-risk" accounts, a term that usually
encompasses adult sites, online casinos, and sites operated by firms outside the MAP's own
nation. Others refuse to process any transactions that originate on the Internet—even from
their own existing brick-and-mortar clients—or may require that you create a separate
merchant account to process orders that are not taken face-to-face but are received by mail,
phone, or via the Internet.

Compare Fees and Technical Capabilities
Once you've developed a list of merchant account providers who might offer you an account,
you need to compare the different MAP offerings. Be certain to ask detailed questions about
each MAP's technical requirements, and make sure your system can work with your MAP's
gateways—the software that actually submits your customers' credit card information for
payment authorization.

Minimize Credit Card Chargebacks
Discussion about consumer credit card protection for Internet purchases has become intense.
But the fact is that U.S. federal law limits a consumer’s liability for unauthorized charges to
$50, whether the purchase was made face-to-face or on the Internet. No such protective
legislation exists for merchants, however, and they bear the full cost of fraudulent charges as
chargebacks from their banks.

When a fraudulent credit card transaction takes place without the physical card being
presented to the merchant, or funds are uncollectible for some other reason, merchants are
charged the sale amount by the cardholder's bank. This is known in the industry as a
chargeback. Merchants may also be asked to pay penalty fees in addition to the cost of the
original charge. Though it has not been as hot a topic for e-tailers, credit card chargebacks
pose a serious threat to profits. To reduce revenue losses due to credit card fraud, online
businesses need to take steps to reduce the risk they take with every order received through
their Web sites. Find out how credit card chargebacks occur and what you can do to protect
yourself.

Secure All Your Transaction Data and Prevent Fraud
Credit card information is extremely sensitive, and plenty of villains are waiting to exploit any
breach in your security. Additionally, online merchants are as susceptible to credit-card fraud
as face-to-face retailers. Make sure your merchant account provider has addressed these
issues.

Prepare for International Payment Processing
Many payment processing and merchant account providers do not accommodate international
commerce. If you plan to market your product globally, you may need to search specifically
for an international provider.
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