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About Ecommerce Merchant Providers, Merchant Accounts and Payment gateways

To trade online you need to set up an internet merchant account with an acquiring bank. The internet merchant account enables an ecommerce business to receive funds from credit card sales. You also need a payment gateway which processes the card information and provides the link between the ecommerce website and the merchant account. These processes are obviously of paramount importance in the workings of an ecommerce business, so it is well worth doing your research to make sure you get the service that your business needs.

Of course in these situations I can really only recommend that you take advice from a professional web design company, they will have experience in setting up ecommerce merchant accounts and designing the website to go with it. However, if you do decide to go it alone: Shop around, read the small print and be very sure every eventuality is catered for.

Let’s just remind ourselves of the process for an online or ecommerce purchase, so as to be sure that each stage of the process is covered:

1. Customer adds the product to the shopping basket on the website.

2. Once at the ‘checkout’, the customer fills in a secure form, adding their personal and financial details.

3. These details are then transmitted to a payment gateway service, which is separate to the shopping basket. The gateway service sends the information through the financial networks; the customer’s credit card account is debited and the internet merchant account is credited.

4. Once all funds have cleared, the money can then be transferred to the ordinary business account.

So if you are a new company launching yourself as an ecommerce business you will need to look at getting a merchant bank account and a payment gateway; there are solutions out there that combine the two in one package. But for the purposes of this article I will look at them separately. If you are an existing business already able to process credit cards then skip the next bit and go down to payment gateways.

Ecommerce Merchant Accounts

Internet merchant accounts can be gained from most major banks, but there are plenty of fees to watch out for (of course!) due to the ‘risk’ involved. The fees will be determined by many factors; for example, the length of time your business has been up and running, what you are selling and your turnover. A “Low risk” business such as web hosting will qualify for a lower rate, whereas a “High risk” business such as a pharmaceutical reseller will have higher rates.

Another determining factor for a business to be classified as high risk is when its chargeback potential is high. (Chargeback fees occur when the merchants account has already been charged by the cardholders account and the transaction is then found to be fraudulent). There are also particular types of  business that will be considered ‘fly by night’ therefore deemed high risk and penalized for it. So you need to find a solution that will suit your company.

Here are some things to think about when choosing your internet merchant account provider:

1. You don’t have to choose the same bank that provides your normal business account, but be sure to choose a recognized name that will provide stability and reliability.
2. Full disclosure of all fees should be set out clearly in the documentation with no ambiguities or nasty shocks. Ask for clarification on:
• Application fee – some institutions will charge you for the privilege of applying for an account, regardless of whether your application is successful or not.
• Setup fee – once your application has been approved, there may be other fees associated with establishing the account.
• Statement – the charge each month for issuing you statements on all transactions
• Transaction – a flat rate on each transaction.
• Monthly Minimum – what you will be charged regardless of the level of sales each month
• Reserve – some providers require you to maintain a certain level in the account to cover chargeback fees.
• Chargeback – Any fraudulent or disputed transaction where the card holder asks for their money back will cost you a fee, usually a substantial one.
• Versatility – check that you will be able to handle and process payments from a wide variety of sources including all major credit, debit cards, bank transfers and installments. If you are operating internationally check language and currency issues.

As an example of what to look for, supposing you are going to be selling a lot of very low priced items you would need to look very closely at the ‘transaction’ fee because if you were charged even a low percentage of the cost of the product, you wouldn’t see much profit.

3. Check out the customer support system and reputation, if something goes wrong you need to know it will be sorted instantly by a helpful and knowledgeable person.

Payment Gateways

Ok, now let’s look at the payment gateway. If you are an existing business and already have the facility to take credit card payments and therefore already have a merchant account; your web designer will need to find a compatible payment gateway solution to allow you to take those card payments online. The payment gateway provides the secure link between your website and the merchant account and ensures the card holders details are kept secure.

For payment gateways, think about the following issues and discuss them with your web designer:

1. Fees – some gateways will charge you an additional percentage on top of what you already pay to the bank. There are some though like Protx that will charge you a flat rate per transaction with no extra costs. Protx also have a special deal for small businesses where you just pay a small fixed monthly fee. Other fees to watch out for are:
• Annual subscription fees
• Set up or integration fees
• Fees for different currencies
• Fees for different payment features
• Fees for fraud screening and protection.

2. Fraud protection – There are a few types of transaction protection which may come at a price but will be well worth the extra money particularly if you are selling a ‘high risk’ product.
• AVS protection – Address Verification System (AVS) decreases the incidence of accepting fraudulent transactions by verifying the cardholder’s billing address with the card issuer. Using AVS on your transactions may also mean that your merchant bank provider will reduce your fees.
• Liability shift – If you use ‘Verified by Visa’ or ‘Mastercard SecureCode’ the liability of a chargeback will be shifted from you to the card issuer in the event that a card holder denies a transaction.
• CV2 – the digits on the signature strip of the credit card, also assist in the authentication of the card during “Card Not Present” transactions.
• Fraud Screening reports – will notify you at a glance of the level of risk associated with each transaction.

3. Compatibility – is it compatible with the shopping basket facility that you want and your internet merchant account?

4. Customer support – again you need to check this out; a company that will only respond to emails and have a three day turnaround on replies are going to frustrate you when you get into difficulties.

Two in One

As I mentioned earlier there are packages out there with internet merchant accounts and payment gateways rolled into one. There are quite a few out there to choose from. Again, my advice is to seek expert and impartial guidance from a web designer with experience in dealing with ecommerce solutions. Obviously you will need to consider all of the points already discussed and make an informed decision.  Keep in mind what the needs and goals of your business are before you sign the dotted line.

If you haven’t fallen asleep, I would really appreciate any comments you may have on this blog!

Toni