The Lowdown on E-commerce Credit Card Processing

Merchant Warehouse |

December 10, 2010

Do you want to know the lowdown on e-commerce credit card processing? Well, you’ve come to the right place to get started. We’ve found the latest trends and fascinating facts that e-tailers everywhere need to know when determining just how they’ll transact business online with their customers.

As a merchant making your way through the seemingly infinite landscape of online sales, you’ve probably learned that to capture business you must offer online payment options. Of course, the most widely used form of payment today is the credit card. If you offer credit card payments and use merchant credit card processing, not only will your business receive more sales orders, those orders will tend to be larger. Credit cards also increase sales greatly by enabling impulse buying, while reassuring customers of your company’s legitimacy and streamlining the overall billing process.

There are other methods of collecting online payment, such as charging purchases to a phone bill, using electronic funds transfers, electronic checks and various forms of prepayment, but the number one method remains credit card sales. As used in these statistics, today’s definition of “credit cards,” of course, includes debit cards, payment cards, gift cards and rewards card programs, as well.

Basics of Merchant Accounts

When you establish a merchant account to accept credit cards, it is essential to learn about the bank, the processing company and all of the various fees. Your merchant account provider that processes online credit card transactions will verify the credit card, process the transaction and deposit the funds into your account, usually within a few days.

In the world of e-commerce, payment for online purchases via card processing still leads the way substantially, but other payment options are available. What you sell and what your clients like will greatly influence which payment methods you accept. Internationally, online credit card processing is not as prevalent as in America, so consider alternatives for foreign customers. Multiple payment options made available on your online store is a way to increase sales, and a well-managed merchant account will always help you with high-tech efficiency.

You need to do enough research to establish that the fee structure your service provider offers will work to maximize your overall profit. Simply put, choose a provider that suits your business. Remember that not every item that you offer sells the same way, just as not every e-commerce credit card processing provider charges your business the same way it does other businesses. Think about the nature of the products you sell. Are they far and few between but cost a great deal of money? In this case, your business would find a merchant services provider that offers a higher flat-rate transaction fee and minimizes the discount rate, since even a one dollar transaction fee will be far lower than a few percent deduction from the charge, of say, three thousand dollars. However, if your company relies on smaller, high-volume sales, even a twenty-five cent transaction fee can diminish or remove your profits altogether.

Be sure to set up an account with a service provider that interfaces well with your online store website. Different merchant account providers require different payment gateways (intermediaries) on your website. These gateways are the means by which your processor will transmit your sales orders to and from your transaction authorizing agent.

Security is “job #1″

Naturally, it is important to secure all of your transaction data in order to prevent fraud. Customer credit card information is extremely sensitive and there are many criminals waiting to exploit any breach in your security. Online merchants are as susceptible – if not more so – to credit card fraud as in-person retail businesses. Your merchant account provider should have ways to maximize your overall security.

Like all other banks, merchant account providers pay close attention to the companies with which they do business. As such, figure out how your business is worthwhile to your account provider. Several things that affect your ability to accept credit cards online include the length of time you have been in business, what kind outstanding debt you have, debt payment history, goods and services that you offer and your personal banking history.

A substantial number of merchant account credit card processing providers refuse accounts to new merchants or those with poor credit histories. Some will also not accept high-risk accounts, such as travel services, telemarketing businesses, tobacco vending, online auctions and debt services, online dating services and sites operated by firms outside the service provider’s own country. Other merchant account providers may require that you create a separate merchant account to process orders that are received by mail, telephone or online.

Be sure to do your best to minimize credit card chargebacks. Right now, American federal law limits a consumer’s liability for unauthorized charges to a mere fifty dollars, whether the purchase was made in person or online. Unfortunately, this kind of protective legislation does not exist for merchants, so they ultimately bear the full cost of fraudulent charges, known as chargebacks, from their banks. Merchants may also be additionally asked to pay penalty fees, plus the original charge. Credit card chargebacks pose a serious threat to profits. To reduce revenue losses due to credit card fraud, online merchants need to take steps to reduce the risk on every order received through their online stores.

Since a lot of what can be sold online can also be shipped all over the world, it is a good idea to set up international payment processing that accounts for currency conversion and payment gateway acceptance. Some payment processing and merchant account providers do not accommodate international commerce so if you market your product globally, you may need to search specifically for an international provider.