E-Commerce Solutions
If you are considering bringing your business into the e-commerce world, there are many factors that need to be considered, depending on your needs. If you have a question about terminology used on the E-Commerce page visit our Glossary for more information.
Boost Your Business With a Merchant Account
It's a fact. Companies who accept credit card payments for goods and services tend to generate higher revenues than those who only accept cash. According to industry statistics, the average credit card sale is $40 versus just $9 for the average cash sale. If that isn't enticement enough, consider the disadvantage you may face if competitors offer credit card payment options and you do not."These days, the credit card payment option is a must, whether you have a physical retail outlet, take telephone orders or sell products over the Internet," says Diann Joblonski, a relationship manager, at Michigan Bank Card Services, a leading merchant card processor serving over 30,000 businesses nationwide.
Benefits Of A Merchant Account
If you own a business and you find the following benefits important to you, then you will want to obtain a merchant account.- More sales.
Perhaps the most important benefit. Accepting credit cards allows a business to convert more store visitors into buyers. This is especially true for Internet businesses where it has been estimated that accepting credit cards can increase sales by as much as 200%.
Having your own merchant account will allow the lowest overhead costs associated with accepting credit cards.
Having your own merchant account will allow you to receive funds transferred directly into your checking account within 2-3 business days.
Customers tend to place more trust and confidence in companies that have their own merchant account. When customers receive their credit card statement, your company information is displayed.
The below list of components are the most commonly needed for an e-commerce site:
- Web Hosting - Secure Server
- Shopping
Cart
- Merchant
Account
- Real-Time Credit Card Authorization/Payment Processor
- Check Processing Capability and Software
- Back-End Database (for sites with a high number of products)
- High Priced Items (for sites with a variety of products to sale on line)
- Accept Credit Cards Without A Merchant Account
Because most of your e-store orders will take place with a credit card, it may be important for you to understand the nature of an online transaction. Behind the scenes, credit card transactions are fairly complex. In every transaction, there are multiple independent groups participating, including the online merchant, the customer, your bank, the bank that issued the credit card and the online processor or clearing house that manages the whole mess.
Before your customers' money can make it into your bank account, there are a series of steps a transaction must go through, including:
Authentication - Verifies that the
credit card has valid numbers, has been officially issued, and has not been
reported stolen.
Authorization - Checks to make sure
adequate funds are available to make the purchase. If they are, the
funds are "reserved" or "parked" for you.
Settlement - Once you have shipped
the products or completed the service, you will need to let the banks know
so they can release the parked or reserved funds to your bank. You
most likely cannot actually debit a customer's card unless you will be shipping
the product or completing the service within 48 hours. Even though
the card may be approved and the funds reserved, you may not be able to
"settle" the account until you have completed the fulfillment
process. Your online processor can help you with this, so be sure
to ask about batch processing and the releasing of funds.
Payment Processor/Gateway - All a merchant
account does is enable you to accept credit cards. To process these
cards, you will need a payment processor or transaction service. Also
known as "gateways", these organizations make the wheels of e-commerce
go 'round. As an Internet business, you have two options with regard
to accepting and processing credit cards, Manual or Automatic Processing
(Real-Time Credit Card Verification).
Manual Processing - If you
anticipate low initial volumes or want complete control over credit card
processing, you may want to consider manually processing the credit cards.
In this scenario, you would receive an order via a secure connection (SSL)
complete with credit card information. The information is placed
in a database, and you receive an e-mail notifying you of the order with
all of the pertinent information. When you are ready to process the charge,
you go into your processing software and mark the transaction for settlement.
Once you have marked all of the transactions you want to settle, you settle
or close the "batch" of transactions that you have marked. This
actually debits the credit card accounts.
Automatic Processing
(Real-Time Credit Card Verification) - Automatic Processing is a great time saver for web merchants who don't
want to mess with hand entering credit card information one order at a
time. While manual entry is great for merchants with low volumes,
it can get cumbersome if orders start rolling in. With Automatic
Processing, your web site works with your payment processor to verify
the card and complete the transaction. You are only notified of
successful orders thereby saving valuable time.
When your customer fills out an order form and enters his or her credit
card information, the information is then sent via a secure connection
(SSL) to your payment processor or transaction service. Your processor
will send a secure message to the bank that issued the card to the consumer
to verify that sufficient credit is available to make the purchase.
In addition, the processor will verify that the account is active and
that the card is not reported stolen. Some processors have other
fraud-detection safeguards in place, so be sure to ask about available
security features.
Once a transaction is authorized, the issuing bank will send your processor
an authorization for the funds and reserve the monies. Your web
site will then be notified of the approval so you can accept and process
the order. You may want to consider forwarding your customer to
a confirmation page to thank them for their order and acknowledge that
it has been received. If a customer's credit card is not approved,
your web site will be notified so you can redirect them to an "Order
Failed" page.
Just as you incur fees with a merchant account, you incur fees through
your online processor. The fee structure is almost identical, but
the procedure is much easier. There is no substantial "review"
of you or your business, nor should there be any application fees.
Activation/Set-Up Fee
There is a considerable amount of work performed to establish your account, so expect to pay a set-up fee. Payment processors typically charge anywhere from $200 to $500 to establish an account.
Monthly Statement
Fee
There shouldn't be a monthly statement fee as many provide online details,
but if there is a monthly statement fee, don't pay more than $10.00 per
month, especially if you are required to pay a monthly service fee.
Credit Card Transaction Fee
This is an expected and usually fair expense. It costs time and
money to process your orders, and the service these companies provide is
critical to your business. Still, you shouldn't pay any more than
$1.00 to process a credit card order. Most processing companies will
charge anywhere from $.60 to $.80 a transaction and there should never be
an additional percentage fee assessed (similar to a merchant account's "discount
points").
Check Processing Transaction Fee
Typically, the fees for check verification range from $1.00 to $2.00
per transaction or a set percentage of the sale (don't pay both).
Check with your online processor to make sure it's available and to discuss
how to integrate it with your web site. While the transaction fee
is higher than with credit cards, you do avoid merchant account charges
with this method.
Monthly Minimum/Service Fee
Most online processors will require a monthly minimum or charge a flat
monthly fee. If, for example, the monthly minimum is $30 in transaction
fees and you have a bad month where not one widget was sold, you will still
be assessed the $30 minimum. Don't accept a monthly minimum in excess
of $50.00 unless you are getting a mammoth amount of value-added features
and services.
Keep in mind that merchant account fees and payment processing fees are
both incurred when conducting a transaction.
You sell an item for $100.00 each. A customer purchases two of these items for a total of $200.00. Once the customer's credit card is verified and approved, the following cycle occurs:
If your merchant bank collects 2% as its discount points and $.25 as the transaction fee the total merchant charge is $4.25. If your payment processor collects $.75 for completing the transaction, you retain $195.00. Obviously, the rates can differ depending on the merchant, but in this example, you paid $5.00 for the advantage of accepting credit cards as a method of payment. While it may seem like a lot, odds are the sale would never have been made without it. Back End Database There are many databases available, from MSQL, which is often part of e-commerce web site hosting packages, to MS Access (a mid-level database) to MSQL and Oracle for large databases (8,000+ records). A complex web site can tap into your inventory database to determine availability and access current pricing structures, without you having to maintain a separate web database.
