Often when a small business owner is thinking about accepting credit card payments online, they find the process intimidating and confusing. It’s important to understand exactly what is involved, so you can work that process logically, one step at a time, putting in place the necessary components, and establishing the correct relationships to make those transactions occur securely and affordably.
Understanding the Role of the Merchant Bank Account
When you start putting in place the necessary components to accept credit cards on your site, you’re not going to get your own merchant account with a bank. Instead, you’ll be entering into an agreement with a payment processor. That entity has a merchant account, and will assign a merchant ID to you. The funds collected through credit card transactions are deposited into your regular business checking account.
Transactions Pass Through a Payment Gateway
The service you use to initiate the actual transaction is called the payment gateway. It provides the necessary infrastructure to approve or decline a charge, and to receive feedback. Think of the gateway as the virtual equivalent of the credit card terminal you’d use to swipe your card in a physical point of sale purchase.
The gateway also provides settlement reports, and takes care of voided transactions and refunds. Sensitive consumer information is handled securely by the gateway, with anti-fraud measures in place to perform a series of verification checks. The gateway is the means by which you communicate with the payment processor.
The Payment Processor Talks to the Issuing Bank
Many people get confused at this point of the chain of “command.” The gateway and processor are two separate steps. The e-commerce part of your site — the store — uses the gateway as a way to communicate with the processor, which in turn “talks” to the credit card companies and the banks that issued the cards.
The processor receives the request for payment from the gateway and passes it on to the bank. More fraud and credit checks are performed at that point to determine if the purchases will be approved or denied. Then the response comes back to the gateway, which gives your store an answer.
When you get set up to take credit card transactions on your site, the agreement you work out is with the payment processor.
Setting Up Your E-Commerce Store
In addition to creating a relationship with a payment processor, you will also have to put in place an e-commerce or “store” component on your site. Big companies often have developers who design custom e-commerce solutions specifically for them. Small business owners typically use approved off-the-shelf solutions.
Usually the payment processor will provide a list of software packages that work well with their service. It is then up to you as the site owner to have that software installed on your site, and to put in the necessary information to initiate the communication link back to the payment processor.
Be Prepared for the Application Process
In applying to use the services of a payment processor, business owners are asked to supply a lot of information, possibly including (but not limited to) a Social Security number, driver’s license, personal address, business address, and bank account information (often through a voided check.)
The processor will run a credit check, and you’ll be asked to provide details about your business since some business models are considered higher risk than others, which affects the fee structure. Be as accurate as possible when you estimate things like monthly revenue and number of projected transactions.
Meeting PCI Compliance Standards
As part of the process, expect the processor to perform an audit of your site to ensure it meets PCI compliance standards. The credit card companies, working together, have created a set of criteria merchants must meet to be deemed “valid” to accept card payments.
In 2011, the card companies became serious about standards enforcement, and in 2012 began to require that websites pass a threat test annually. The compliance form has more than 120 questions relative to data storage, server security, and employee access to the system among others.
While time-consuming and tedious, the annual compliance audit is compulsory, and necessary to avoid the potential for thousands of dollars in penalties.
Be Prepared for the Fees
As an example, for a transaction on a Visa card at more or less “standard” rates, a merchant would pay the card processor $0.30 per transaction with a $10 a month service fee at a monthly processing minimum of $25. The gateway fees would be $0.10 a transaction with a $10 monthly service fee.
That comes out to roughly $20 a month in service fees and $0.40 per transaction. Bear in mind, however, that these charges are likely structured in tiers according to the type of card used. Fees also vary by how the card is processed: in person, over the phone, or online, for instance. Make sure you understand exactly what charges apply to your business model.
Chargebacks Can Be Costly
A “chargeback” happens when the transaction is reversed for whatever reason. These can be costly to the merchant, and time consuming. It may be months before the funds are returned to you, which means that in order to maintain good customer relations, you have to “front” the return of the money to the consumer until things are settled with the card company. This is why online merchants take every precaution to avoid chargebacks.
Accepting credit card payments on your website is not difficult per se, but to “newbies” the multiple steps are often both confusing and overwhelming. If, however, you go in with a basic understanding of exactly what occurs, you’ll be better able to pick an affordable card processor with services that match your budget and business model.
Danielle Thomas is a writer for Merchantseek.com. Merchant Seek is a website that compares the rates and processing solutions from the top merchant account providers. For more information on setting up a merchant account go to www.merchantseek.com.