Accepting credit card payments over the internet
To take advantage of the Internet with a complete e-commerce solution, a merchant's web site must be able to accept and process secure online payments. In order to take credit card payments online, merchants need to have an Internet Payment Service and a Merchant Credit Card Account.
The Internet Payment Service, enables the merchant to accept online payments from their customers and securely processes these payments from a Merchant's Web storefront through the existing system of financial institutions and credit card processors
The Merchant's financial institution provides the merchant with a bank account that enables them to accept, process, and deposit payments from their customers, and delivers regular reporting based on these transactions
Internet payment services - The basics
The three key qualities merchants expect in an Internet payment service are security, ease-of-use, and price performance. With the right payment service, merchants can have all three. Here are some features to consider:
Security: Merchants want the guarantee that they will get paid for their goods and services and that their customers will feel confident and comfortable shopping at their web site. Thus merchants need an Internet payment service that will provide them with the security to deal with credit card authentication, transaction confidentiality, server host integrity, and server virus protection. At a minimum, an Internet payment service should provide SSL (Secure Socket Layer) protocol security, which encrypts the customer's payment information while it moves over the Internet so that it cannot be deciphered. But SSL alone may not be strong enough for this entire transaction process. Though electronic commerce is continuing to grow at a rapid rate, shoppers are still skeptical about security, and have not been quick to trust that personal information, such as a credit card number or address, is safe to send over the Internet. However, using the strongest Internet security technology, improves consumer perceptions about security.
Ease-of-Use: For Internet payments, ease-of-use means more than just simplicity. Merchants need a payment service that meets the short-term and long-term needs of their business with 24x7 reliability so they can focus on what they do best - selling. The primary Internet payment features that make managing a business easier, include:
- Real-time payments - Why wait? Real-time "authorization" (bank approval of the sale) and "capture" (depositing and settling a payment) enable the merchant to complete the transaction immediately, without chasing down declined credit card numbers. Shoppers receive confirmation that their purchase was approved in real-time; merchants get the payment moved to their bank in real-time.
- Scalability - Merchants want an Internet payment service that can smoothly manage and support the growth of their transaction volume and their needs for additional payment features. A payment service that fails to scale with increased transactions will hold back the merchant's revenue growth.
- Installation, Upgrades and Additional Payment Features - This is a huge "ease-of-use" factor. Merchants need to be aware of the level of integration and maintenance work that the Internet payment service's technology will require.
- Multiple payment methods - Currently, credit cards are the primary choice of payment in the United States. Yet globally, other Internet payment methods, including electronic checks and cash, have become common forms of payment. Thus, merchants across the world are likely to begin using multiple payment methods to expand their business model, the types of products and services they can offer, and the number of customers to which they can sell. Merchants should not let their payment options limit their sales options.
Price Performance: Merchants have several factors to consider in assessing the price performance of an Internet payment service:
- Service Features and Quality - An Internet payment service can save merchants money and time with a proven technology that provides security, reliability, and built-in, easy-to-use features.
- Integration with Storefront Technology - The less technical integration needed between the storefront software application and the Internet payment service, the smaller the effort required to enable the merchant to take Internet payments, and the greater the effort invested in selling.
- Relationship with Merchant's Financial Institution - It is important that the Internet payment service and the merchant's bank operate effectively together so that they can be responsive to the merchant's business and support needs.
Merchant credit card accounts - The basics
Each Merchant Needs a Merchant Credit Card Account: Just as in the physical world, a merchant on the Internet needs to establish a merchant account with an acquiring financial institution in order to accept credit cards. Even if a merchant already has a merchant account, they may not have the type of account required for accepting transactions over the Internet. The merchant account setup process can take anywhere from 48 hours to 14 business days to complete. So move quickly on this task, as it is among the most critical to the success of the Web store. There are two types of merchant accounts for accepting credit cards:
Card Present Account: This type of account requires the consumer and merchant to be physically at the same location during the time of the transaction. For a card present transaction, the credit card is typically swiped through a card reader (or physical point-of-sale terminal), and the consumer signs an authorization slip, or sales receipt.
Mail Order/Telephone Order (MOTO) or "Card Not Present" Account: In a MOTO transaction, the merchant and shopper are not in the same physical location, and there is no card swiped or signature received. This method of payment was originally adopted for mail order and catalog businesses. All Internet transactions are treated as MOTO transactions and require a MOTO merchant account.
If the merchant currently accepts credit cards but is not sure if they have a MOTO account, they should contact their merchant financial institution. If they already have a MOTO account, see the section below on "Setting up on Account to Accept Online Payments."
Fees and Rates: The merchant should expect to pay the financial institution the following:
- An application fee, setup fee or both
- A discount rate (i.e. percent of each transaction), typically not more than 4%
- Per-transaction and/or monthly fees
- Large fees for research, fraud and dispute resolution
- Any additional fees for value added services
Understanding Credit Card Processing Models: Not only are there many rules and regulations surrounding credit cards payments, there are many procedures and processing methods to a transaction. For example, there are two parts to a credit card transaction: the "authorization" and the "capture". And within these types, there are many processes that occur, including processing, billing, reporting, authorization, and settlement. For more detailed information on establishing an Internet merchant account, and becoming familiar with the several components of the credit card accepting process, contact a financial institution for an overview of credit card processing models.
Before Getting Started: Ask for a merchant handbook that explains how to accept credit card payments, how to handle and resolve disputes, and how to process voids, returns and partial credits. Also understand the rights of consumers and the rights of merchants, and become familiar with address verification services (AVS) and other fraud detection mechanisms.
How to setup a merchant account
New Account: If a merchant does not currently have a MOTO account, the merchant must set up a new account with an acquiring financial institution. There are a number of financial institutions that have designed an account process specifically for Internet merchants by partnering with Internet payment services.
Existing Account: If a merchant already has a MOTO account, they should contact their financial institution or one of its agents to let them know they would like to use Internet payment services. There are more than 26,000 financial institutions in the United States. Internet payment services works with over 95% of those financial institutions in the United States, allowing merchants to maintain their relationship with their existing financial institution.
Setting up the Merchant Account to Accept Online Payments: Regardless of whether a merchant needs a new MOTO account or would like to keep an existing MOTO account, a merchant should do the following to accept credit card payments over the Internet:
- Ask the financial institution if they are authorized to underwrite credit card services to merchants.
- Inform the financial institution to set up the merchant account to accept credit cards over the Internet.
- Ask the financial institution to explain the details of establishing a merchant account.
- Plan for the merchant account setup process to take from 48 hours up to 14 business days to complete.
After the Merchant Account is Approved: Once the financial institution approves the merchant for online commerce, the financial institution will typically perform the following tasks:
- Issue the merchant a Merchant ID (MID)
- Issue the merchant a Terminal ID (TID)
To process a merchant's transactions, an Internet payment service typically requires specific information on the merchant's account, including their MID and TID. The credit card processor in this case would communicate the MID and TID to the Internet payment services once the merchant's account has been approved. Internet payment services will immediately add the merchant bank account information into the Internet Merchant Registration (IMR) system.
If the merchant has already registered for service, Internet payment services will send an e-mail indicating that the service is ready to go live upon request from the merchant. If the merchant has not yet registered with Internet payment services, when the merchant uses the IMR, the pending bank account information is automatically linked during the sign-up process to accelerate the merchant's ability to "go live". As the financial institution is processing the merchant's account and working on these tasks, the merchant can continue to integrate their storefront with the payment component(s) and register with their Internet payment service.
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