Payment gateways,  Internet merchant accounts and credit card processors - info and reviews

Merchant accounts, payment gateways, shopping carts - credit card processing can get pretty confusing when you start looking into the various aspects of ecommerce. 

Just to review - in our previous articles, we examined points to consider in setting up your ecommerce site and also hints and tips on choosing shopping carts. In this installment, we'll take a look at how to set yourself up to accept credit card payments in your online store and reviews/comparisons of some merchant services.

 
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Let's briefly review the nuts and bolts of the processing of online sales using credit cards.

1. Customer visits your site

2. Customer clicks on a "buy me" button after reviewing sales copy

3. The selection is added to the shopping cart. 

4. Once at the 'checkout', the customer reviews items in the cart, confirms and then the customers' personal and financial details are recorded via what should be a secure form - a page that begins with https (SSL - Secure Sockets Layer)

5. Details submitted from the form are transmitted to a payment gateway service, which is separate to the shopping cart. The payment gateway securely routes the  credit card information through the relevant financial networks.

6. If review of the  transaction is successful, the customers' credit card account is debited and your merchant account is credited. 

7. Once all funds have cleared, you are then able to transfer money from your merchant account to your ordinary business checking account.

Now let's look at the merchant account and payment gateway in more detail.

Payment gateways

A payment gateway is a separate service and acts as an intermediary between the merchants' shopping cart and all the financial networks involved with the transaction, including the customers' credit card issuer and your merchant account. Think of it as a EFTPOS terminal in cyberspace. It reviews validity, encrypts transaction details, ensures they are sent to the correct destination and then decrypts the responses which are sent back to the shopping cart.

This is a seamless process and your customer does not directly interact with the payment gateway; as data is forwarded to the gateway via your shopping cart and a secure (SSL) connection. The shopping cart is usually configured via plugins to send information in a format that is acceptable to the particular payment gateway.

The proper choice of payment gateway is another vital element which will contribute to your success or failure as an online business; so it pays to review payment gateway services carefully.

Payment gateway issues

As with any other ecommerce element, shop around, compare prices and read the fine print. Here are some of the major points to consider when selecting a payment gateway service.

Gateway compatibility

If you have already purchased a shopping cart package, ensure that the payment gateway service is compatible. If a service is not listed, contact the shopping cart vendor for clarification. Many shopping cart software companies are happy to support other payment gateway services if there is a demand for it, and usually at no extra cost.

If you haven't yet selected a shopping cart, review a list of supported applications from the payment gateway service provider. A payment gateway may offer great pricing, but if the range of shopping carts or storefront software it supports is limited, the whole process of setting up for taking online payments may cost a lot more than you think. I've noticed some gateways only support horribly expensive and restrictive shopping cart software packages and services.

AVS protection

Ensure the gateway at least offers AVS protection. The Address Verification System (AVS) 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 benefit you by a reduction in fees charged by your Merchant Bank.

Review other types of transaction protection are offered to you as a merchant. These will probably be 'premium' services, the charges added to the basic servicing fees, but dependent on your products may be absolutely necessary. If you are engaged in the sale of anything that is youth or technology oriented, it's probably a wise move to pay for the extra service as chargeback rates on fraudulent transactions can cost you around US$30-$60 per incident! Learn more about reducing credit card fraud in my article on credit card fraud screening

Credit card processors/merchant account reviews

Some type of Internet merchant account is necessary in order to have a place to receive funds from credit card sales. 

Internet merchant accounts can be gained from most major banks. A word of warning - your bank will more than likely charge like a wounded bull for such an account because of the "risk" involved. 

You're probably better off utilizing the services of companies such as Merchant Warehouse, Instamerchant or Durango Merchant Services  who specialize in ecommerce and can tailor a merchant account/payment gateway solution to suit your needs.

Merchant Warehouse

Since 1998, Merchant Warehouse has been around since 1998 and has an excellent reputation as being one of the largest, most reputable merchant service providers in the payment processing. With over 100,000 accounts to its credit, Merchant Warehouse has enabled online businesses across the USA to accept credit card payments by offering the excellent deals on merchant processing solutions and by providing a high standard of service and support. I've dealt with them a few times over the years in connection with other companies and have always found them to be quite attentive.

InstaMerchant

  Instamerchant is definitely another interesting proposition for the following reasons:

1. Name recognition. Instamerchant represents Cardservice, one of the largest brands in the entire industry.

2. Stability. Cardservice is a wholly owned subsidiary of FDC and processes over $15 billion a year. 

3. Instant approvals. A true online application that runs the credit check in real time and tells the merchant if they have been approved instantly. Instamerchant can have you up and running before many other companies would have contacted you.

4. Full disclosure of all fees in clear manner manner - no nasty shocks or fine print.

5. Customer support 24 hours a day 365 days a year.

6. Cardservice owns the LinkPoint gateway - allows you to consolidate merchant account and gateway with a single provider.

7. According to Instamerchant proprietor, Dave Standage, they actually *do* approve 98% of all applications they review. I've known Dave for quite a while, and if he says they do, well.. they do :).

8. Instamerchant is currently offering Taming the Beast visitors very special deals!

Durango merchant services

The Durango Merchant Services team have been around the Internet a long time and I've always found them pleasant to deal with and they are rapid with their application review process. Unlike some merchant account providers, they are very quick to respond, friendly and will take the time to explain your options. Durango offer some additional services, such as high risk merchant accounts and fraud protection services.

Other credit card processing options

Another option may be to use a third party processing service such as Paypal, 2Checkout or ClickBank. These three services are basically a payment gateway and merchant account rolled into one and operated by the same company. In the case of ClickBank they also offer affiliate program features at no extra cost and all three also provide recurring billing services for subscription and premium membership services. These companies are also non-USA merchant friendly.

Something to be aware of - these services usually charge more for transaction processing, so review those charges carefully before making a decision

Selecting merchant account provider or credit card processor:

Shop around and then shop around some more - this is a very confusing section of ecommerce. If you make enquiries with a company and they don't respond within 24 hours, or are somewhat vague in their responses - run like hell away from them. 

Banks are notorious for utilizing poorly trained salespeople rather than those with hands-on product knowledge or an understanding the complexities of ecommerce. Ensure they explain all charges to you thoroughly by enquiring about the following rates:

• Statement - the charge each month for issuing you statements on all transactions
   

• 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.
   

• Discount Rate - a percentage deducted for each product sold. Also known as the Discount qualified rate
   

• Mid-qualified and Non-Qualified  rate. A higher rate for transactions that don't qualify for the discount rate. Usually applied in circumstances where AVS is not checked or the card is keyed in by the merchant. 
   

• Transaction fee - added to the discount rate, a flat rate on each transaction
   

• Monthly Minimum - what you will be charge 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 - the killer fee which may cost you up to US$30 per fraudulent transaction (which includes any client disputing a transaction successfully).

Need micropayment support?

Merchants with products costing just a couple of dollars are at a distinct disadvantage, with transaction fees gobbling up profit margins for micropayments. Paypal has implemented a new micropayment  fee structure for payments under $2. The rate is 5 percent plus 5 cents per transaction.

New online business?

If you are a new business with an untested product range, review well established credit card processor such as Paypal, 2Checkout or ClickBank while you test the waters, which will incorporate a payment gateway with a merchant account. Although their transaction rates are a little high, neither charge monthly fees, chargebacks or any of the other fees mentioned above. or ClickBank, Paypal and 2Checkout also incorporate shopping cart applications and other free tools as part of the deal.

Rushed decisions in choosing your ecommerce applications, elements and third party services will dramatically increase the likelihood of your business failure. This is definitely an area where if you spend the time fully investigating all the options open to you - you'll reap the rewards after implementation. 

Related Articles:

Guide to choosing shopping carts

Shopping cart software reviews

Ecommerce web site design and development - Part 1

Ecommerce web site design and development - Part 2

Michael Bloch
Taming the Beast
http://www.tamingthebeast.net 
Tutorials, web content, tools and software.
Web Marketing, Internet Development & Ecommerce Resources
____________________________

In the interests of transparency and disclosure, please note that the owner of Taming the Beast.net often receives goods and services mentioned in reviews for free, or may receive payments or affiliate commissions for advertising or referring others to merchants of products and services reviewed.

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