What’s wrong with this statistic?
Cyber Dialogue’s 1999 U.S. Small Business Internet Survey reveals that more than 80 percent of Fortune 500 companies have established an e-commerce presence. But only 33 percent of small businesses with Web sites are selling online.
If your product or service lends itself to Internet sales, but you’re not offering online payment options, you’re losing potential sales. According to E-Commerce Exchange, a nationwide credit card processing company that provides Internet transaction solutions, online payment options can increase your sales by 30 to 100 percent.
How? Online payment options enhance your firm’s credibility, making it convenient and compelling for online shoppers to buy from you. Savvy consumers feel safer using credit cards for Internet transactions, since federal regulation assures credit card users specific rights and limits theft losses to $50.
Perhaps you’ve considered implementing online payment options, but procrastinated because of unanswered questions. For starters, how do you set up a merchant account to accept credit card payments?
Options for merchant accounts
As vice president of treasury management at Fifth Third Bank, Northeastern Ohio Division, Ann Byington says your first choice for a “sponsoring bank” should be the bank you do business with, since banks scrutinize sales volume and financial history before approving a merchant account.
If your merchant application is approved, a bank may charge an equipment set-up fee of a few hundred dollars, and typically charge 2 to 4 percent of each credit card transaction, plus per transaction fees of 15 cents to 50 cents Additional monthly charges can range from $10 to $50.
“Rates vary, based on the size and type of business, the type and volume of credit card transactions, the authorization process for credit card approvals — a lot of things come into play in determining the rates,” Byington explains. “But with Fifth Third, there’s only a minimum $10 monthly charge if they have no volume.”
Many banks rely on independent sales offices (ISOs) to assist with merchant applications and bank communications. ISOs can petition multiple banks for merchants, and since an ISO gets a lower “buy rate” from the bank for merchant services, its rates might be lower than a bank’s. For example, The Processing Network (www.processing.net), a secure gateway provider and ISO for myriad banks, offers combined merchant services for a $195 set-up fee, $30 per month and 25 cents per transaction, with a 2.25 percent minimum discount rate.
“In our case, Fifth Third Bank owns Midwest Payment Systems, which is rated as one of the top three leading processors in the country for debit and credit transactions. They are our merchant bank processing arm,” says Byington. “But all of our sales representatives are bank employees.”
As president and CEO of Mirifex Systems LLC, a Medina-based managed service provider, Bill Nemeth says there are many companies that offer merchant services, such as 123 Merchant Accounts (www.123-merchant-accounts.com), E-Commerce Exchange (www.ecx.com), and ibill (www.ibill.com).
There are also one-stop-shopping services that offer hosting, shopping card and secure transaction features. For example, merchants participating in the Yahoo Store (http://store.yahoo.com/merchant.html) can set up merchant accounts and accept and authorize credit card payments through Yahoo’s alliance with Banc One Payment Services and First Data Merchant Services Corp.
“While Yahoo provides the least common denominator storefront, it’s a quick, cookie cutter approach for a small business to get into electronic commerce,” says Nemeth. “Our company is offering something called ‘Web-In-A-Week’ to help local businesses do something similar, but with a more specialized approach.”
Authorizing charges
Byington says each credit card charge must be authorized to verify a card’s validity and ensure the purchase amount doesn’t exceed the cardholder limit. Merchants can do this with a credit card terminal. Card swipe boxes with a keypad and phone connection cost about $250 or can be leased for about $20 a month.
Another alternative is real-time authorization, in which the card number and transaction amount are sent electronically to the bank. Processing companies, such as The Processing Network or Electronic Clearing House Inc. (www.echo-inc.com), can expedite these details using your merchant account. Fees vary. For example, The Processing Network charges 15 cents per transaction and a minimum $30 monthly fee.
Or, once online shoppers make their purchase selection on a merchant’s site, they could be automatically linked to a service bureau, where e-shoppers input their card data, and the service bureau authorizes the transaction and provides a confirmation number. Open Market’s ShopSite (www.openmarket.com/shopsite) offers such a service for about $100 a month.
“If you want a pay-as-you-go way to clear transactions online, you’re almost going to have to use a third-party provider,” says Nemeth. “The alternative is to batch all your credit card transactions during the day and call them into your bank at the end of the day — or do a batch transmission to the bank via modem.”
While those processes might seem archaic, he says, they’re much less costly than some of the alternatives.
Secure transactions
If you’re going to accept credit cards online, you need software to capture and verify credit card information while safeguarding customer data on the Internet, says Nemeth.
Software such as Netscape’s Web Server and Microsoft’s Internet Information Service provide secure-site transaction mode capabilities. If you’re hosting your own Web site, install a server package that supports secure mode. If an ISP hosts your site, make sure your subscription provides a security certificate to verify security of your site.
Byington says there are risks intrinsic in accepting credit cards for e-commerce transactions, because you can’t verify the user’s signature or know if the card is being used by its rightful owner. But bank guidelines can help limit fraud. For example, if the address on file for the card conflicts with a ship-to address, request additional verification.
“Typically, a bank will limit the vendor’s liability,” says Nemeth. “You can also list terms and conditions on your site to protect yourself.”
Other online payment options
The more payment options you offer e-shoppers, the better, says Nemeth. But don’t invest substantial funds in building multiple payment systems until you’re sure they’ll be used by your online shoppers. Here are some options:
Prepaid Cards are sold for predefined values at brick-and-mortar retailers (Borders and Staples, for example). The user logs onto the merchant’s Web site to activate the card and can use it to buy products online.
Virtual credit cards, such as the Microsoft Wallet version, are digital orientations of users’ credit cards. The virtual version captures and stores user information in a system tray or as an icon on a user’s desktop. When making a purchase, the user clicks and drags the virtual card to the e-merchant’s payment form, and the virtual card fills in the blanks.
Electronic checking services enable recurring consumer-to-business payments from a checking account. The consumer receives an electronic bill and decides how much should be paid. The merchant’s system then sends a message to the customer to acknowledge payment.
Tradesafe payments (Tradesafe.com) accepts buyer credit cards on behalf of e-com sellers, pays the seller instantly (trusting the merchant to ship the goods), and guarantees buyers the shipment or the return of their money.
How to reach: Merchant services, Fifth Third Bank, Northeastern Ohio (330) 923-1446; Mirifex Systems Ltd., (330) 721-8625 or www.mirifex.com
