Accepting online
credit card orders is easier than it appears. To
accept online credit card orders, you need three
basic things:
- Merchant Account
- Software
- Internet Service
Provider
Merchant Account:
A Merchant
account is a special account that you have with
a financial institution in order to accept
credit cards. Even if you already accept credit
cards for your offline transactions, that may
not be enough. Credit card companies consider
Internet transactions to be riskier than other
standard transactions; so, not all accounts
permit Internet transactions. If your current
account does not allow Internet transactions,
you have to contact your financial institution
to correct this.
There are many
brokers available who can open a Merchant
account for you. Their conditions for opening an
account may vary drastically, which can make it
difficult for you to decide which account is
best for you. Most brokers will offer to sell or
lease expensive equipment to you, when they open
your account. Do not be fooled; That is how they
make their money. You do not need any
software or equipment to open a Merchant
account. . To open an account, all you
should have to do is pay is processing fee,
which should not be more than $100. That
should be enough for you to start accepting
credit cards.
To maintain your
merchant account, you must pay the following
monthly fees:
- Discount fee -
For Internet sales, this fee should be
between 2.5% and 2.9%. You should be
suspicious of any discount rate that is less
than that.
- Transaction
fee - This fee should be between $0.20 and
$0.30 per transaction.
- Address
Verification Fee (AVS) - This fee should be
$0.05 per transaction. Some (very rare)
financial institutions may not require this
service, but it is a must for you because it
helps to prevent fraud.
- Statement fee
- This fee is usually between $10 and $15
per month.
For example, if
you sell software applications for $20 , and you
sell 20 applications per month, your fees are
only $25-30 per month, which is approximately
7%. So, even with a small sales volume of
$400 per month a Merchant account is not
expensive. We will discuss how to select the
best account in one of the next issues of our
newsletter.
Software:
Most brokers who
open Merchant accounts offer software or
hardware to process credit cards. If you want to
accept credit cards over the Internet, you need
a software solution, not a hardware solution.
Even though a hardware solution saves you
$50-$100, you will have to enter all your
transactions manually. With a software solution,
you will never have to enter your transactions
manually.
Be aware!
Some brokers offer software solutions for as
high as $2,000, which is way overpriced. The
software should cost about $400. Sometimes,
brokers may also offer you programming or
software setup services at an additional cost.
Do not pay for these services. All of the
software comes with technical support from the
manufacturers, and the bank will give you all
the information you need.
Instead of
selling you a processing software, you may be
offered a processing software lease at a certain
price per month. The lease may seem like a good
solution, but it's not. For example, if you pay
$29.95 during 3 years (sometimes 4), you will
pay $1,078.20. Isn't that too much to pay for
$400 software?
You don't have to
lease or buy your own software if you decide to
do real-time processing by plugging into an
Internet Service Provider (ISP) that has the
processing software on its server. However, you
may end up spending too much on an ISP. You
must calculate all of the costs and benefits
carefully before making that decision.
Internet Service
Provider:
Choosing an
Internet Service Provider (ISP) is not easy.
Some providers will provide you full service and
all of the software to process your credit card
orders, while others will provide only basic
services. Some providers will charge $150-200
per month, or even more, while others will
charge $9.95 per month.
What are the
basic things that you need from an ISP? The
first thing you need is a Secure Server. Many
people believe that you must have a Secure
Server for security and they will not place an
order unless you have a Secure Server. Yet, a
Secure Server is not expensive. You do not
have to pay $100 a month to use a Secure Server.
Many ISPs provide this server for free. In any
case, you should never pay more than $10 per
month for this service. The best way for you to
gain access to a Secure Server is through the
ISP that hosts your Web site, which is usually
the least expensive; however, you may use any
ISP that you want. If you have your own domain
name and you want to use it as a secure server,
you must buy your own certificate, which costs
between $100 and $350 per year. We will discuss
Secure Servers and certificates in detail in the
next issue of our newsletter.
After you have
your Secure Server running, you need the
software to display order forms, store orders
etc. You can use anything from homemade scripts
to sophisticated shopping carts. The price for
this kind of software ranges from $30 to
$20,000, or more. The price depends on what you
need. There are thousands of products
available, which makes choosing the right
product for your needs very difficult. When
we were looking for a software to process our
orders, we did not find a product that would
meet our needs, so we developed our own
software, and we are planning to make it
available by the end of 1998.
However, you do
not have to have any software to process your
orders. You can easily find an ISP that will
process your orders for you, but it will cost
you more money. Instead of paying $20-30 per
month for an excellent Web Site with a Secure
Server, you may have to pay $100-200 per month.
This processing service is a waste of money. For
example, if you buy a software for $500 and then
only pay your ISP $20 per month for Secure
Server services instead of paying $100 per month
for Secure Server and processing services, your
initial software investment will be paid off in
six month, and the software is yours. That way,
if you decide to change your ISP, you will not
have to invest again.
There are two
methods that you can use to process credit card
orders. The method you use depends on what
happens when the customer presses the 'Purchase'
button on the form. With the first method, the
credit card is authorized immediately and the
customer receives an immediate answer. With the
second method, the information is delivered to
you, so that you can process the order later.
Both methods have their advantages and
disadvantages; however, they are not in the
scope of this article. We will discuss these
topics in one of the next issues of our
newsletter.
About the
author: Asheesh Advani is Entrepreneur.com's
"Startup
Financing" columnist and president of CircleLending,
a loan administration company that facilitates
loans among friends, relatives and business
associates. Get a copy of Circle Lending's free Small
Business Financing Guide for startups
