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Card Acceptance & Web Sites It is possible to run an on-line business without accepting credit cards, but this is really only viable if you are in a situation where you are not likely to get an impulse buy. (If you're selling yachts or executive jets for example.) Credit Cards Credit card processing is first thing that comes to mind when considering on-line payments. Some people remain reluctant to use their cards on-line, but in general credit cards have become the standard method of payment on the Net. For most small E-businesses, accepting credit cards is essential. How Credit Cards Work On-line The desired result is to transfer funds from the customers credit card account (held at an Issuing Bank) to the seller's bank account (held at an Acquiring Bank). The first problem is that the seller can't use any old bank account, it must be a Merchant Account - in fact a particular type of merchant account called an Internet Merchant Account. The typical sequence of events (slightly simplified) in an on-line credit-card transaction is as follows. 1) The customer enters the credit details onto a secure on-line form, which is usually part of the shopping-cart system provided by the Web-Store Service. The next stage is basic fraud avoidance such as checking the card number is valid and Address Verification. 2) The details are then forwarded from the transaction-processing system on the Web-store site to the Credit Card Association (e.g. Visa or MasterCard) via a Payment Processing Network. 3) The transaction is either Authorized or declined, depending on the state of the customer's credit limit. If it is authorized, funds are reserved to cover the transaction. 4) The results are communicated to the merchant. After the goods ship, the merchant can issue a Capture Request which is a request for Settlement, the final stage where the funds transfer takes place. Problems With Credit Cards Most problems with credit cards lie not with the credit card companies, or with the payment processing networks, but with the institutions that run the merchant accounts. It's all a question of risk. Merchant account providers could find themselves having to pay up if the merchant doesn't fulfill all the obligations to the cardholder. Reputable banks and financial institutions limit the risk to themselves by being selective about who they give merchant accounts to. Other companies are less selective, but they insure against the risks they run by charging much higher rates. There are companies who offer 100% acceptance and low charges. These companies are taking on the risk themselves - and consequently are making themselves risky to deal with. This is not necessarily a bad thing (judgments on risk are something every business has to take) but it's important to realize that (as with most things in life) you get what you pay for. Other On-Line Payment Methods Non-Merchant Accounts You may be left with nagging feeling that this on-line payment business is far too complicated - and you'd be right. However there are a number of companies around offering services that allow you to accept credit card payments without having to open a merchant account. A good example is CCNow (It's worth noting that unlike conventional payment processors, these companies are often happy to accept international merchants.) Charges are usually greater than for conventional credit card processing and there may be other restrictions - but for small start-ups they might be a good bet. One word of warning though - scams are not unknown with this type of company so be careful. Check out the company thoroughly and ask for (and follow up) references before you sign up. They won't replace credit cards, but they are useful marketing tools and may help increase sales. On-Line Checks Checks might seem a bit old-fashioned and clumsy, but you'd be surprised how easy it is to accept them on the Web. While it is probably not a good idea to accept checks and not accept credit cards, if you can accept both you will have a clear advantage over your competitors. Electronic Cash Electronic cash was heavily hyped a few years ago, but has fallen out of favor. I've no doubt that one-day there will be a universal e-currency that will make life a lot easier - but it's still some way off. Conclusion To sum up then, it is probably mandatory for small on-line businesses to accept credit cards, but if you want to avoid hassles it's best to avoid the bottom end of the payment processing services market. If you have difficulties getting a merchant account consider using one of the services that don't require one. On-line checks and rewards/tokens schemes are worth looking at as ways of increasing sales. Above all, do some research before you sign up. If you can't find any information on a payment-processing company it's probably wise to go elsewhere.This is from an article by Gordon Whyte in the Electronic Commerce section from the www.about.com site. back to top |