eCommerce, Part 5: On-line Credit Card Processing
by Crimson Star
The Internet is open for business 24 hours per day, 365 days per year. Are you?
Thanks to the Internet, photobuyers from around the world can find your Web site and your photos. They will want to purchase your photos during their business hours. Will you answer the phone at 3:00am to take an order from London? Your Web site can, if you provide on-line credit card processing.
Before we ask for trouble, let’s see what you need to process credit card transactions as a retail merchant. First, you need a business location, a business license and a commercial bank account. Now you can apply to your bank for a merchant account for whatever credit card your bank supports. If you need to accept other credit cards as well, you usually must open merchant accounts with other banks.
For example, I already had a leased office in a commercial building, a business license from the local government, and a commercial bank account with the Toronto Dominion Bank. The TD Bank carries the VISA credit card. I applied for a merchant account for VISA, from the TD Bank. I was also offered the opportunity to apply for a merchant account for Master Card, American Express and several other credit cards. This option was available from the National Bank of Canada, but transactions would be settled through my TD Bank account. I declined to apply for these cards, although I can apply at any time in the future.
Not all banks are eager to open merchant accounts for small businesses or merchants. Some banks force the merchant to post a bond of $30,000 or more in order to open the account. There may also be a deposit of several hundred dollars required for the machine that imprints the credit card sales slip.
The TD Bank approved my merchant account without requiring a bond. I pay a minimum monthly fee of only $3.00 and have a discount rate of 4%. This means that 4% of each sale goes to the TD Bank. There was no deposit on the imprint machine, which is rented for $12.00 per year.
Most sales will be made in person, and the customer’s credit card will be available. These transactions are pre-approved up to a limit set for each merchant. If the sale is for more than the merchant’s floor limit, he must contact the credit card vendor for authorization. My floor limit is $50.00. Some sales may be made by phone, fax or mail. The customer provides the credit card info and the merchant fills out the credit card slip, but cannot imprint it with the actual credit card. It is processed as a card not present transaction. Credit card companies hate these transactions with a passion. The floor limit for these transactions is $0.00. You must call for authorization each time.
If the merchant is in the mail-order business, most of the credit card sales will be card not present transactions. The poor mail-order merchant will have to post bigger bonds and pay a higher discount rate than a retail merchant. To a credit card company, the mail-order merchant is a greater risk.
My TD Bank merchant account does not allow me to conduct mail-order business, but I can apply for that on the condition that the bank may demand a bond and increase my discount rate.
Out of the Frying Pan and into the Fire
All of your Web site sales will be card not present transactions. Your Web site will not have a legal business address, or even a business license. There are no laws or regulations in effect on the Internet. It is the badlands of the commercial marketplace.
My TD Bank merchant account also prohibits me from conducting business on the Internet. I can apply for this also, subject to their review of my bond requirements and discount rate.
For security reasons, credit card companies do not allow merchants doing business on the Internet to access their networks directly. Instead, you must deal with an established company that provides security for your transactions and handles all communications between you and your credit card processor. CyberCash is the best known company of this type, although there are many others. You must apply for an account with one of these companies, which will entail a variety of new fees. When everything is finally set up, you are ready for on-line credit card processing.
How does it work? Your customer fills up his shopping cart and checks out of your store. The cart software creates an order form and obtains the shipping and billing information from the customer, including the credit card data.
The form is sent to CyberCash, who in turn contacts your credit card vendor for approval. The result comes back to your Web site. Your shopping cart then lets the customer know if the credit card transaction was approved or not.
Companies such as CyberCash refer to their software as virtual cash registers. These programs must be integrated with your shopping cart in order to function. This is a complex task, even for an expert. CyberCash recommends that merchants engage approved CyberCash Merchant Development Partners for this purpose.
What Do You Really Need?
Do you really need to sell your photos on-line? Do you have that many digital photos that you actually can sell on-line? Most photobuyers still want to receive your original images and select from among them. They often don’t pay until the image is published.
This will change over the next few years. The demand for digital images is increasing daily. The cost to set up on-line credit card processing is dropping now that there is more competition. Only you can decide when it becomes cost-effective to offer this service.
Next month we will look more closely at the basic requirements of a CyberCash-enabled Web site.
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Latest Revision: Saturday, 07 May 2005 08:52 AM