How to accept credit cards online
Last Updated on Wednesday, 30 December 2009 02:32 Written by CC editor Wednesday, 30 December 2009 01:03
Businesses that sell products need to be able to collect payment from their customers, either they collect it in cash form, check, or charge a credit card. When a business sells a product online, credit cards is the only practical payment form.
How to accept credit cards online?
There are 3 clear-cut options to accepting credit cards online, and each has their pros and cons.
Merchant accounts + payment gateway
A merchant account is a special bank account that allows a company to accept payment by credit cards and have the money deposited to the account. The payment gateway is used to either insert the credit card number by hand, and functions like a physical Point of Sale terminal, or is fed the number by a shopping cart through it’s API (application programming interface).
A common setup looks like this:
- Shopping cart (customers credit card information + amount to be charged)
- Payment gateway (checks for authorization with issuing bank)
- Merchant account (receives settlement)
Pros:
- Full control over payment process, design, work-flow.
- Low transaction fees
Cons:
- Requires that you apply for a merchant account with a bank, and banks normally have restrictions as to whom they open such accounts for. A bit of paper work is involved, and the bank will look at the company’s credit record, expected volume, and other factors.
- Since the three components, shopping cart, payment gateway, and merchant account, are normally issued/sold by separate companies, work must be done to integrate these components.
Third party credit card processors
Accepting credit cards online through a third-party processor is a step down from the merchant account method, but gives you almost all the same benefits. The third part processor lets you use their payment gateway and merchant account, some even help with a shopping cart.
The normal setup is as follows:
- Shopping cart hosted by you or third-party (amount to be charged)
- 3. party payment processor + merchant account (checks for authorization with issuing bank and receives settlement
- 3. party payment processor sends you a check or transfers amount due to your bank account.
Pros:
- Most of the setup is already done for you, and some third-party processors have easy to configure, and integrate, shopping carts and payment processors. Interfacing with your site or design is a lot easier than with the separate merchant and gateway method.
Cons:
- You lose a bit of control in that you are not able to completely customize every facet of the payment process.
- You have to expect to pay a higher per transaction fee with this method, but that’s the price you have to pay for lower volume and using a third-party credit card processor.
PayPal-type service
How to accept credit cards online isn’t any easier than with a PayPal-type service. They are a little different then the methods above in that no credit card has to be involved in the actual interaction between the customer and your company. With a service like PayPal the process is similar to the above. However, when the customer normally would enter their credit card information they are instead sent to a PayPal web page where they enter their e-mail address and confirm the order after logging in.
Money is either charged from the customers PayPal balance, or directly from the credit card they have registered on file. Money to your company is deposited to your PayPal balance. Simple!
Pros:
- Extremely simple to set up
- Many customers already have a PayPal account and the payment process is therefor a lot easier for them and quicker then with a credit card.
Cons:
- Not everyone has a paypal account.
Conclusion
To answer the question How to accept credit cards online you first have to answer a few questions about your business. What kind of volume do you expect? How much control do you need over the payment process? How much customization and programming effort can you accept to pay for?
It is probably worth it to start from the bottom, or at least with a 3. party payment processor. That way you can “upgrade” to a full merchant account when the volume and/or other business reasons warrant it.
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