A dummy’s guide to ecommerce, #2: taking credit card payments

Posted by John Kilroy August 6th, 2008

There are four main ways for your ecommerce business to take credit card payments.

Secure capture & swipe

This method is probably the most common, is the cheapest to you the retailer and works as follows:

Firstly, your ecommerce system stores your customers’ card details securely online, usually in a database used by the system. I most highly recommend that you ensure that the details are strongly encrypted whilst they are stored, your ecommerce provider will be able to reassure you in this respect and if they can’t, maybe think about getting another provider who understands the fundamental importance of basic security.

Secondly, either you log in to your ecommerce system online and use a secure online order system to view and process your orders, or, your ecommerce system will download your new orders to your desktop and you can process them there. Processing in this context means using your credit card facility. Obviously you need a credit card swiping facility to use this method, if you don’t have one your bank can help you set one up. Make sure to tell your bank you are taking payment this way, as some may not approve or may place restrictions on how you do it.

Real-time processing

Another widely used option is to process payments in real-time over the Internet using a ‘payment provider’. There are many providers, probably the most famous being Worldpay, but many high-street banks also offer this service (which may be why some of them are not keen on the Capture and Swipe method). To use a payment provider you pay a fee for using the service and you pay a commission for every transaction they process for you. Fees vary according to the volume of orders you place and, like a normal card-swiping facility, the fees get lower the higher your sales volume.

It is important to realise that these services do not actually take payment, they simply check that a set of card details are valid and that there are funds available for the transaction, they then pass these on to your online merchant account where the actual transaction takes place. Because of this you still need a merchant account (credit card processing) from your bank and many banks are reluctant to give these to startup businesses. However, this service is quick and the providers take care of everything for you so if your site is busy then it is probably the most efficient way for you to take payments.

Bureau services

As I said, you need a merchant account to use a normal payment provider service. If you don’t have a merchant account then most of the providers will offer you a bureau service whereby they complete the transaction for you. Obviously they charge extra for this service and frequently you might not receive your funds for several weeks. Unfortunately, because the banks are restrictive with merchant accounts, this is the service that many startup ecommerce businesses must use.

Paypal

Paypal is great! It is easy to set up and is a popular way, thanks to the success of Ebay, for money to move between people on the Internet. However, you couldn’t really rely on Paypal as your only means of taking payment because most people who use your shop probably will not have a Paypal account. You can offer Paypal as an option to your customers but you should also offer an alternative way to take payments.

Other things to consider

It can be a good idea to offer to keep your customers’ credit card details on record and create an alternative one or two-click ordering process for repeat or regular customers. This feature seems to increase sales for those shops that offer it probably because it makes paying quicker and easier. Obviously, your ecommerce system must support this feature.

You need to be careful with this feature though and go to some pains to ensure you are providing a safe environment to keep such sensitive information. You will increases trust and avoid problems with people not realising you are keeping their card details if you allow customers to opt-in, rather than to opt-out, of using this feature. A good way to allay further worries is to give full details of how you store private data and what you do with it. This shows you are a responsible company and, again, it has been shown to increase trust.