A Guide to Processing Credit Cards Online
It’s hard to imagine e-commerce without credit cards. There may be innovative new payment schemes out there on the horizon, but for now, the vast majority of consumers are using payment cards to do their online shopping.
If you’re going to do business on the internet, you need a way to accept card payments, and new merchants can get caught off-guard by all of the options available and choices they have to make before they can start making sales and charging cards. What do e-commerce merchants need to know about getting set up to process credit card payments?
There’s hardly an online merchant out there who could justify a choice to not accept card payments. About 70% of all e-commerce transactions are carried out with credit cards or debit cards (and many of the alternative payment methods, such as digital wallets, still use payment cards as their funding source). The only question, really, is which service provider—or combination of services—will make card processing as easy and painless as possible for you.
Cost, ease of use, and security are some of the major factors that have to be accounted for when choosing a card payment solution. Just as a small, independent merchant might be needlessly overwhelmed by a customizable point-of-sale system, a large-scale retailer would need more power and flexibility than an all-in-one solution designed for user-friendliness could provide.
But no merchant, regardless of size, can afford a payment solution that doesn’t adequately address their security needs. Payment cards are uniquely vulnerable to abuse by cybercriminals, and merchants who allow themselves to become vectors for fraud may find their payment processing privileges suspended or revoked if the problem gets out of hand for too long.
Choosing a payment solution is an important decision that deserves some consideration, but it can get complicated because there are many elements to it. Many providers fulfill more than one role, and sometimes the terminology is used imprecisely. One of the most indispensable parts of any card processing solution, however, is your merchant account.
What Is a Merchant Account?
A merchant account is a special type of bank account that is set up to receive funds from credit card transactions. The financial institution that provides your merchant account is typically called your acquiring bank, but payment processors and other providers that you wouldn’t mistake for banks can offer merchant accounts, too.
Without a merchant account, you can’t accept card payments. The most severe penalty for incurring excessive amounts of fraud or chargebacks is to have your merchant account terminated.
When this happens, you may not be able to open a new merchant account for several years, unless you pay exorbitant rates to “high risk” payment processing companies.
To get funds into your merchant account, you need a way to communicate with the cardholder’s bank during the transaction process. This step is handled by your payment gateway.
What Is a Payment Gateway?
The payment gateway is the virtual equivalent of the card-reader terminal at brick-and-mortar stores. It’s responsible for securely handling the transaction data that needs to be communicated between your store and the issuing bank.
A merchant account and payment gateway are the minimum required components for card processing—assuming payment processing services are included.
What Is a Payment Processor?
Payment processing refers to the actions involved in moving funds from one account to another. Payment processing may be offered by the company that provides your merchant account, either directly through them or in partnership with a third-party merchant services provider.
Some payment processors, like PayPal or Square, are all-in-one providers who manage every aspect of card processing within a single software platform.
What Are the Pros and Cons of All-In-One Platforms?
All-in-one platforms, sometimes known as payment aggregators, are an attractive option for merchants who don’t want to spend a lot of time figuring out how to set up and configure a payment gateway. These can be affordable, time-saving options for small merchants with a low transaction volume.
Merchants with complex needs or a high sales volume may run up against the constraints of a one-size-fits-all solution sooner rather than later, and may be able to find more cost-effective deals elsewhere.
Dispute resolution is always an area of concern with aggregators—while some of them may shield the merchant from the direct impact of chargebacks, you’re not necessarily at an advantage when a dispute arises and you’re operating under the platform’s in-house rules. The credit card chargeback system isn’t exactly merchant-friendly, but it’s a known quantity with a well-established mechanism for fighting invalid disputes.
What Do Merchants Need to Know Before Deciding On a Solution?
There’s no single payment solution that’s right for every merchant. You have to assess your own needs and choose a provider (or providers) based on what makes the most sense for you. Here are a few things you’ll want to get figured out before making a final decision:
- The fee structure. Some providers have variable rates for different card or transaction types. Compare things like chargeback fees as well.
- The terms of the contract. It’s important to have some flexibility to switch providers if the one you have isn’t working out. Make sure the contract length is acceptable and watch out for early termination fees.
- Support and service. Card processing downtime can be agonizingly painful for an e-commerce business. It’s essential to have a provider that is reachable and responsive when something goes wrong.
- Security features. Some gateways may include fraud filters and other helpful tools. If you’re looking into all-in-one platforms, make sure you look into their fraud liability policy and find out how transaction disputes are handled.
Credit cards—merchants can’t live without them, but dealing with them can be a hassle. If you’re experiencing high levels of fraud and chargebacks, it’s important to get in touch with your payment processing partners to find out if they have resources that can help you.
Reaching out early can also prevent you from getting blindsided by an “excessive chargebacks” warning.
Remember, if you’re having trouble setting up a payment processing system, or if you think it’s time to change providers, a good chargeback management firm can provide you with advice and direction to ensure that the choices you make serve to protect you better and help you hold on to more of your revenue.