Having the right technologies to support a business’s infrastructure is crucial to success and no online retail venture can exist without choosing the right method of taking payments via its website.
As an entrepreneur, you’re all about finding new and exciting ways to build a profitable business. In online retail, one fundamental aspect of being profitable means providing a transaction-capable website. This is the heart of e-commerce, but unfortunately many business owners know very little about this unique aspect of the industry, until the last minute.
Don’t let this happen to you.
Researching and executing the right payments strategy for an online retail project will not only increase conversions via your webstore, it will also make it easier to detect and stamp out fraud, which can be a start-up killer.
In this instalment of Power Up, we take a look at what type of payments online retailers can consider accepting, processing credit card transactions and other aspects of payments and transaction security.
Depending on the type of business, there are many different payment choices available to retailers. However, when coming in at an entry-level, it makes sense to focus on the options that allow transactions through the company’s own internet properties. These are broadly defined as payment gateways, provided by payment service providers.
Please note that many plug-and-play webstore solutions tend to come with in-built payment gateways. These may be replaceable or modifiable, however this is one aspect of an e-commerce site that is necessary to get right, so make sure you’ve done your due diligence when it comes to research.
If you have the ability to choose your payment technology, you will need to ensure you have researched and implemented a shopping cart, payment gateway and merchant account.
The Gatekeeper: Payment Gateways at a Glance
“There is a great variety in the features you can get with different gateway providers. For many merchants, the basics of charging a customer’s credit card and clearing the funds into your bank account quickly, is all that’s needed. For others, extensive reporting capability and features may be required, but you will pay more for a fuller feature set and it may be more complex to implement. Some payment gateway providers will hold your funds for up to two months, which can kill a tight cash flow business,” says Larry Bloch, CEO of Netregistry.
Payment gateways are usually cloud-based services that have the ability to authorise and process payments on behalf of businesses that transact online. These services process and then store credit card data, meaning the gateway is responsible for those details and not your retail venture.
Companies that provide payment gateway solutions include PayPal, CyberSource, eWay, and Australia Post’s SecurePay. These companies all provide an interface that makes it easy for businesses to perform credit card checks and charge backs. They tend to be well supported as well, so any problems can be quickly ironed out before it becomes a cost to the merchant.
On the other hand, banks also provide payment gateways, such as NAB’s Transact or the Commonwealth Bank’s CommWeb. Unfortunately, these options tend to be more complex and cost-prohibitive–generally only much larger merchants implement these kinds of payment gateways.
Whatever payment gateway you opt for, a secure web page should be set up so that the customer’s personal details, including account and credit card details, are encrypted. Then the web host’s shopping cart system will gather the order details and format them as required, before being passed onto the payment gateway. This information is then checked and matched against payment details before placing a request for the card to be charged.
At this stage, the corresponding credit card company validates the card and the account. If everything appears valid at this stage, the card is authorised and an acknowledgement is sent back to the payment gateway. If there is an issue, a notification of the problem is returned to the gateway.
After that, the payment gateway tells the web host’s shopping cart system to process the order (if there’s no problem with authorisation) and begins a settlement request, or funds transfer, to the merchant’s account company for a deposit to the merchant’s bank account. The merchant then collects funds via the online merchant account and the transaction is complete. This entire process can take place entirely within minutes, sometimes less, however the final settlement can take several days to complete.
Payment service providers often provide systems that allow retailers and consumers to set up accounts with them. In most cases, this means the provider will handle all personal information, credit, and account details, however this isn’t necessarily always the case, so ensure you know what you are signing up for. PayPal, PayClick by Visa, and Checkout by Amazon are all good alternatives to consider.
In the case of these technologies, they assume liability and remove security risks from the merchant by managing those details, they don’t necessarily require a merchant account to be set up in order to enable your webstore’s payment transactions, and consumers only need to register details once with the given payment provider.
On the other hand, these systems do direct customers to a secure page on the payment service provider’s website, which can have the effect of making the casual shopper lose trust in your webstore’s security and ordering processes and may result and reduced conversions.
Keeping Customers in Mind When Choosing Solutions
“Ultimately the payment system you choose should be selected to make a transaction easier for your customers, not for you–the merchant,” says Bloch. “So while it may be easy to implement a PayPal solution, is that the solution your target market finds most credible for you to use? Retailers need to understand their customer demographic and ensure they select a solution that works best for them.”
In this sense, it is easy to see how your target demographic should play the largest role in any decision-making process when it comes to online payments. The ultimate aim is to always give customers as many choices as possible that are relevant to them, without breaking the bank by spending big on unnecessary features.
Talk to the Bank
After ensuring you have taken your customers’ needs into account, it makes sense to liaise with the bank. This is because some providers and payment gateways won’t necessarily support your financial institution of choice, even if you have already taken the time to set up a suitable online merchant bank account.
By making sure your bank trusts your payment service provider of choice, and vice-versa, you eliminate the added stress that comes with having to be constantly paranoid about whether your money is going to end up in the right account.
What are the Costs and Associated Risks Involved?
Regardless of whether you choose a payment gateway solution or you partner with a service provider directly, there will always be associated costs. While these costs can vary, they are generally calculated as a percentage of each order’s value. Unfortunately, that is simply the price to pay in order to avoid the potential $250,000 fine that is incurred should you breach the Payment Card Industry Data Security Standards (PCI DSS).
The PCI DSS was launched in partnership by American Express, Discover Financial Services, JCB International, MasterCard Worldwide and Visa Inc. in 2006 as a set of requirements for enhancing payment account data security.
If it weren’t for payment service providers and payment gateways, merchants would have to build transactional facilities into their webstores that strictly adhere to PCI DSS standards. While some companies may choose to do this, it means a lot more web development to pay for, as well as a lot more responsibility to bear.
For these reasons it is also recommended that merchants also consider partnering with global gateways and providers, as opposed to those that are designed to operate only within a specific country. Global solutions have access to global data, making them more sensitive, and therefore responsive, to fraudulent activities. It also enables them to build more fraud prevention tools.
Service Level Agreements
A service level agreement (SLA) is essentially a guarantee that your payment service provider will give you regarding how consistently reliable their systems are, as well as the kinds of transaction volumes it is built to withstand.
“No IT System is 100 percent reliable,” explains Bloch. “We’ve all been in shops and experienced the EFTPOS machine not working. SLAs will give you some comfort that disruption to your business from your payment service will be minimised. For smaller merchants–and in particular start-ups–it is almost as important to select a provider with a solid reputation and a history of operating without security or system failures. A quick search online will help with that research. If you are going to be doing thousands or tens of thousands of transactions per day, a small outage can be very costly.”
This is a major point of importance for retailers expecting (or hoping) to see large volumes of traffic converting via their webstore, particularly during peak shopping periods.
“It’s horses for courses,” Bloch warns, “a young start-up can be dragged down by the complexity of an enterprise solution. On the other hand, a high volume merchant will be prepared to pay more to maximise their flexibility and minimise their risk.”
Another Day, Another Dollar
No matter what your online retail venture is or how much money you have to spend, implementing the best payment system for your business is critical to success. Just like the platform you feature products in, payment solutions and providers should be thoroughly researched and referenced.
This may require you to make contact with other businesses that have used the same service previously, which can sometimes become a protracted and arduous affair. Yet, at the end of the day, if spending a few hours on the phone can save you potentially thousands of dollars (as well as the future of your enterprise), then it is easily worthwhile.
If you are considering your payment options, but want even more comprehensive information on the subject, refer to Power Retail’s Special Report #4 – Payments & Security.
In the next instalment of Power Up: The Online Retail Entrepreneur’s Guide, we discuss the various facets of Security in e-Commerce.
Seeking more information on how to get an online retail venture off to a flying start? See our complete A-Z guide, Power Up: The Online Retail Entrepreneur’s Guide.