Merchant Processing 101
February 1, 2008
Thinking about adding electronic processing capabilities? There’s a lot you should know.
There are countless reasons why a business should add credit card and electronic payment processing capabilities - transactional speed, convenience, increased customer satisfaction, improved cash flow, views into sales data and more. But perhaps the most important consideration is the sheer volume of consumers who use non-cash methods as their primary form of payment.
In 2005, credit card and electronic transactions accounted for an overwhelming $3.4 trillion of total U.S. payments, according to The Nilson Report. That’s 50 percent of all transactions nationwide for that year. More recently, Visa USA estimated that nearly 60 percent of U.S. consumers aged 18 to 25 use cards as their primary payment method.
So while the reasons for adding payment processing are clear, understanding all your options and which are right for your business is far more complex. This article will give you the information you need to get started in setting up payment capabilities for your business, and it will provide some of the essential details you need to consider when selecting a provider.
How Payment Processing Works
Some form of the modern credit card has been in use since the late 19th century, mostly as department store charge cards representing lines of credit. Things have changed and today, the step a merchant needs to take in order to accept credit card payments is to establish a merchant account with a bank or third-party payment provider. Once your account is live, the transaction process generally works as follows:
1. A customer presents a credit card for payment.
2. By swiping the credit card through an electronic point-of-sale (POS) transaction terminal, typically provided by the bank or payment provider, an electronic request is submitted to the processing network for authorization.
3. The processing network receives your electronic request and determines if the cardholder’s account is valid and if the funds are available. If so, a response called an “authorization code” is transmitted, guaranteeing your access to the funds.
4. A receipt is then printed for the customer using the POS terminal or your computer. The customer then signs the receipt and, for their part, the transaction is complete.
5. At the end of the business day, a merchant will electronically submit a final request to the processing network to “capture the funds” for all authorized transactions in a given day. This process is referred to as settlement. Once approved, a response is generated to your electronic terminal or computer.
6. From there, the funds associated with the batch you settled are deposited electronically into your business bank account, usually within 48 to 72 hours. Typically, the rate and any fees paid to your merchant account provider are deducted from your account at the end of the month.
7. At the end of the month, your merchant account provider will send a statement to you, detailing the credit card activity for the month and the associated fees you’ve been charged.
This process describes what happens in a traditional retail, or “bricks and mortar” sales environment. For Internet and e-commerce merchants, the set-up process requires a few additional steps.
Retail Terminals vs. e-Commerce Processing
Because they do not have access to the purchaser’s physical card, Internet and e-commerce merchants rely on specialized software that allows them to capture and process credit card information on their Web sites instead of through a POS terminal. There are two basic software programs needed to enable online commerce:
- Shopping Cart: A secure series of scripts (or coding) that keep track of items a visitor chooses to buy from a site until they proceed to checkout. On the checkout screen, the shopping cart collects the credit card number, billing address, authorization number and expiration date.
- Payment Gateway: When the online shopper is ready to finalize the transaction, the information collected in the shopping cart is transferred to a payment gateway for authorization. It is the equivalent of a physical POS terminal used in a retail setting.
Another situation where a purchaser’s card is not physically present happens with MOTO or Mail Order and Telephone Order. Here, touch-tone processing or an automated response unit (ARU) allows for credit card authorization and processing over the telephone. This type of processing does not require a shopping cart or payment gateway.
Pricing Basics
Now that you know how processing works and what the available options are, you’re probably wondering how much all this will cost. While service fees and rates vary from provider to provider, “bundled” pricing is the most common type of agreement used in determining which per-transaction rate applies to which type of merchant. In the simplest terms, pricing is based on risk: the higher the risk involved in the transaction, the higher the rate the merchant will have to pay:
- Qualified Rate applies primarily to card-present or traditional card-swipe (not key-entered) transactions. This is the lowest possible rate a merchant will incur when accepting a credit card. Telephone and e-commerce transactions cannot receive the qualified rate because they are unable to swipe a customer’s card.
- Mid-Qualified, or partially qualified rate, is the percentage a merchant will be charged if they accept a credit card that does not qualify for the lowest rate. This may happen if a consumer credit card is keyed into a credit card terminal, virtual terminal (online) or via a shopping cart. This is the best rate that a telephone or e-commerce business can receive.
- Non-Qualified is the highest percentage rate a merchant can be charged and applies to those transactions posing the greatest amount of risk. This rate would apply if a special kind of credit card is used like a rewards card or business card or if address verification is not performed, or a merchant does not settle its daily batch within the allotted time.
Again, these rates are used to determine the cost to the merchant on a per-transaction basis. There are additional costs associated with payment processing, including start- up fees, equipment costs, chargeback fees and more. Stay tuned for the next e-newsletter installment for additional processing tips and useful information for merchants and business owners.
e-onlinedata (EOD) is the nation’s fastest-growing, most trusted provider of online payment solutions. Thousands of Internet, mail order, auction sellers and retail businesses - from start-ups to billion-dollar companies - are choosing EOD every month for affordable, reliable, and easy-to-use credit card processing and Authorize.Net payment gateway solutions. For more information on e-onlinedata or to apply for a merchant account, please visit www.e-onlinedata.com/paymentwerx
Merchant Processing 101 is a production of e-onlinedata provided to WebSite Werx, reprinted with permission from e-onlinedata. Content is intended to provide merchants and small business owners with practical information and insight into the world of payment processing.
Questions? Please feel free to post a comment to the blog and I will do my best to answer them.
Email Marketing for Ecommerce - Part I: What Is It? Why Do It?
January 30, 2008
I admit it - I’ve been slow to embrace email marketing on my ecommerce sites. It has literally taken me years to get around to implementing it on my own sites (even though I have helped many clients do it successfully). This has been a huge mistake, and one I’ve been actively working on remedying.
Before I get into the different methods and tactics I’ve used (including some of the tests I’ve performed and their results), I’d like to start at the beginning:
What is email marketing? And why should anyone bother?
Here’s the definition that I believe answers both the what and the why at once:
Email marketing is an avenue for an ongoing relationship between you and your prospects and customers.
Once all of your efforts, resources, time, effort, and advertising dollars have finally brought a visitor to your site, one of two things usually happens:
- They browse and end up buying, or
- They leave and never return.
If in doubt, check your website logs - you’ll see the stark reality of what I’ve just said . It is the very rare visitor that comes back once they’ve clicked the back button or the little red ‘X‘.
Even among those who buy from you, how many make their way back to purchase again?
By implementing an ongoing email marketing system with your site, you add a third option:
3. They don’t purchase, but they do give you permission to contact them in the future.
What is your purchase conversion rate? 2%? 3%? Even 5%? That means 95 or more out of 100 visitors are not buying from you. If you don’t have a way (and permission!) to contact them again, those 95+ visitors are gone for good. They aren’t customers.
They aren’t even prospects!
They are, at best, a ‘hit’ in your log. (At worst, they cost you money by clicking on your ad, and you now have no way to recover that expense).
With permission to contact them again, you have an opportunity to establish and grow a relationship with your prospects, converting some of them to customers.
And for those who do buy from you, I’m sure you know that the first sale is the hardest (and most expensive) sale to make. Permission-based email communication with previous buyers provides you with an opportunity to maintain “top of mind” awareness with your customers, and solidifying you as the provider-of-choice whenever they need the product or service you provide.
In upcoming installments I’ll talk about:
- just how easy it is to get your own email marketing engine going;
- results from my own testing on live ecommerce stores;
- common pitfalls and mistakes to avoid;
- ways to increase sign-ups to your email list; and
- strategies for effectively communicating with your list.
If you have a question about list building or email marketing for ecommerce stores, please leave a comment and let me know.
If you’re not building a list of opt-ins (prospects & customers who have given you permission to contact them), why not?
What is the #1 thing holding you back?
Yahoo Stores down on “Cyber Monday”, but not mine!
November 27, 2007
For a good part of one of the busiest online shopping days of the year, the Yahoo Stores system was reportedly down, causing shoppers and merchants alike a great deal of frustration. Check out this snapshot from the Yahoo Merchant Services system log:
(Source: http://updates.smallbusiness.yahoo.com/)
Looking at their timeline, it took over 24 hours for them to finally say that the issue had been resolved - ouch!!
CNBC has a full story here on this issue that has generated quite a bit of angst among a certain segment online businesses (and another article here). Sounds like there are a *lot* of unhappy merchants this morning. Here’s a quote from a merchant that had SIX online stores that were down yesterday: “All of a sudden, the bedrock of our company has been replaced with quicksand. I guess its time to diversify our merchant platform.” (Tom DePrato, quoted in the CNBC story).
I’m not one of those unhappy merchants this morning, though…
My ecommerce software and hosting combination is rock-solid, and all of my online stores worked flawlessly as they processed more orders yesterday than any other day of the year. It’s been rock-solid each and every year, and I must admit I never gave it much thought — until I heard about the pain many of my fellow online merchants have been experiencing with other solutions.
So, I’d just like to take this opportunity to say…
“Thank You, ShopSite and Lexiconn!!”
The Holiday Countdown - Getting Your Visitors to Buy
November 20, 2007
When I’m out and about, trying to complete my holiday shopping, it’s easy to remember how quickly I’m running out of time to get it all done. The traffic, the crowds, the incredible (and time-sensitive) sales all help to reinforce my sense of urgency. However, I find that when I’m at home, at my computer, shopping online, the sense of urgency tends to fade and take a back seat, giving me a false sense of “having plenty of time” to get everything done.
As an online store owner, though, I want to remind my visitors of the proximity of the holiday, and do what I can to recreate a similar sense of urgency. It’s even more important online than in the “offline” world - the choice of online stores is nearly infinite in comparison to the brick-and-mortar choices within a reasonable driving distance. Also, when you factor in shipping times, it’s even more important for the customer to buy now rather than waiting. If they’ve made it to my website, it is imperative that I do everything I can to make the sale before they are off to the next site.
A subtle, but powerful, way to increase the sense of urgency to buy now is to put a countdown timer on your site. Here is a snapshot of the timer that I’ve put on all my ecommerce sites (and even my eBay listings):
It’s a flash-based timer that continually counts down the time left until Christmas day. I used a similar timer on the run-up to Halloween, and saw a significant increase in sales. It’s pleasant to look at, non intrusive, and yet reinforces the idea (through the continual ticking off of the hours, minutes and seconds left) that time is running out.
If you’d like this timer to put on your own site, it’s free! I created the timer myself, so I’m giving it away to my subscribers. Subscribers to this blog will get free access to the timer, all necessary files to set it up, and instructions. An email will be going out later today to current subscribers with the link. (Not a subscriber? It’s easy - fill in your name and email in the form at the upper right, and be sure to “confirm” when you receive the confirmation email. The link will then be emailed to you).
Happy Holidays!
ShopSite Version 9.0 Released
November 5, 2007
ShopSite just released the latest major upgrade for their award-winning ecommerce software - ShopSite version 9.0. I’ve been beta testing it for a while and it is a great update; I’m using several of the new features on my ecommerce sites. I highly recommend getting this upgrade as soon as possible (either by asking your hosting company or by going to them direct).
Below is the press release that has the details. I’ll be posting more soon about specific features that I’m using and how they are benefiting my business.
E-Commerce Vendor ShopSite Announces Version 9.0 of Leading Shopping Cart System
-Popular software adds Cross-sell, Free Shipping Coupon, and support for buySAFE.
October 31 2007, Orem, Utah — ShopSite, Inc., a leading provider of e-commerce shopping cart and catalog software for small to medium-sized businesses, announced the release of its new ShopSite Version 9.0. ShopSite® is an industry leading e-commerce software option for web hosting providers, for new or existing Internet merchants, and for Web designers.
“We are extremely excited to join forces with ShopSite, a true leader in making e-commerce work for both merchants and shoppers,” said Jeff Grass, buySAFE CEO. “By integrating into a premier e-commerce platform like ShopSite, buySAFE is better able to increase confidence in shoppers, which benefits ShopSite merchants and online commerce as a whole.”
“With buySAFE and several other new features, version 9.0 adds functionality to enhance sales for merchants as we enter the holiday shopping season” said CEO David Hills. “At the top of the new feature list are Cross-Sell, Free Shipping Coupons, improved Product Search, and integration with buySAFE and USPS.”
Cross-sell
The new Product Cross-sell feature in ShopSite Pro allows merchants to show additional products in the cart that a shopper may wish to purchase. The products displayed to the shopper will be related to the product that the shopper just added. For example, if they add a DVD to their cart, other DVDs by the same director or the CD containing the sound track can also be displayed for purchase.
In addition to the Product Cross-sell, there is a Global Cross-sell option. Here the merchant can list their “best sellers” or “today’s specials” and have those products be displayed in the cart for possible purchase.
Free Shipping Coupon
The Free Shipping Coupon feature allows ShopSite Pro merchants to create a coupon to allow customers free shipping on qualifying orders. Merchants can select free shipping for a selected shipping method (e.g. ground) when creating the coupon, as well as coupon options such as a minimum purchase amount and an expiration date.
Product Search
Product Search in ShopSite Manager and Pro has been improved with better relevancy, search logging, and sort order. The merchant can now indicate what product information should have a higher relevancy ranking such as the Product Name or Description. With search logging merchants can now see what products shoppers are looking for that they do not carry. For the shopper, once the results are displayed they can click to have the results sorted by relevancy, price, or alphanumerically.
buySAFE
ShopSite Pro and Manager now support buySAFE’s product bonding for shoppers. For a nominal fee shoppers can have their purchase guaranteed by buySAFE. buySAFE puts merchants through a certification process and continues to monitor the merchant so that shoppers can be reassured when they see the buySAFE seal on a merchant’s store.
USPS
Similar to ShopSite Pro and Manager’s current integration with FedEx and UPS for real-time quotes, ShopSite now is integrated with the newest API from U.S. Postal Service - USPS Web Tools.
The complete list of new features can be viewed at this URL:
ShopSite is sold by hundreds of reseller partners, including hosting companies such as NTT/Verio, PowWeb, FatCow, LexiConn, pair Networks, Globat, YourHost.com, and BroadSpire. The thousands of merchant Web sites using ShopSite include the Getty Trust Foundation, Hometime, Ben Sherman, Avia and many others.
About ShopSite
ShopSite, Inc., is a private company based in Orem, Utah and has provided electronic commerce software for the small to medium-sized business since 1996. The company’s software is an online catalog and shopping cart system that is extremely powerful and easy to learn. With ShopSite software, merchants can manage their online stores entirely, regardless of their technical background—there’s no HTML coding required.
The ShopSite family includes three products:
- ShopSite Starter™ for merchants just starting out or stores that don’t have many products.
- ShopSite Manager™ offers an unlimited number of products and pages, Custom Templates, data upload and download, Store Search, and more.
- ShopSite Pro™ for stores that need advanced features such as Coupons, Digital Downloads, Gift Certificates, Customer Registration, Inventory Tracking, Volume Discounts, and Associates.
A comprehensive list of features in all ShopSite products can be found at http://www.shopsite.com/scchecklist.html.
ShopSite is server-based software that works with existing Web browsers, which means that merchants do not need to download or install anything on their desktop in order to create and manage a ShopSite store. Merchants can preview a demo version of ShopSite and obtain pricing information by visiting www.shopsite.com.