Joel Liu's Library tagged Payment →  View Popular, Search in Google

Let   us discuss each type of cost:

 

Up   Front Application Fees

 

Many   internet merchant accounts will require an up front application fee. This   fee, supposedly, is to cover their costs for processing your application.   In case you choose not to open an internet merchant account, they still   cover their initial costs. Although common, many providers waive these   fees and I recommend that you choose a provider that does not require   an up front fee.

 

On   Going Fixed Fee

 

Most   all internet merchant providers require a monthly fixed fee or "statement   fee" as it is commonly named, which is simply another way to cover   their costs and make money. You will be hard pressed to find a provider   that does not require this type of fee on a monthly basis. However, do   not choose an internet merchant account that requires more than $10 per   month. Additionally, most internet merchant providers require a monthly   minimum (usually $25). The bottom line is that you will be paying at least   $25 per month (on top of the monthly statement fee) for your account.

 

Discount   Rate

 

Usually,   the discount rate will be between 2 and 4 percent. The discount rate is   the sales commission the provider earns on each sale. For example, if   the discount rate offered is 3%, and you receive a sale over your web   site for $20, you will owe 60 cents to your internet merchant provider.  

Fixed   Transaction Fee

 

Usually   between $0.20 and $0.30, the fixed transaction fee is the fixed fee portion   of each sale. Unlike the discount rate, the fixed transaction fee is the   same for every transaction. Whether you get a $1 sale or a $100 sale,   the transaction fee will be the same.

 

Termination   Fee

 

A   bit more hidden in the small print, a termination fee can apply if you   cancel your merchant account within a specified period of time (usually   within one year). But beware, some merchant providers require a three   year commitment!

 

Miscellaneous   Fees

 

If   a customer requests a refund and they want their credit card credited,   an internet merchant provider will charge you a separate fee (usually   between $10 - $20). Read the contract carefully, as other special fees   may apply.

After you decide on a gateway, you’ll need a merchant account, or someone who can actually process the credit card transactions. If it’s starting to sound tricky, don’t worry because obtaining a merchant account is easy. Authorize.net has a list of approved resellers for you to choose from. We went with United Bank Card because they had a respectable-looking web site, a solid reputation, friendly customer service reps, and competitive pricing. The application process consisted of filling out and faxing some basic business information and waiting a couple days for approval. Once approved, they provide us with an Authorize.net login and transaction code to get our store up and running.

Some vendors such as PayPal are all-in-one solutions and provide a merchant account along with a payment gateway. This might seem more attractive and less of a hassle, but tends to come at a cost. With Paypal, you’re charged between 2.2% to 2.9% plus .30c per transaction. With the merchant account/Authorize.net combo, you should be able to negotiate somewhere around 2% plus 20c per transaction. All of the merchant account providers are selling the same product, so don’t be afraid to haggle a little. In the long run, every cent counts.

What is a Gateway?

    

In short, a gateway connects your ecommerce Website to your merchant account.

  

The gateway facilitates online payments by connecting your secure order form with your specific merchant account at a processing bank. The gateway takes the submitted form data and presents it to the processing bank. When it receives a response from the bank, it presents that return data to the site of origin for appropriate handling.

  

The gateway itself doesn't provide ecommerce features such as shopping carts, Web hosting, or merchant accounts, although, as you'll see, many larger gateway providers do offer additional services like these.

Today’s moving parts

  

Ok, so how do we do all this? First off, we have a merchant account. A merchant account is needed to accept credit cards. Every business that accepts credit cards needs to have a merchant account. We’ve used a few companies in the past, but currently we’re using an account provided by Chase bank. You should basically look for a reputable company you can trust that has good rates. The rates may not make all that much difference early on, but once your daily volume picks up a few basis points can make a big difference on your bottom line. But at first I’d pick trust over rates. You can always negotiate for better rates down the road.

Next we have an account with Authorize.net. Authorize.net is the gateway that our systems talk to. They take the credit card charge information from us, process the charge, and then deposit the money into our merchant account. If the charge doesn’t go through they send us a denial code which we then wordsmith and present to our customer.

   

The engine to process the recurring monthly charges is something we built custom. If you use Rails, Active Merchant would give you a good place to start. We don’t use Active Merchant because we built our stuff before AM was released, but it’s definitely a nice library.

Fee variance is significant, depending on the vendor you choose. For example, customers who select the Authorize.Net platform can obtain quotes from a number of resellers whose rates vary widely. A savvy shopper can find resellers offering rates significantly below a standard market rate. Other vendors, such as PayPal and Cybersource are pretty consistent in terms of fee structure.

While Bodine cited Authorize.Net, Cybersource and VeriSign as the big three in the payment-systems marketplace, vendors such as PayPal and Google have made significant headway into what experts call the alternative payment-solution marketplace. In fact, Google has decided not to charge processing fees through the end of 2007 in order to help its Checkout product reach critical mass.

  

Google's Checkout system allows consumers to enter billing information one time in order to make online purchases a one-click process on ecommerce sites that have made themselves Checkout-capable. While Google has seemingly eliminated the need for a merchant account with its solution, Bodine cautions that it's not the same as an all-in-one payment gateway/merchant account solution.