How to take payments online

Once you have your online business going you will want to take payments online.  This simple guide will provide you with some basic information.

General information

Building your online store and marketing it, while important, is only part of the story. Arguably the most important factor to consider is how you are going to recieve payment from your customers once they purchase. This is often the most confusing part of setting up an online store. This guide explains the process and lists the options available.

In order to take payments online you will require the services of a payment gateway (there are also a few methods of taking payments that dont require a payment gateway and these are covered later in the guide). Our easywebstore solution works with all the payment processing options and gateways listed in this guide.

What is an payment gateway?

A Payment Gateway is an e-commerce service that authorizes payments for online stores. It is the equivalent of a physical POS (Point-of-sale) terminal located in most retail outlets. Payment gateways encrypt sensitive information, such as credit card numbers, to ensure that information passes securely between the customer and the merchant.

Why do I need a payment gateway?

Before we get started looking at payment gateway options it is worthwhile looking at the process your customers will go through on your site so we can understand how the payment gateway fits in to all this. The steps below are typical however different systems may differ slightly in general most sites will pass off to a gateway at some stage.

On the store checkout page the total cost of the basket (including adding any applicable shipping costs and discount coupon) is summarised

Customer agrees to order total, provides address information and clicks the checkout button

• Store encrypts the transaction information and sends it securely to the payment gateway and waits for a response. The steps below are carried out by the payment gateway on your behalf (typically in just a few seconds).
• • Payment gateway receives the transaction information, encrypts it, and submits an authorisation to the card issuing bank
  • The card issuing bank receives the authorisation request, and replies to the payment gateway with an approved, declined, or error response
  • The payment gateway receives the response then sends a reply back to the website
• Based on the response the store tells the customer that their purchase was approved, declined or had an error and also makes any relevent changes to stock levels and triggers order processing alerts

Choosing a payment processing option

There is no one best online payments solution. Each gateway is different and will be suited to different types and stages of business. You should compare all the various companies and it may even be worth attempting to negotiate to get the best deal. The main factors to consider when choosing a company include.

• Setup charges
• Commision charges
• Annual charges
• Monthly fees or minimum monthly commissions
• How long before you recieve your money (settlement time)

Payment processing options fall under one of the following categories.

• All in one (bureau) payment service providers
• Dedicated payment gateway
• Specialist payment providers
• Offline payments

All in one (bureau) payment service providers

This type of provider gives a simple to operate and reasonably priced service to taking online payments making them ideal for startup and small internet businesses.

Technically they work by providing the payment gateway internet merchant ID and merchant account in one. In simple terms, you share the internet merchant ID and merchant account with the provider and all their customers meaning you dont have to contact a bank and get a internet merchant ID.

The most well know of these are PayPal and NoChex but there are many others. Examples are listed below.

• PayPal
• NoChex

The advantage of this kind of service is that you don't need to have a trading history and they are usually low cost (or free) to set up.

Dedicated payment gateway

To use this kind of service you need your own standard merchant account so that all the money from your online orders is deposited in your own account. To use a payment gateway you also need an Internet Merchant ID, note that this is in addition to your standard merchant account, these are supplied by your merchant account provider (usually your own bank).

This route can have quite high set up costs but in the longer run will be more cost effective than the bureau services above. These are probably better for established merchants with an existing sales outlet and an existing merchant account or well funded startups.

There are lots of payment gateways and charges vary from commision only to a fixed monthly fee. Examples are listed below.

• Protx
• HSBC

Specialist payment providers

There are also several specialist services for acepting payment that you may want to consider. This should usually be offered in addition to the standard credit card processing that customers expect. They are useful for certain types of products or business plans and may be well worth taking a look at. Examples are listed below.

• SplashPay - payments by charge card (useful for sales to teenagers or those without access to a credit card)
• Greenlight - payments by mobile phone

Offline payments

It is also possible to accept payment by cheque, although this is usually popular because waiting for your customer to send you a cheque before you despatch the order adds a delay. there are still some customers who prefer this option so it can be wise to allow it.

Another method of accepting payment is to collect your customers card detials in a secure environment and then encrypted and store them. Later the online store owner can view the details and process them as a cardholder not present (CNP) transaction on there existing card machine. Although this kind of system is secure, certainly more so than telephone orders or emailing card details. It is not popular with the merchant account providing banks, many of whom may consider use of this as being in breach of their terms of service.