Accept and Manage All Kinds of Payments
With an SSL-secured site, your customers will have the confidence to purchase your goods and services. But enabling customers to pay you online takes more than just collecting their credit card numbers or other payment information. What will you do with customer payment information once it’s sent to you? How can you verify that customer’s credit card information is valid? How will you go about processing and managing those payments with a complex network of financial institutions?
You could simply set up a credit card terminal and process orders manually. But why invest the time and effort to build an e-commerce site without taking advantage of the efficiency of online payment processing? To offer a complete e-commerce experience, you need to implement an “Internet payment gateway” that provides Internet connectivity between buyers, sellers, and the financial networks that move money between them.
The Internet Payment Processing System
Participants in a typical online payment transaction include the:
Acquiring Bank: In the online payment processing world, an Acquiring Bank provides Internet Merchant Accounts. A merchant must open an Internet Merchant Account with an Acquiring Bank to enable online credit card authorization and payment processing. Examples of Acquiring Banks include Merchant eSolutions and most major banks.
Credit Card Association: A financial institution that provides credit card services that are branded and distributed by Customer Issuing Banks. Examples include Visa® and MasterCard®.
Customer Issuing Bank: A financial institution, such as a bank, that provides your customer with a payment instrument. The issuer is responsible for the cardholder’s debt payment.
Internet Merchant Account: A special account with an Acquiring Bank that allows the merchant to accept credit cards over the Internet. The merchant typically pays a processing fee for each transaction processed, also known as the discount rate. A merchant applies for an Internet Merchant Account in a process similar to applying for a commercial loan. The fees charged by the Acquiring Bank will vary.
Payment Gateway: A service that provides connectivity among merchants, customers, and financial networks to process authorizations and payments. The service is usually operated by a third-party provider such as VeriSign.
Processor: A large data center that processes credit card transactions and settles funds to merchants. The processor is connected to a merchant’s site on behalf of an Acquiring Bank via a Payment Gateway.
Payment Authorization and Settlement
Payment processing can be divided into to major phases or steps: authorization and settlement. During the authorization phase, verification is made that the credit card is active and the customer has sufficient credit available to make the purchase. The steps in the authorization process are:
- Customer decides to make a purchase on the Merchant’s Web site, proceeds to check-out and inputs credit card information.
- The Merchant’s Web site receives customer information and sends transaction information to the Payment Gateway.
- The Payment Gateway routes information to the Processor.
- The Processor sends information to the Issuing Bank of the Customer’s credit card.
- The Issuing Bank sends transaction result (authorization or decline) to the Processor.
- The Processor routes transaction result to the Payment Gateway.
- The Payment Gateway passes result information to the Merchant.
- The Merchant accepts or rejects transaction and ships goods if necessary. Because this is a “Card Not Present” transaction, the Merchant should take additional precautions to ensure that the card has not been stolen and that the customer is the actual owner of the card.
The second phase is the settlement process during which money is transferred from the customer’s account to the merchant’s account. During this process the following takes place:
- Merchant requests the Payment Gateway to settle a transaction
- The Payment Gateway sends all transactions to be settled to the Processor.
- The Processor sends settlement payment details to Customer’s credit card Issuing Bank; at the same time the Processor sends payment details to Merchant’s Acquiring Bank.
- The Issuing Bank includes the Merchant’s charge on the Customer’s credit card statement while the Acquiring Bank credit’s the Merchant’s account
What You Should Know About Fraud
Just because you have secured your site with an SSL certificate doesn’t mean that you don’t need to worry about your online business being affected by credit card fraud. Fraud can be a significant problem for customers, merchants, and credit card issuers and is something you should be aware of when you take your business online. In the offline world, liability for fraudulent transactions belongs to the credit card issuer but shifts to the merchant for “card not present” transactions, including transactions conducted online. This means that you will not receive payment for fraudulent transactions. Fortunately, there are things you can do to significantly limit your risk as an online merchant.
- Choose a payment service provider that is well established, credible and has a strong track record for transaction security.
- Use Address Verification Service (AVS) which matches the cardholder billing address on file with the billing address submitted to ensure that the card holder is the card owner.
- Use Card Security Codes (known as CVV2 for Visa, CVVC for MasterCard and CID for American Express) as additional assurance that the actual card is in the possession of the person submitting the order. If you ask for this number on your online order form, even if you don’t use it for processing, it is a strong deterrent against fraud.
- Keep an eye out for multiple orders for easily resold items purchased on the same credit card.
- Develop your own negative card and shipping address list and crosscheck transactions against it.
Test, Test, Test
You may be eager to launch your e-commerce storefront, but take time to review and test your site thoroughly before going live. You will only have one chance to make a first impression on each new visiting customer, and broken links, incorrect phone numbers, and grammatical or spelling errors diminish the professional polish you’re striving for.
Have objective testers walk through the entire ordering process to test its usability. Is it clear exactly what customers need to do to purchase? Test buying a product: is the page on which you supply payment information secure? Is the payment processed correctly through your payment gateway? Make sure you use both Macintosh and PCs for testing, and different browsers and modem speeds.
Also, never neglect good customer support: it’s the key to creating loyal customers. Are you prepared to confirm that a customer’s order has been received? Are you ready to follow up with an e-mail message for good measure? A personalized message from a real customer service representative is best, but sending an automatic reply works as well. Set minimum response times and standards for replying to customer questions and concerns, and ensure that your customer support staff is fully knowledgeable about all your products and services, their features and benefits, pricing, and availability.
With an online identity, a Web host, an eye-catching, professional-looking Web storefront, rock-solid security, easy-to-use payment management, and the right promotions, your e-commerce business is ready to succeed in the competitive world of the Web.