More Credit Card Processing Options

Claudia asks:

Our needs are pretty basic and we’re looking at a 2 transactions/day maximum. Around 20-40/month. We had looked into some paypal options, one with no monthly fee or setup fee and charges a per transaction % fee. I know in the second class you mentioned that you can lose a lot of money with paypal. How so?

Please let us know if you can recommend any other merchant solutions for our needs. Our bank and other options we have looked into are too expensive for us right now and seem to offer more than we need.

Well, I guess it's good I waited to answer this one; today Google announced Google Checkout, which is similar to Paypal but is integrated with Adwords and looks to be both a better deal than Paypal and much easier to implement. You can literally just paste a Google Checkout button into your web page code and you're prety much done. This may not be for everyone, and it has yet to be proven as a force in payment processing, but Google rarely does anything half-baked.

I don't have a problem with Paypal other than the high fees they charge for transactions, which can be double the standard credit card discount rates. You are trading convenience and simplicity for lower margins; if that's acceptable to you, then you should consider Paypal.

Beyond these two choices, there are dozens of low-cost merchant services providers online. I will review a few of these in the next few days and post them as I am able to.

Jimi asks:

If I have (I don't in reality) a website, and I need to mention the name of my clients (I don't in reality) and then let the visitors to link to the client website, or link to e.g. some government, or state website, how do I get the permission to install the link in my website?

There are numerous legal conflicts surrounding the issue of linking. As a general guideline, there's nothing wrong with linking to someone for legitimate or "fair use" purposes – say, you're reviewing their site or even satirizing it. It gets trickier if you are operating a commercial website that links to other commercial websites, but typically you can always link to a site's homepage.

Some sites are very picky about what's called "deep linking," where you link directly to a page on the site rather than the homepage. The reason for this is that so-called deep linking circumvents whatever advertising or other content the site owner wants you to see when you visit their site. However, if you violate a site's linking policy, you will typically get a "cease and desist" letter prior to any real legal action. I do recommend that you read a site's terms of use if you are concerned about linking to it; terms of use will often spell out exactly under what circumstances a site does and does not allow linking.

Finally, if you want to link to one your clients' sites, you may need to ask their permission. Many companies do no allow this because they feel it is tantamount to an endorsement. When in doubt, just ask. (I'm not a lawyer by the way, so none of this constitutes legal advice, yada yada.)

The Bewildering World of Credit Card Processing

Jennielle asks:

It's Jennielle again...thank you for reviewing my ASP's SSL charges...I sincerely appreciate it.

Do you think you could check out this merchant account fees, etc. I need a merchant account where I can accept CC payments online AND in person. If I read the terms correctly, they do offer equipment in order to accept CC's in person....

And do you think the fees are fair?

https://www.e-onlinedata.com/lunarpages

First of all, if you haven't read it yet, check out the cheat sheet for payment processing and general e-commerce terms and definitions to get a background on the way payments work. Jennielle is asking a question that really falls outside the purview of both those documents, however, which is: How do I choose a credit card processor for my business?

I recommend that you visit this page for a full explanation of all the parties involved in credit card processing and how to choose the service. Credit card processing is basically a very sales-intensive business; once you select a processor, they take a cut of every transaction, and their incentive to sell you anything new or even perform basic service is very small, because the pain of switching to another processor can be fairly high. That also means that, initially, you should compare vendors carefully because their rates can be very competitive.

The most basic form of credit card processing is a machine you have in your retail location and swipe customer cards when they come in to buy goods. At this level, you are looking at a discount fee (from which everyone involved in the transaction, including the processor, the issuing bank, and even the organizations that sold you your machine and merchant account, take a cut) and probably a statement fee for sending you a paper statement every month. Expect about 1.6 - 2 percent for discount fees (American Express is much higher, often above 3%) and a few bucks a month for the statements. If you take someone's order without swiping their card – over the phone, for instance – that's called a "card not present" transaction and often fetches a slightly higer fee.

When you process cards online, there are additional fees involved. A gateway is a service that acts as a virtual credit card machine for your website, authorizing the cards and processing the transactions in real time. A gateway often adds substantially to your processing expense; there are setup fees ($50 - $200), annual fees, and transaction fees (often with monthly minimums) that are usually expressed in fixed dollar amounts or percentages. The payment processing article explains most of this in detail.

So, back to the advice part: I can't recommend a single payment processing/merchant account vendor, but the one that Jennielle sent looked a little pricey to me. There may be a reason for this; there are a host of merchant services providers that cater to very small or new businesses that lack adequate credit history to establish a merchant account through a bank. Because a new merchant can set up a business and quickly ring up thousands of dollars in fraudulent transactions (leaving the bank holding the bag), new merchant account applications are vetted very carefully. By choosing a provider that guarantees a higher approval rate or other possible benefits for the account approval process, you may be trading money for a less painful process.

My advice? Start with your bank. A good banking relationship is essential for any small business, and as tempting as it is to start up flying by the seat of your pants (believe me, I've done it – more than a few times), fundamentals like finding a bank and getting a decent lawyer can save you enormous time and frustration later on. A bank with a business checking department will either have a merchant services division or be able to recommend one.

Once you have their recommendation and their pricing, go shop around – you will certainly find better deals, but make sure they have good service. Call them up and see if you can contact a human being. Many of these organizations are, as I mentioned before, little more than sales departments pushing deals every day. If you are going to select a company that also processes online transactions (that is, a turnkey merchant service, including the gateway) make sure you can track down a human being – you'll have a problem sooner or later, and when you have a problem with your customers' money, you need to get it fixed quickly.

Last, if you are using a hosting company or ASP, they may already have a gateway and or merchant provider that they recommend. This may indicate that their software works better with that particular service, but it just as likely means they are getting a commission for the referral and have little connection to the provider otherwise. Read carefully, and call or email them if you're not sure. All things being equal, most of these systems work fairly simply and plug in to your website or shopping cart without a lot of headache, so you can pick on price and convenience if that's what you prefer. Just don't forget about support; skimp on it now and you'll feel pain sooner or later.

Questions, questions, questions: Please email me your questions or post them here in comments and I'll address them here as quickly as possible.

It's clear from your comments today that some of you intend to build (or have someone build) your website and then host it with a hosting company, so I will try to provide a list of reputable hosting providers as soon as possible. Unfortunately, there are thousands of these companies and it can be difficult to compare them, but the basic criteria you should look for are:

• Cost: Setup, recurring cost, other fees; look for discounts for pre-payment over a term.
• Space: Disk space (the space for your files) is a cheap commodity and shouldn't cost much.
• Email Accounts: Most hosting companies also provide a few email accounts as part of the deal. If you already have email somewhere else, it might behoove you to move it all to once place if the email system and spam protection are good. Otherwise, the hosting provider that controls your domain will have to point certain records (your "MX" records) to your email provider.
  
• Bandwidth/Data Transfer: This is where you can get hit hard if your site is popular. Data transfer (also often called bandwidth, although the two are technically distinct) is typically a measure of how much information you transfer in and out of a website. Look at this very carefully if you plan on a popular site. Bandwidth costs everyone in the chain money, so unless your site is advertising-supported, plan on paying more for a popular site.
• Management: A good hosting company will give you some control over the site and how it works, including the ability to set up access, email accounts, etc. Try out their management interface before you buy. If they don't have one, run the other way.
• Support: Don't forget this one; it's huge. Call the hosting company before the sale and see if you can talk to a human being. Ask their email-based support a pre-sales question and see how fast they respond. A good organization should take care of you quickly, typically within a business day. However, this is a very low-margin business, so don't expect fast response time if you're not planning on paying for it. Many companies will, in fact, provide you with a higher level of service or prioritized support for a fee.

I'll add some links to popular hosting companies in the next few days.

Initial documents:

Here are the links to the initial class documents; I'll add these to the permanent section of the site soon.

Class 1 Outline
Class 2 Outline
Handout 1: E-commerce Terms and Definitions
Handout 2: Payment Methods
Handout 3: Freshness

This is the blog/resource page for the BiG Austin e-commerce class conducted by Brent Buford. I'll be posting all the documents from the class here as well as comments and reviews of e-commerce providers. I'll also try to address questions that we don't have time for in class.