Taking Payments Online

Merchant Account
To take credit card payments you need a merchant account. This has nothing to do with your standard business or personal bank account, its an account that will be provided by a company known as a Merchant Services Provider.

They are generally aligned to big banks, for example Barclays Merchant Services, NatWest Streamline and others. It doesn't matter who you bank with, you don't have to use that banks merchant service to clear credit card payments.

Obtaining a merchant account can be tough, especially if you are just starting out, working from home, or have a poor credit history. In addition, the products and services your sell may also affect the decision.

Banks may take a dim view of certain industry sectors such as online gambling or services of an adult nature. If they do take you on, they may impose very high interest rates and/or lengthy transfer times. They may be so punitive as to make you think twice about your online store.

We had a client who was planning to sell computer parts online, but as the industry is classed as high risk, the transaction charges and 60 day wait for cleared funds made the business unviable

Do you already have a Merchant Account?
If so, you should skip this bit and look at the Payment Service Provider section below.

There is an online Merchant Provider called WorldPay. They are happy to accept most genuine applications and have a very slick payment system and administration area.

Unfortunately, you will need to have your site pretty much ready to go, before contacting Worldpay as they will need to check that you are not selling items outside of their Terms of Service.

Person to Person payments
There are some pseudo-merchant providers, which require your purchasers to be members before being allowed to buy online. They developed through the auction sites like e-bay, and allow people to transfer cash between themselves. Although low cost in terms of set up and transaction fees, and they will provide accounts to almost anyone, they do not look very professional and do not have enough members to make them a real viable alternative. Examples of these companies are www.paypal.com, www.nochex.com and www.fastpay.com (run by NatWest).

Costs
Looking at costs, you will have to pay a set up fee for the banks to consider your application. This is usually between £150 and £250. For each credit card transaction you will be charged between 2.9% and 5% of the total transaction value (including VAT if applicable). There may also be a minimum monthly fee, so if you don't sell much in your first months, you will still have to pay. Debit card transactions such as Switch and Delta will be charged at a fixed rate regardless of total transaction value, usually around 50p. The higher the amount of money transacted through your account, the lower your rate will be. Membership of the Federation of Small Businesses can also result in lower charges.

Delay
The other thing that not many people are aware of is the delay in the cash getting into your bank account from your merchant account. For 'Cardholder Present' transactions that take place in a shop where the customer signs for the goods, the money is transferred in around 3 days. In Internet transactions which are all 'Cardholder Not Present' the risk is deemed higher and it can take up to 60 days. The card issuers in the UK favour the cardholder over the merchant, so the delay is to give the cardholder a chance to query the transaction before the card issuer parts with any money. The better history you have, the quicker the payments hit your account.

For ease of use, speed and support, WorldPay is a safe bet, although we don't rate their shopping systems as you pay for a certain number of products and it can get expensive if you expand you range.

Chargebacks
If the cardholder does query the transaction, you are in a difficult situation. With card holder present transactions, you will have a signed receipt as proof that the customer had the goods. With Internet transactions you are high and dry, and the card issuers will favour the card holders every time. How can you prove that the order was placed by the card holder? How can you prove that the goods were actually delivered? In cases like this the merchant service provider will issue a 'Chargeback' and withhold the value of the transaction until you can prove your case against the card holder.

Credit Card Fraud
Sounds like a nightmare? Don't worry too much. Generally speaking, these incidents are very rare, although some industries are targeted by fraudsters more than others. High value, easy to resell items are favoured by the criminals, who want to take the items you are selling and turn them into cash quickly. Computers, Audio Visual Equipment, Consoles, Jewellery are most at risk. The criminals will take credit card details from old receipts left in restaurants or in dustbins, and use them to order goods online. You fulfil the order, and the first thing the genuine cardholder knows about it, is when 20 or 30 transactions appear on their monthly statement. They complain that the transactions were fraudulent, you can't prove otherwise and you have lost your goods.

Protecting Your Business
By taking some precautions, you can go some way to protect yourself. If you get a large value order out of the blue, telephone the customer and discuss the details, confirm the address, ask about the products ordered. Do they sound nervous? Can you contact them at all? Also, be very suspicious about credit card orders coming from the Philippines, and South East Asia.

If after reading these articles you would like to let us know what you thought of them, we'll be happy to hear from you.

Would you like to talk to us about your project? We don't charge for advice, and if we get some business out of it - great. If we don't, we wish you well and hope you got some benefit out of our discussion.