Accept Credit Cards Online: Internet Merchant Account vs. 3rd Party Processing

Updated June 24, 2008

Accepting credit cards over the Internet is now standard operational procedure for web merchants. We all know it; we've all heard the statistics: Over 90% of online transactions are performed using plastic - and online shoppers view secure credit card processing as a "necessary pre-condition" to pushing the buy button.

To accept credit cards on your site, the requisite steps include acquiring an Internet merchant account and selecting a payment processing service.

Today, more and more online businesspeople are turning to 'real time' processing, which spells convenience and efficiency for merchant and customer alike.

Once in place, a real time processing system can automate the entire procedure of transacting credit card payments online.

In most cases it works like this: when your customers transact business on your website they are connected to a secure order page. Next, your customers submit their credit card data, which is collected and securely routed through a banking network for authorization. Approval takes just seconds - your customers receive instant confirmation of their purchases - and funds are transferred from their bank to your Internet merchant account.

Here, a solid payment processing company should provide a wide spectrum of services that support different business models (shippable, downloadable, subscription, and donation) while accommodating a wide spectrum of technical skill levels on the merchant end. Technically savvy businesses will simply require an API (application programming interface), but in most cases, merchants without a programming team will need shopping carts and order pages pre-integrated with the credit card processing system.

In implementing a system, flexibility is important - as is attentive customer support. Before you commit to any e-commerce service provider, test their customer care channels. Do they answer their phones, respond to email, or return voice mail? What about 24-hour emergency tech support? Without dedicated customer service, low rates mean nothing. In fact, the people with fantastic rates are usually the ones who can't meet the expense of a customer service team in the first place.

Next, real time is great, but merchants should also look for full-featured systems that include access to a virtual terminal (for processing telephoned and faxed orders, etc.) and a searchable client-information database. Similarly, shopping carts and order interfaces should be fully customizable so merchants can offer varied product attributes, different payment options, and automated tax and shipping calculations. Order platforms should also be customizable to integrate seamlessly with your website so there's no "transaction turbulence" during the purchasing process.

Beyond these features, a solid payment processing service will provide SSL encryption (security), high-bandwidth secure hosting (reliability), and a powerful payment gateway that can handle your highest transaction volumes. There are, however, alternatives to this payment processing standard.

Lately, more and more payment methods have been popping up on the online market. Many of these products (know as "third-party processors") are stopgap services designed to get around the need for a merchant account. For individuals selling a few low-ticket items - or products on eBay - these services have proven to be handy ways of sending or receiving money. The benefit of a third-party payment processor is that you don't need an Internet merchant account.

However, for more serious merchants, the disadvantages of third-party processors are many. With a history of BBB complaints, holiday system crashes, and daunting costs (often a hefty percentage of your revenue), these payment methods can generate obstacles for both merchant and customer alike. First, not possessing a merchant account means that you will never have access to comprehensive customer information. It also means that restrictions will be imposed on what you can sell, your transaction volume, and your overall revenue intake. And it often takes several days for proceeds to be transferred between accounts. To say the least, scalability is not really an option here.

Still, the primary complaint directed at 3-P services is their staggering abandoned shopping cart rate. That's because most third-party systems don't signal secure e-commerce. Instead, they make customers feel like they've been transported off their merchant's site to some rather sketchy environs for volunteering credit card data. Additionally, customers often have to complete long forms and compulsory profiles. And where there is "transaction turbulence", customers tend to make themselves scarce.

Of course, not every person who wants to sell something on the Internet needs an authentic e-business solution. But for those who do, it's essential that you look through surface merchant account rates and initial technology costs to see what kind of company you are dealing with - because you will continue to work with that company, day-in and day-out. Your business rests, quite literally, on the technology and integrity of your service providers. That's why features like customer service and conscientious tech support are critical.

The point is: If you're serious about a long-term Internet presence, the formula for success is making smart decisions early.