Along with all the other considerations when setting up an e-commerce operation, companies have to think about how to receive payments online. Negotiating with credit card companies, installing the right software and managing security are all essential to creating a viable e-commerce solution.
However, not everyone gets it right. Music and video retailer HMV, for example, originally handled online payments by manually taking orders from the system, handpicking products from the shelves of its Oxford Street store in London and re-entering the orders into the store's point-of-sale terminals. This manual approach was clearly inefficient.
Automating online payments can cut down on overheads significantly. Just ask HMV; it has since adopted a more sophisticated system.
The first thing you need is a merchant account. This will enable your bank to transfer payments to you. If you are an existing business with credit card processing facilities, you may already have a merchant account.
It is important to check the terms and conditions - and particularly the charges - involved with processing online payments. Banks often impose restrictions or charges on 'Cardholder Not Present' transactions, where the credit card holder is not physically present when making the purchase. Internet purchases are classed as such, for obvious reasons, so you must factor any additional charges into your overall transaction cost.
Once you have established a merchant account, or checked your existing account for Internet friendliness, the next step is to choose an online payment service provider. There are lots of these companies springing up online, many of which offer a range of services that address various levels of complexity.
VeriSign, for example, which has made its name in the digital certificate market, offers two different levels of online payment system. Payflow Link is browser based and aimed at businesses processing fewer than 1,000 transactions per month.
Businesses get into the system using a simple hyperlink entered on an HTML page, and the system offers credit card, debit card and electronic cheque payments. Payflow Pro, on the other hand, uses a secure, dedicated Internet link (TCP/IP link) and comes with its own software development kit for advanced payment applications. It supports more payment types, such as purchase cards.
Still, when using online payment mechanisms such as these, you will want to be sure that US service providers support international customers. Although US-based VeriSign can support transactions in sterling, you will need a US bank account to make it work.
One of the most popular online services is WorldPay, which offers a UK-centric payment service. Following a relationship with NatWest bank that began in 1996, it now handles multicurrency processing.
In a typical session, after browsing an online retailer's catalogue and making a product selection, a customer elects to make a payment. The electronic retailer sends an encrypted purchase token to WorldPay, which decrypts it and presents a payment form to the shopper. Shoppers enter their card details and submit the form. The card is authorised by the card issuer and authorisation is sent to WorldPay. Both the retailer and the shopper are informed that the transaction is complete, and then the money is transferred from the shopper's credit card account to the retailer.
Security is a big issue when handling online payments and many companies use secure socket-layer technology in order to make things safer. There are other standards on the market; Visa clubbed together with Mastercard and leading technology providers to produce the secure electronic transaction technology in the mid-1990s, for example.
Using digital certificate technology, the system enabled credit card data to be stored using a browser plug-in. Unfortunately, the technology is quite complex to implement and real-world use has been minimal.
Taking online payments is far from a simple task, and a lot depends on your relationship with your bank. Nevertheless, get it right and you will be able to make your e-commerce operation much more efficient.
Penny pinching: charges
Retailers have traditionally been reluctant to authorise credit card transactions of very small sums because it is unprofitable for them to do so. The nature of the Internet, however, makes low-value sales desirable. For example, a company may wish to charge a fee for viewing video clips online, buying individual songs or playing games.
The value of such transactions would not exceed a few pounds and, in many cases, would cost no more than a few pence. Microtransactions are a small but growing segment of the market. WorldPay produces WorldAccount, a microtransaction system that enables customers to set an opening balance and then debits their accounts to cover such small purchases.
This was first published in January 2001