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Banking on e-payment

Securing online payments for customers is central to the expansion of e-commerce. Patrick Hook suggests how to ensure your bank offers the right services for online trading

The Internet's global reach brings with it a degree of competition and choice never before available to customers of goods and services. Available 24 hours a day, seven days a week, there is a beguiling immediacy about the service that many find attractive. Whatever the product or the requirement, the hard sell will have you believe that it is but a mouse click away.

Yet, the reality of e-commerce relies heavily on the willingness of banks to allow electronic payment. Without this fundamentally crucial element, the concept of Internet shopping is dead in the water.

The value of online retail trade in Western Europe is, at 3.5bn euros, only 0.2% of the total market. However a huge increase in the amount of Internet business is forecast over the next few years. Last year saw a doubling in the value of e-commerce in the EU and a further 150% increase is forecast for this year.

Despite this, a recent survey by the Giga Information Group showed there are real concerns felt by large numbers of organisations about the safety of online business transactions, including payments by credit and debit cards and protection in the event of non-payment/non-delivery.

This and other research may help to explain the comparatively low take-up rate of e-commerce by companies. According to figures published last year by the Forrester Research in the US, about 77% of companies with 500 or more staff havea Web site, yet only a verysmall percentage are able to conduct e-commerce. Of those that are, 85% are restricted to trading in their own currency, effectivelycreating barriers to international trade.

Apart from the security concern about payment systems, there has been little willingness by the major banks, here or abroad, to provide the infrastructure necessary to allow e-payments to be handled quickly and efficiently. The means to handle multi-currency trading or the willingness to tackle the issue of credit and debit card fraud have been still less available.

"As part of our normal routine," says Howard Elsie, marketing manager for Cambridge-based Netbanx, an organisation offering e-payment solutions, "we take the postcode of the cardholder and check this against the billing address. It is something that American banks insist upon as an additional check against fraud but for some reason is not done in the UK."

UK banks' response

To be fair, the situation is rapidly changing for the better. All the major UK high-street banks have begun to offer businesses a quick and simple route to e-commerce.

Earlier this year Barclays launched its enable service for small and medium sized firms which, it claims, will help people to begin trading online within days, in contrast to the traditional wait of between six to eight weeks. NatWest has also recently entered the fray with a joint venture agreement designed to allow small businesses to start trading online with the minimum of fuss. In both cases, the banks have allied themselves with commercial organisations which are prepared to take the financial risks of dealing with new and comparatively small companies.

"Generally speaking," says Elsie, "the banks have been reluctant to give merchant status to any company that has not been trading for two years because of the high exposure risk. Allowing us to accept that liability has provided them with an opportunity to expand their business customer base without risk and increase the number of online traders."

The role played by the new electronic paymentsolution providers has been significant in promoting Internet shopping. Faced with the prospect of a two-year wait before gaining merchant status, many of the recent clutch of dotcom companies have been obliged to seek the help of companies like Netbanx and WorldPay. Authorised by banks in the UK, Europe, the US and elsewhere to receive details of credit/debit cards, these organisations are able to clear Internet payments on behalf of their trader clients.

"What happens is this," says Elsie. "A customer will electronically visit the Web site of a trader and order goods in the normal way. As soon as details of the credit or debit card become due, the browser automatically changes direction and the credit card data comes to us through a secure and encrypted link. Through our agreements with the banks, we are then able to check that the payment will be authorised and within seconds inform the customer that he may proceed with his purchase."

Elsie says, "As far as the customer is concerned,the whole process is transparent and he will think that he is still connected to the original trader."

Online clearance of debit or credit cards means that the data is not held by the trader. In turn, this means there is less chance of the data being stolen. So while the high-street banks may have been slow to provide support for Internet shopping and may still have some way to go in helping to prevent fraud, they are, at least, now making things a lot easier.

What e-businesses should ask e-banks

  • I have been trading for less than two years. Do you have the systems to allow me to trade with customers over the Internet?

  • Can I deal online with overseas customers and accept payment in other currencies?

  • Organisations like WorldPay will allow me to accept very low credit and debit card payments. What is the minimum payment my customer will be able to make over the Internet?

  • Are your credit and debit card clearance systems available online, 24 hours a day, seven days a week?

  • If not, how long does it typically take to clear an e-payment?

  • What am I supposed to say to overseas customers who want to trade at a time when UK banks are closed?

  • It normally takes about six weeks to grant merchant status to a new trader. Most banks have now reduced that to about 48 hours. How long do you take?

  • American banks insist on the postcode of the customer to help prevent fraud. What steps do you take to ensure that the purchase is being made by the authorised cardholder?

  • What is the charge you make for each transaction?

  • Does it make economic sense for me to deal through an e-payment solution provider like Netbanx or WorldPay?

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