If you have a website and you don’t accept credit cards then you’re losing massive amounts of business. Even if you do accept credit cards it may be worth considering an alternative that will either offer you better rates or save you time.

Infact, if you’re within the United States of America or Canada, there are a large range of options open to you.

Unfortunately if you’re like me, and are located outside these jurisdictions life becomes a little more complicated – though by no means impossible.

Whatever your circumstances the aim of this article is to give you a quick start in accepting credit cards on the Internet.

Once you understand the basic concepts then hopefully the other articles on this site will help you decide exactly what’s right for you.

To enable you to accept credit cards online, there are three methods you can use.

They are:

Gain your own merchant account from your bank

Use a broker or intermediary to gain your own merchant account

Use a third party service

Let’s look at these three options in more detail.

The most direct route to gain a merchant account is through your local bank. Many banks will automatically send you details of their own particular service when you open a business account.

The problem with many banks is that as large, powerful institutions many are loathe to accept small businesses and startups.

For example, 12 months or more of audited accounts may be required, business plans or evidence of considerable investment capital.

Add to this the fact that many banks are still developing their e-commerce services. You see, banks offer different types of merchant accounts depending on the situation.

For example, those accounts for retail are usually considerably easier to gain than an Internet account. This is primarily because the retail “swipe card machine” (or PDQ) involves physically swiping the card then checking the signature.

On the Internet of course, the number is just typed in and you can’t check the signature so there’s a far greater risk of fraud.

Having said that, banks are slowly starting to introduce services to help internet companies, but in today’s business climate I feel certain you’d be better putting your time, energy and cash into gaining a merchant account through the second route – using an intermediary.

Intermediate companies do exactly what it sounds – they form a defense between the bank and yourself. Whilst this may at first sound like a disadvantage because there’s another body to get authorized by, the matter is quite the reverse.

Intermediary companies understand the banks and what they look for in a new client. They can “pitch” your application right and many boast enviable acceptance rates, even for non-US merchants.

The greatest tip I can give you when applying through these companies is this – minimize risk. Of applicants that do get refused many of them are refused on the grounds of high risk. That’s what these companies look for. So wherever possible, find ways to make your business appear a “safe bet” and you’ll greatly increase your chances.

I don’t mean lie – far from it – you’ll end up in far more trouble than it’s worth but…

Aim to start small, selling low priced items. Aiming to sell a few hundred $10 items per month is much less risk than aiming to sell 10,000 television sets. Think small to start off with, then expand slowly.

Prove you’re financially solvent – some companies will ask you to prove your personal net worth. They may ask about your credit card bill, mortgage and more so minimize your debt wherever possible.

Whilst I have no evidence to back me up on this point I believe that forming a limited company (so you become Pig Farmers Inc. or Swine Herders Ltd.) makes you look more professional and as result less risky. As one can form such a company over the Internet these days for a tiny amount of money I think it’s well worth it if in doubt.

You may also be asked about guarantees on your products, monthly overheads of your business, past fraud of any one of a million other questions. For every one you’re asked, think – “How can I instill more confidence and make my business look safer?”.

It’s just like your car insurance. Your rates are better if your car is nice and safe (boring, even), is kept in a garage at night and you’ve never had a crash, so think of it this way.

Even if you do get accepted, you may well find that if you appear safer, the rates you are offered will be better. If in doubt apply.

You might just get a nice surprise, and the sources we recommend allow you to apply without paying an application fee so there’s no risk to you whatsoever.

The third and final method of accepting credit cards on your website is to use a third party service.

In this case, your business itself is not granted it’s own merchant ID but rather you utilize the merchant account of another company.

Setting up an account with a third party processor is generally tremendously easy – it’s a case of filling in a simple form with your name, address etc. and you’re away. Some of these services are free to set up whilst most require a small “activation fee”.

For the new startup who have tried unsuccessfully to gain their own merchant ID, third party processing is the way to go.

As with any other method there are benefits and distinct problems with third party processors.

The first benefit is clear – easy, quick and cheap setup. Many third party processors also offer additional services, some paid for, some free.

For example, Clickbank comes with built-in affiliate software as standard.

However, now we turn to the negative side of the story. Firstly, most merchant account intermediaries deposit the money paid by your customers in 24-48 hours. This means that you receive payment swiftly which helps keep your business finances buoyant and enable you to expand your operation faster.

In contrast, third party processors on average pay every 14-28 days depending on the company in question. Some will even pay you mid-month, for the previous month’s takings – meaning you may have to wait up to 45 days for the settlement of funds. Clearly this stunts your business and can leave you open to problems.

Secondly, it’s fair to say that all merchant account providers, be they bank, intermediaries or third party processors charge fees. This may involve a set per-month fee and/or a per-transaction fee (such as 5% of the value of each purchase). Unfortunately as you might expect, those of the third party processors are generally far, far higher than those charged to businesses who possess their own merchant account.

Lastly in this argument is the fact that you are far more limited in your dealings with a third party service than your own merchant account.

What I mean by this is that you have to send your visitors to their website to make their purchase, which makes you look less professional and you generally have to use the third party processors designated order form, with their name on, though some level of customization is usually possible such as adding your company logo.

In this respect you’re simply less in control of matters. And finally, as you are using the third-party processor’s merchant account, and not your own, your customer’s credit card bill will show up the name of the third party processor you have used rather than that of your company.

In general therefore, I’d regard using third party processors as a “last resort” due to their far higher fees and less professional appearance.

So which of these three methods is right for your business? Only you can make this decision but to help you we’ve created a whole site full of articles in the hope of steering you in the right direction.

Recently, I tried to purchase a money order at the local Post Office only to be told that my credit card payment was not acceptable. The Post Office official stated that I could only use cash or a debit card – neither requirements I could satisfy at the time.

This is not an uncommon experience for me as I have frequently encountered a strong desire to assume the role of buyer only to be rebuffed by a seller who did not want to accept my form of payment. On these occasions, business could not be transacted, leading to a lose-lose situation for both seller and buyer. While I, as the buyer, could find other options eventually, the seller is left in a more immobile state – stuck in a more difficult circumstance. Indeed, the survival of a seller’s business is ultimately dependent on the buyer whose needs must be satisfied. If one of the buyer’s needs encompasses paying a certain way, it behooves the seller to be flexible and, if at all possible, accept that payment as a form of currency – as a conduit to transact business deals.

Imagine a hard-working door-to-door salesperson who appears to have secured business contracts with two different households. In this hypothetical scenario, the salesperson can only accept cash or credit cards, leading to a problem. While Household A desires to pay with a credit card, Household B does not have that capability and can only pay by check. The salesperson informs Household B that they can pay with cash, but Household B does not want to go to the trouble of obtaining cash or is low on cash. Can this salesperson potentially lose that sale? The answer is an unequivocal, “yes.”

Surprisingly, this situation happens with great frequency, especially when impulse purchases are made. ATM machines are now omnipresent in retail establishments because if there is an availability of cash, people have a tendency to spend it. However, if there is no quick access to money, individuals may opt to “just forget about it.” In other words, a buyer may be thinking, “I don’t have enough cash. I am already overextended on my credit cards. You don’t accept checks, maybe I should forget about the purchase.”

A credit-card only enterprise may be astounded by all the potential sales that are lost simply because they do not cater to the habitual check-writer. This is particularly true on the Internet. Over 75 million buyers in the United States have no credit cards so accepting checks has the potential of doubling or even tripling the customer base. Here’s another way of looking at this situation. Half of Americans do not have credit cards and half of those who have cards in their possession are “maxed out,” leaving only one-fourth of all consumers who can buy things on the Internet. As competition is fierce, it is especially poor business practice to lose potential clients – especially when it is so easy to remedy.

Companies can now easily provide a payment gateway for new and existing Internet businesses to receive check payments. The system can be simply integrated into any shopping cart, dramatically broadening the customer base. The transactions are automatic and the transfer of funds from client to business owner takes place through the Automated Clearing House (ACH).

For those businesses already accepting checks by mail, the transition to online electronic checks should be a “no-brainer.” Why compel your customers to go through the hassle of writing and mailing a check when they can simply forward that information to you more expediently? Why wait for days (slowing cash flow) when you can have more immediate access to the customer’s banking information, to more quickly process their payment and fill their order?

I do not mean to suggest that online electronic checks should take precedence over credit cards. In fact, credit cards are the preferred method of payment for many individuals. Such folks like the ease and convenience of credit cards, and appreciate the month float time. Many only pay a portion of the total credit card amount, temporarily lessening their obligation.

I merely emphasize the fact that accepting checks with credit cards simultaneously broadens your customer base, increases sales, maximizes cash flow and caters to all prospective buyers. Each payment by itself does not do the job. Combined, they are a commercial force where the total happens to be greater than the sum of the parts.

Accepting online credit card orders is a must for everyone who does business on the Internet. If you do not accept credit card orders you could lose at least 85% of your potential orders. Most online businesses report that 95% of their orders are through online order forms.

Accepting online credit card orders is easier than it appears. To accept online credit card orders, you need three basic things:

Merchant Account

Software

Internet Service Provider

Merchant Account:

A Merchant account is a special account that you have with a financial institution in order to accept credit cards. Even if you already accept credit cards for your offline transactions, that may not be enough. Credit card companies consider Internet transactions to be riskier than other standard transactions; so, not all accounts permit Internet transactions. If your current account does not allow Internet transactions, you have to contact your financial institution to correct this.

There are many brokers available who can open a Merchant account for you. Their conditions for opening an account may vary drastically, which can make it difficult for you to decide which account is best for you. Most brokers will offer to sell or lease expensive equipment to you, when they open your account. Do not be fooled; That is how they make their money. You do not need any software or equipment to open a Merchant account. . To open an account, all you should have to do is pay is processing fee, which should not be more than $100. That should be enough for you to start accepting credit cards.

To maintain your merchant account, you must pay the following monthly fees:

Discount fee – For Internet sales, this fee should be between 2.5% and 2.9%. You should be suspicious of any discount rate that is less than that.

Transaction fee – This fee should be between $0.20 and $0.30 per transaction.

Address Verification Fee (AVS) – This fee should be $0.05 per transaction. Some (very rare) financial institutions may not require this service, but it is a must for you because it helps to prevent fraud.

Statement fee – This fee is usually between $10 and $15 per month.

For example, if you sell software applications for $20 , and you sell 20 applications per month, your fees are only $25-30 per month, which is approximately 7%. So, even with a small sales volume of $400 per month a Merchant account is not expensive. We will discuss how to select the best account in one of the next issues of our newsletter.

Software:

Most brokers who open Merchant accounts offer software or hardware to process credit cards. If you want to accept credit cards over the Internet, you need a software solution, not a hardware solution. Even though a hardware solution saves you $50-$100, you will have to enter all your transactions manually. With a software solution, you will never have to enter your transactions manually.

Be aware! Some brokers offer software solutions for as high as $2,000, which is way overpriced. The software should cost about $400. Sometimes, brokers may also offer you programming or software setup services at an additional cost. Do not pay for these services. All of the software comes with technical support from the manufacturers, and the bank will give you all the information you need.

Instead of selling you a processing software, you may be offered a processing software lease at a certain price per month. The lease may seem like a good solution, but it’s not. For example, if you pay $29.95 during 3 years (sometimes 4), you will pay $1,078.20. Isn’t that too much to pay for $400 software?

You don’t have to lease or buy your own software if you decide to do real-time processing by plugging into an Internet Service Provider (ISP) that has the processing software on its server. However, you may end up spending too much on an ISP. You must calculate all of the costs and benefits carefully before making that decision.

Internet Service Provider:

Choosing an Internet Service Provider (ISP) is not easy. Some providers will provide you full service and all of the software to process your credit card orders, while others will provide only basic services. Some providers will charge $150-200 per month, or even more, while others will charge $9.95 per month.

What are the basic things that you need from an ISP? The first thing you need is a Secure Server. Many people believe that you must have a Secure Server for security and they will not place an order unless you have a Secure Server. Yet, a Secure Server is not expensive. You do not have to pay $100 a month to use a Secure Server. Many ISPs provide this server for free. In any case, you should never pay more than $10 per month for this service. The best way for you to gain access to a Secure Server is through the ISP that hosts your Web site, which is usually the least expensive; however, you may use any ISP that you want. If you have your own domain name and you want to use it as a secure server, you must buy your own certificate, which costs between $100 and $350 per year. We will discuss Secure Servers and certificates in detail in the next issue of our newsletter.

After you have your Secure Server running, you need the software to display order forms, store orders etc. You can use anything from homemade scripts to sophisticated shopping carts. The price for this kind of software ranges from $30 to $20,000, or more. The price depends on what you need. There are thousands of products available, which makes choosing the right product for your needs very difficult. When we were looking for a software to process our orders, we did not find a product that would meet our needs, so we developed our own software, and we are planning to make it available by the end of 1998.

However, you do not have to have any software to process your orders. You can easily find an ISP that will process your orders for you, but it will cost you more money. Instead of paying $20-30 per month for an excellent Web Site with a Secure Server, you may have to pay $100-200 per month. This processing service is a waste of money. For example, if you buy a software for $500 and then only pay your ISP $20 per month for Secure Server services instead of paying $100 per month for Secure Server and processing services, your initial software investment will be paid off in six month, and the software is yours. That way, if you decide to change your ISP, you will not have to invest again.

There are two methods that you can use to process credit card orders. The method you use depends on what happens when the customer presses the ‘Purchase’ button on the form. With the first method, the credit card is authorized immediately and the customer receives an immediate answer. With the second method, the information is delivered to you, so that you can process the order later. Both methods have their advantages and disadvantages; however, they are not in the scope of this article. We will discuss these topics in one of the next issues of our newsletter.

Learning the in and out’s of credit card acceptance doesn’t have to be a confusing subject.  Discount Merchant Account will provide you with the knowledge so you can make the right decision when purchasing a merchant account for your business.

No matter if you’re an Internet, retail, mail order/telephone order, wireless or non-profit merchant we can help you learn everything you need to know about accepting credit cards.  It doesn’t have to cost a fortune to accept payment by credit cards.

We recommend that you start by reading through the basics of a merchant account, and then break off from there by choosing what type of merchant account solution your business needs.