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Getting paid: accepting credit cards and other on-line payment systems

Because business to consumer (B2C) e-commerce got started in America, the credit card has become the payment method of choice for on-line transactions. This is hardly surprising. Just about everyone over the age of five has a credit card in America. Many people have dozens.

Credit Cards

If you are setting up an on-line shop and expect people to buy from you, you will need to be able to accept credit card payments. If you are already selling off line and accept credit card payments, this is no big deal. Simply talk to your merchant banker about using the credit card for on-line transactions. Although merchant bankers used to squirm uncomfortably when asked about accepting credit card payments over the Internet, most bankers accept it now. Nevertheless, expect transaction fees and commissions to be somewhat higher than for face-to-face transactions.

If you do not have a merchant account for accepting payments, then you need to get one. The first thing to do is to ask your banker if they can provide it. If not, ask for recommendations. If this gets you nowhere, check with other banks - and think about doing business with more helpful bankers in the future.

Normally a merchant bank will charge a percentage of the purchase cost for each credit card transaction. Some also charge a per transaction fee. You will need to check on these costs before setting your own pricing. In addition, some banks may charge a set-up or maintenance fee - especially if they provide special equipment or software for maintaining your account.

If you can't set up a merchant account at your bank, there are a number of on-line payment services, which handle credit card transactions for you. These include Paypal, ccnow, Billpoint, Worldpay and others.

Fraud, charge-backs and other risks

Although it is mostly consumers who worry about the dangers of using credit cards on-line, it is the merchants who should be sweating! If a consumer is for any reason unhappy with her purchase, she can almost always contact her bank and demand her money back. The bank then does a charge-back - in other words, they demand the payment - and often an additional fine - from the merchant. That means you are out product, payment and possibly a fine!

To make matters worse, on-line credit card fraud is becoming more and more common. Thieves use stolen or fake credit card numbers (there are software tools that generate apparently good credit card numbers); purchase products and then disappear. If the credit card number was stolen, the rightful owner can claim a charge-back and - once again - it is the merchant who is the victim.

Before signing any merchant account agreement with your bank, be sure to discuss the risks, and how to reduce them, with your bank manager. You should also enquire about insurance against credit card fraud, which is becoming available.

Off-line credit card transactions

Because a lot of consumers (recent polls show about 50% of Americans and Europeans) refuse to submit credit card data on-line, you should offer alternatives. A downloadable form that your customers can fill out with credit card information and then fax or post to you is a simple solution. You might also offer the possibility to telephone credit card information if you have sufficient staff.

Other payment options

Some people haven't got credit cards (in some countries, credit card ownership is very low), some people don't trust credit cards on-line and some people just like to pay via other methods. Hence, you should offer as many alternative payment methods as you can.

Cheques or cash via the post - Allow customers to send you cheques or cash (but be sure to indicate you cannot accept liability for cash lost in the post). Be aware that cheques in other currencies are often expensive to cash in your own currency. Either accept only cheques from your own country or charge a foreign currency fee.

Collection centres - In Japan, customers can have their Internet purchase delivered to their local Seven Eleven shop where they can pay for the purchase in cash and collect it. Since Seven Elevens are everywhere in Japan and credit card usage is low - this is a very effective payment and distribution system.

Cash on delivery - In India and other developing countries, where credit card ownership and cost of labour are both low, cash on delivery is popular. When a local customer orders something via the web, a motorcyclist is dispatched with the goods. He delivers the product and collects payment - often within hours of the order placement.

Electronic Cash - Although people have been talking about electronic cash since the early days of Internet commerce, no widely accepted form of electronic cash has been developed. Nevertheless, there are some forms of electronic cash about and - who knows - maybe one day someone will develop universally accepted electronic cash

Mobile Telephone - With the development of mobile e-commerce (ie. e-commerce via mobile telephones and other portable devices), it is often possible to bill purchases via the customer's mobile telephone service provider. While this is most obviously useful if you are selling via mobile e-commerce, there is no reason why you could not adopt such a system for your non-mobile e-shop, where customers use their mobile phones to complete their purchases.

And??? - there are potentially many other ways to allow customers to pay you. Think about how other kinds of transactions are done in your culture. Then think about how they might be adapted to you e-business