The do's and don'ts of accepting payments over the internet

Zamir Cajee, UKWebCo.com

Photo of Zamir Cajee The fundamental basis of ecommerce is the ability to securely transfer money immediately and effortlessly online. Zamir Cajee, director of UKWebCo.com, compares the different methods for moving money around electronically.

The accepted medium for internet transactions is generally credit and debit card. Other forms of this medium have attempted to act as a third party, but at some point they still required an account to be topped up using a credit or debit card.

Offline payments can be used with some ecommerce sites but by their very nature cannot be considered to be truly e-commerce. True ecommerce requires no real manual element other than in the delivery of a physical item and the minimal administration of the site.

Despite standard preconceptions, true e-commerce provides more security than the physical or telephone electronic payment alternatives. Regardless of which payment mechanism you use, the card details are entered into a computer system and transmitted along telephone lines for approval.

The difference with true ecommerce websites is that you remove the human element and enter the card details directly. Therefore the online retailer does not even see your details.

Providing your credit card details directly to an unknown retailer has inherent risks on or offline. Many online retailers still capture card details directly themselves and then enter these details manually into a physical terminal.

The concern with this is that even if the details are encrypted and transmitted securely from the customer to the retailer, the retailer still has to secure their computer, their premises and their employees.This all requires additional effort and cost, while increasing risk.

True ecommerce can be achieved quickly and cost-effectively with an electronic transaction service. Most of the high street banks have established electronic transaction services that enable online retailers to protect their consumers from these risks.

Electronic transaction services integrate with an online retailer's website. When a customer adds products to their basket and proceeds to the checkout, they are taken securely to the bank's website.

Their credit/debit card details are then entered into the bank's system and processed. Once this is complete the customer is handed back to the online retailer's website. The process is seamless and secure. The customer is aware of the hand-over because it is explained on the payments page, which is branded by the bank.

Most importantly banks are required to carry out due diligence on retailers that apply for an online merchant account. This includes background checks on directors, guarantees and often a site visit.The bank also stipulates security requirements, including minimum levels on encryption.

Internet merchant account (e.g. HSBC or Streamline)

These enable you to receive payments with short settlement times (e.g. 3-5 days).The transaction fee that you will have to pay will vary according to the agreement with the bank you apply with. There will typically be a setup fee, monthly charge and transaction fee for this facility.

In order to use this facility, you will need to apply for an internet merchant account with a bank. Even if you already have a merchant account, you will need a separate internet merchant account for online transactions.

There will be an application period. You do not have to apply with the same company with whom you bank. You may need to have been trading for a required length of time to qualify for an internet merchant account. Some banks providing internet merchant accounts will require you to use a third party company to process payments (payment service provider). Others will provide this facility for you.

Payment service providers (e.g. Secure Trading or Protx)

As mentioned above, not all banks process the payments and therefore require that you use a third party company known as a payment service provider (PSP). (Figure 1)

Typically a PSP will charge a setup fee, monthly charge and transaction fee for the facility. Generally you will also still need to pay your bank a setup fee, monthly charge and transaction fee for the online merchant account. The total cost of the PSP and internet merchant account is generally competitive compared with a bank providing you with the complete solution (for more information on PSPs see www.securetrading.co.uk and www.protx.com).

There are also electronic transaction services available to enable users who do not have an internet merchant account to accept payments online.

Payment bureau (e.g.WorldDirect or NetBanx)

These provide both the payment processing service and the internet merchant account you need to start trading online. There are generally setup fees and annual charges, along with a cost per transaction.

The application process is generally shorter and less involved than for the internet merchant account. However you may need to wait up to four weeks before settlement is made to your account (for more information see www.worldpay.co.uk and www.netbanx.com).

Person to person (e.g. Paypal or Nochex)

This type of account enables you to accept credit card transactions with a minimal application process. However depending on the level of your account your users may have a limit on how much they can spend on your website.

There are generally no setup costs or annual charges associated with these payment systems as charges are made per transaction, although there are different levels of account incurring different costs (for more information see www.paypal.co.uk and www.nochex.com).

Once a suitable payment mechanism is selected there are a number of functions that can be included within your site. Online credit card transactions do not have to flow directly into your account. In order to enable you to confirm stock availability most electronic transaction services include a 'ship' option.

A transaction confirms the money is available in the customer's account. This is not immediately removed; the final portion of the transaction is held until the online retailer confirms that the product is available and has been dispatched. At this point the retailer simply ticks the 'ship' option and the funds are actually transferred to their account.

It is important to understand whether you are still liable for the transaction charge from the payment service provider if you credit a client.

Another facility offered by many electronic transaction services is a recurring billing option. This enables you to charge a credit or debit card on a fixed recurring basis e.g. every two weeks. You only have to take the credit card details when setting up the payment and after that the agreed amount is automatically withdrawn.

Pre-authorization can be used to check available credit on a particular account. This is sometimes used by online retailers to run a mini-credit check on customers seeking to purchase a mobile phone online or when leasing an item. The pre-authorization confirms that there are available funds within a customer's account.

Electronic commerce is set to become an increasingly common method of paying for goods and services within the business-to-consumer market. It is essential retailers understand the functionality that is available and how they can protect their customers. You may find the Department of Trade and Industry website helpful (www.electronic-payments.co.uk).

For further information please contact Zamir Cajee on email: zcajee@ukwebco.com