e-Commerce Payments Using Credit Card Processing Gateways

Services that facilitate purchases involving credit cards, by linking credit card transaction information and between the buyer, the merchant, the credit card company and the bank are called payment gateways. Payment gateways allow a credit card holder to buy items in seconds. For merchants, there are many advantages in accepting credit cards. There are no geographical boundaries, as long as the credit card is able to be validated by the payment gateway. The transaction is also done in real-time, so the buyer will instantly know if the credit card transaction was accepted or not. For the merchant, payment is transferred to his bank account automatically. Some of the most popular payment gateways are Authorize.net, USAepay, 2checkout and PayPal's Payflow.

Let's take a quick look at the most popular credit card gateways. Click the icons below:

Rates and fees

A Merchant Account has a variety of fees, some monthly, others charged based on transactions. Some fees vary depending on card type and the circumstances of the transaction. Here is an overview and some definitions:

The discount rate is made up of a number of different fees merchants are required to pay for accepting credit and debit cards.

3-Tier Pricing is the most common and simplest pricing method for most merchants. In 3-Tier Pricing, transactions fall into one of three groups, or tiers, and are assigned a rate based that tier.

The Qualified Rate is the percentage you will be charged whenever you accept a "regular" consumer credit card and process it in the "standard" manner. This is the lowest rate you can pay to accept a credit card. This is the rate usually quoted when you compare pricing. Your qualified rate is based on the way you will be accepting a majority of their credit cards.

The Mid-qualified Rate, also known as the partially qualified rate, is the percent you'll be charged whenever you accept a credit card that does't qualify for the qualified rate. This may happen when:

• A credit card is keyed into a terminal instead of being swiped (doesn't usually apply to e-commerce)
• Certain kinds of credit card are used – rewards cards, business/corporate cards

The mid-qualified rate is higher than the qualified rate. "Rewards cards" can be used in as many as 40% of transactions, so it's important that you understand the financial impact of this fee. With Authorize.net, for example, the qualified rate is 2.19% and the mid qualified surcharge is 0.70%, so your effective rate is 2.89%.

The Non-qualified Rate is usually the highest percent you will be charged to accept a credit card. This rate may apply when:

• A consumer credit card is keyed into a credit card terminal instead of being swiped AND address verification is not performed (again, doesn't usually apply to e-commerce)
• Certain kinds of credit cards are used, like corporate cards, and all required fields are not entered
• You don't settle your daily batch within the allotted time frame, usually 48 hours from the time of authorization.

A non-qualified rate can be much higher than a qualified rate.With Authorize.net, for example, the qualified rate is 2.19% and the non-qualified surcharge is 1.20%, so your effective rate is 3.39%.

The Authorization Fee is charged each time a transaction is submitted to be authorized. The fee applies whether or not the request is approved. There is at least one transaction fee each time a purchase is made. If a submission is declined, then resubmitted with another card or a correction, for example, there could be two authorization fees.

The Statement Fee is a monthly fee associated with the monthly statement you receive at the end of each monthly processing cycle. This statement shows how much processing was done by the merchant during the month and what fees were incurred as a result. Basically, this is a way for the credit card company to make more money on you for doing something that they obviously have to do anyway.

The Monthly Minimum Fee is the way the credit card company mase sure you have to pay at least a minimum amount each month to create minimal profits. If your fees do not equal or exceed the monthly minimum, they will be increased up to the monthly minimum. Just about every provider charges a monthly minimum.

A Batch Fee can be charged whenever you "settle" your charges – usually on a daily basis. Settling is when you send your completed transactions to the bank for payment. Some providers perform this automatically. If you don't settle every 24 hours, you may be charged the non-qualified rate.

An Customer Service Fee, is another non-sense fee charged by some providers to pay for their cost of providing you with customer service.

An Annual Fee can be charged if the provider feels they are not already making enough money on the other fees.

The Early Termination Fee is charged by some providers if you end your contract ealry. Contract terms are usually 1–3 years, but make sure you are not getting trapped into a more onerous term. Some providers will charge you all statement fees and monthly minimums remaining when you terminate the contract. Some providers may even assess a "lost profit" fee based on an assumption of profits they concluded they would have earned during the full term of the contract.

The chargeback is your biggest risk. This isn't a refund, which is simply when you decide to give a customer their money back. In the Visa and Mastercard rules, your processing bank is 100% responsible for all the transactions that you perform. This can leave them open to huge losses if you generate many chargebacks. The bank passes this cost on to you, but if you are fraudulent or simply does not have the money, the bank has to pay all the costs to compensate the cardholder. Risk of chargebacks is the biggest consideration during the contract underwriting process.

If a merchant encounters a chargeback they may be assessed a Chargeback Fee. A potential chargeback is presented by the customer's bank to your bank. A reason is supplied based on the customer's complaint. The most common reason is that the customer doesn't recognize the transaction. Usually, these chargebacks are corrected when the your bank provides more details about the transaction. Some providers charge a fee – known as a Retrieval Request Fee – to do this. A chargeback can also be caused by the customer claiming a dispute.

Both Visa and Mastercard require you to not exceed a 1% chargeback rate. If the percentage goes that, you could be fined $5000 – $25,000.

In summary, the disadvantages in accepting credit cards are higher transactional costs and the need to provide security measures. On the other hand, the advantages are the convenience it gives to online shoppers and faster processing of transactions.

PayPal

PayPal is popular, convenient and flexible when it comes to offering payment options to your customers. The biggest disadvantage to PayPal is that it does not offer a seamless checkout experience – the customer bounces betwen the merchant site and PayPal's site.

Google Checkout

If you are an AdWords advertiser, a Google Checkout badge will appear with your advertisement, highlighting your ad among the others. For some, this badge is sufficient reason to offer Google Checkout, at least as an option. Fees are relatively low, but there is no live support.

Credit Cards

The advantages of accepting credit cards are the convenience it gives to online shoppers and faster processing of transactions. The disadvantages in accepting credit cards are higher transactional costs and the need to provide security measures.