While there are many ways to do it, businesses venturing into the realm of ecommerce need to make a few key considerations when it comes to their approach for accepting credit card payments online.
Credit card payments are the lifeblood of your ecommerce business. Even though we are experiencing a rise in new and alternative forms of digital payments, the fact of the matter remains: if you’re not accepting credit card payments online, you will likely be missing a lot of sale opportunities.
On top of this, shoppers who have the option to pay with a credit card are actually likely to spend even more than they would have, even if they were already committed to completing a transaction to begin with.
In this article, we are going to focus on three different ways to accept credit card payments online: creating a merchant account, partnering with a payment service provider, and implementing a mobile card reader, as well as each method’s pros and cons.
If you want your business to build and manage its own payment processing infrastructure, you will need to create a merchant account to do so. This is a special type of account that allows your business to process various forms of digital payments (including credit cards) internally.
There are many steps that go into successfully opening a merchant account, and it’s important to understand that this can be a very time-consuming and labor-intensive process. This includes establishing a relationship with an acquirer in regions you’re located in, gathering all documentation (such as tax returns, turnover information, business license, processing history, website and data compliance, and more), and filling out an application form for the bank’s approval.
Maintaining your status as a merchant account is also something you should be prepared to invest time and resources in. If you aren’t able to adhere to a certain set of standards (like having too high of a chargeback rate or selling your products in a restricted region), you run the risk of having your account closed, which could completely halt your business from processing transactions.
While setting up and managing a merchant account is an arduous and costly process, it’s worth noting that when your business reaches a certain scale, this is actually the most efficient way to go about facilitating online payments. This is because unlike the other payment processing options you’ll find below you don’t need to pay transactional fees to a third party, which could exceed the cost of maintaining your own ecommerce system.
Businesses who want to avoid the lengthy approval process, ongoing management, and internal implementation associated with processing ecommerce transactions have the option to partner with a third party who has already developed a payment platform. These are known as independent sales organizations (ISOs) and payment service providers (PSPs).
In addition to the immediate benefit of bypassing the entire application process, ISOs and PSPs have already built mechanisms for managing elements such as accepting different types of payments (beyond simply credit cards) and currencies, preventing fraudulent transactions, reconciling transactional data easily, automated reporting, and having the proper compliance and security standards already in place. Some of these partners will even have a dedicated team in place to provide you with personalized customer and billing support.
Unless you’re an enterprise business selling massive amounts of volume every month, this will likely be the recommended approach to take. Just understand that when it comes to ISOs and PSPs, they vary when it comes to types of features you can utilize, so make sure you’re doing your due diligence and choosing a partner that best supports your business’s most immediate needs.
More niche, mobile card readers have in recent years increased in popularity, and primarily serve small businesses who sell their products and services to customers in a physical environment, but process that payment online.
Mobile card readers work by connecting to a smartphone or a tablet and giving customers the ability to simply swipe and process their credit card payment right then and there, making it easier for even the smallest businesses to accept credit card payments.
Setting up a mobile card reader is quite simple as well. Businesses simply need to purchase the device for a flat fee, and then download a mobile application to manage the payments portion. There is no assuming liability when it comes to the actual relationship with the bank – this is already done for you.
One of the biggest drawbacks with this method however, is that the fee is paid by the customer, meaning it would be cheaper for them to either pay in cash, or via an online checkout option. You also need to be physically present to manage this, which ultimately means that mobile card readers – while convenient if you’re running a small business operation – will likely make less sense as your business grows and your monthly revenue increases.
The three methods listed above are just a few ways you can enable your business to accept credit card payments online. As you can see, each method comes with its set of strengths and weaknesses, so while this article has been designed to give you a high level rundown of how these payment processing structures work, it’s highly recommended that you weigh these models out in more detail. It’s also important that you have a solid understanding of how much revenue you expect to generate, which markets you’re selling in or planning on selling in, types of currency you want to accept, and other unique business challenges you may be facing. Chances are, one of these payment processing methods will make more sense than the others.
If you have any questions about how to accept credit card payments online or any of the methods mentioned above, don’t hesitate to contact the PayMotion team.