How to Choose The Best Credit Card Processor for Your Website or eCommerce Store
By Bernie Martin, SiteSell Professionals
If you have an eCommerce store, or plan to add one to your website, you need to understand the pros and cons of the various credit card processors. The fees for utilizing a credit card to get paid for products or services will vary dramatically and can seriously affect your bottom line as an online merchant.
There are 2 types of credit card processing, an actual credit card processing machine or an Internet type of credit card processing “online”.
The actual credit card machine method is typically in a store, restaurant, etc. In the US, these machines read the back of the card and transmit that data for processing. Other parts of the world use a “chip” to help stop hacking and transmit card data that way. In the US, merchants will be required to start using the “chip” type machine by October 2015. The machine method is very simple – swipe the card, insert the amount of the transaction and 3-5 seconds later the sale is completed. All of this is completed using a complexity of systems behind the scenes.
Internet credit card sales require extra “systems” to complete the transaction. The credit card info cannot be “swiped” by a machine in an Internet sale. Typically, the merchant will have some type of software to “sell” the item(s) – a Reservation System, a Shopping Cart, etc.
These systems are used to display and sell the items – just like a physical store. When the customer decides to purchase, they “add to Cart” and tell the software to “Checkout.” When this happens, a “secure encryption” system takes over – either on the shopping cart website or offsite) to collect the customer credit card data and complete the money transaction. It all happens quickly – yet requires several systems to work together!
A “Gateway” is required to read the card, determine its type, etc. and then send the info to the issuing card company – Visa, MasterCard, Discover or American Express – for the transaction to be completed. The card company OKs the sale and tells the merchant to complete it. The Merchant must “batch” their transactions and complete the transactions within 24-48 hours. The merchant’s money is “pending” until then and then deposited into the merchant’s bank account – usually within a day of “batching”.
The actual gathering of secure credit card data on the Internet is transmitted through an “encrypted” site to protect the customer data. The basic system is an https without a padlock (64 bit encryption) – very outdated; an https with a padlock (128 bit encryption); or the most secure is https with a Green Padlock (256 bit encryption) and writing in green in the browser/URL section on the top left of the computer screen. This is an “SSL” Certificate meaning it is secured. It will usually not be shown until you go to the actual credit card gathering page on a website.
The green writing and padlock are the most secure and strongly suggested for your ecommerce store. It will cost more, but the peace of mind is worth it.
Credit Card Processing – Ecommerce
Some Internet processing companies offer an “All-in-One” system for ease of setup and collections. PayPal offers this. It will usually be a set fee until a certain plateau of sales are reached and the fee may then drop. They will incorporate the gateway, banks and collections all in one package. The money is yours, but they may hold it instead of depositing it directly daily into your business bank account.
Merchant Service Providers (MSP) will act as your agent and obtain the best deal for you to collect and process credit cards – they are fee based also. They require you be credit approved first. Gateway companies are the same. If you do high volume of sales, it usually is more economical to use a gateway, MSP and your own software. Plus, they deposit your money directly into your business bank account.
Many shopping cart companies are setup to utilize well-known gateways and credit card providers – some are not and want to do all the credit card processing in-house – be careful of their fees. Good example – selling entertainment tickets online through many of those software services – they do all the processing for you but send you a check 7 days after the event!! How will you pay for the entertainer/band/etc.?
If you use your own system, the monies are deposited into your bank usually with 24-48 hours after each sale is completed and batched.
Understanding fees is like trying to understand your typical utility/phone bill. If you are arranging your own credit card processing with a gateway and an MSP, you have much more control over your fees. Each type of credit card costs the merchant certain minimums – a debit card is the cheapest, a basic visa credit card is next, a travel & entertainment card or airline card is most expensive to the merchant. A foreign (to your country) transaction costs more, telephone sale versus a swiped or software collected sale is higher, etc. etc.
The best fee structure to arrange with an MSP is a “Pass Thru Interchange Rate”. The card issuing companies change their fee structures twice a year. Using this method, only those fees can be changed on your monthly statements. Whatever you negotiate with the Merchant Services Provider is a contracted fee for usually at least 3 years.
You will want it in a 4 Tier Method – Debit Cards, Basic Credit, Entertainment Cards and Cards not present type sales. Many businesses forget to negotiate for the basic Debit Card Fee and are paying way too much for that card to be processed.
Verify your Fees
Look at your monthly statement and find the maximum amount of Sales and Returns/Refunded Dollars. Look for the monthly fee that you are charged. If you accept American Express, that will be a separate line item to find and add to your other fees (Visa/MasterCard). Once you have both sets of numbers, divide your total fees by the total sales/refunds. Example: $360 in fees divided by $15,450 in total monthly sales/refunds = 2.33%
That is your “average” cost per credit card to accept credit cards. It will change each month depending on the types of cards you get – Debit, basic Visa, Travel & Entertainment, foreign, etc. – but it will become a benchmark for you. If it changes dramatically, look for a reason – yearly admin fee, etc.
A good rate would be in the 2% to 2.5% range. If you do a lot of foreign or “card not present” telephone sales, the fees will be higher. Verifying your fees helps you keep track of what it costs and makes sure nothing changes for you.
SiteSell Professionals Recommendations
Our recommendation is to use good quality, freely available services like PayPal for payment processing. If you have just a handful or so of products, also use their cart, or similar popular carts like Clickbank, Ejunkie, etc. If you have more products or need robust add-ins (like a wish list, upsell capabilities or similar), then research more robust shopping carts but still use PayPal or similarly available payment processors that work with the chosen cart.
Don’t get into using a Gateway or higher-level Merchant Service Providers until you have enough sales to justify the cost of the upgraded services and what is usually a long-term commitment to them.
Do you need help with your website or eCommerce store? The SiteSell Professionals can build a complete site for you, or help you with specific tasks, like adding a store or shopping cart.