Guide to Online Payment Acceptance - Part 1

Real-Time vs. Deferred Processing

The decision of how you'll accept credit cards essentially boils down to two choices:

• real-time processing and
• deferred processing.

Real-time processing means that the card is immediately approved. With deferred processing, the order is sent to you, the merchant, who than processes the order. Let’s examine the advantages and disadvantages of both methods.

Real-Time Processing

The biggest advantage with real-time processing is that the customer sees the results immediately. If you sell something that can be delivered over the Internet within minutes, such as software or information, real-time processing will let you fill the order on the spot. This processing method also allows you to automate your business, which is critical if your time is limited and you feel that the more tasks you can automate, the better.

A key advantage of Real-Time processing is that it allows you to process your orders automatically or manually. For instance, lets say someone visits your site, and find something they like - but they decide to call in the order instead of making the purchase online. In this case, all you have to do is open your Web browser, log into your Real-Time account’s Virtual Terminal, and manually type in the customers credit card information. And if your business requires recurrent billing, like an ISP or Web Host does, then you’ll be grateful for an option that allows you to automatically charge customer accounts at certain pre-set time periods.

Real-Time processing also helps eliminate customer errors in the purchase process, as it provides your shoppers with immediate feedback on whether or not their card has been approved. If they make an error while entering their information - for instance, they type an incorrent expiration date - they'll receive immediate notice of the error, which means they can correct it immediately. Although this is not likely to happen in more than 2% of your orders, it can make a difference to your sales figures. Customers are unlikely to return to your site a few hours after thier initial purchase to re-enter all their details if it turns out that they made a mistake the first time. Real-time processing avoids this situation, as it eliminates the possiblity of user error from the pruchase process.

Secure Payment Gateways

To have your transactions processed in Real Time, your Website and Merchant Account will need to be linked via a "Secure Payment Gateway". All these companies do is provide a secure connection between your Web Site and your Merchant Processing Account provider. The largest companies of this type are not Merchant Processors, so you may need to obtain an account with a Secure Payment Gateway, and a separate Merchant Account from a compatible provider.

Some of the big name Real-Time processing gateways are AuthorizeNet, CyberCash, and VeriSign (formally Signio). If you’re interested in a Real-Time processing solution, check with the Merchant Account Provider of your choice for details. These gateway companies all charge a substantial software and/or licensing fee when you start, as well as a monthly gateway access fee of $15 to $25 per month. Typically, a "Real-Time Processing" software package will cost around $495, but you can save money if you identify Merchant Processors who own or include gateway services and Real-Time software at no additional charge.

It's only by virtue of the fact that these big players spent millions of dollars on advertising and affiliations that they now dominate the market, and unfortunately, many people now believe that their services are required for Real-Time Web transaction processing. However, there are many more smaller players that can provide these same services, so shop around.

Deferred Processing

If you don't deliver your products over the Internet, deferred processing - or Offline Sales - may be the options for you. The big advantage of deferred processing is that you can manually examine your orders (and correct them if necessary) before you ship. If you send your products to distant countries, you may find that the credit card issuer’s' network is often down. Deferred processing will allow you to call and authorize a transaction rather than declining it, which is what would happen in this situation if you used real-time processing.

Deferred processing allows you to use POS (Point Of Sale) software or terminals to handle transactions manually, over the Internet, or by Mail Order/Telephone Order (MOTO). However, a disadvantage of deferred processing is that you must securely download your orders, which requires daily attention on your behalf. It also means that, until you download your orders, they'll be stored on the server –- you must ensure that they're encrypted, so that no unauthorized parties can make sense of the information, even if they do gain access to it.

Don’t be fooled into taking the cheapest solution - hardware (a swipe terminal). You’ll be forced to enter all your transactions manually, which can be a huge drain on your time. And make sure you don’t pay more than $400 for a software solution: in most cases you can get a POS software solution for less than $200. Lastly, don’t pay for any programming or software setup services.

There are several POS software programs on the market that will meet your deferred processing needs - PC Authorize and ICVerify are among the most popular. For information and downloadable demos of these programs, visit MerchantSeek. These programs connect you to your Merchant Account just like a POS Terminal would, so unless you receive a huge volume of orders, software processing will work just fine - just make sure you verify the credit card information before you ship. If you carry out real-time processing, you can simply use the Virtual Terminal instead, and everything will be operated from your Web browser.

If your business sells merchandise by retail (storefront, trade shows, etc.) in addition to making sales over the Internet, it would be in your best interest to not only invest in a Real-Time solution for Internet and Mail/Telephone orders (or a POS software solution if you prefer to process cards manually), but to also obtain a POS swipe terminal along with a Retail (Card Present-type) Merchant Account. This will allow you to save money - by processing your retail (face-to-face) transactions through the swipe terminal you'll pay lower fees than you would if you processed all your sales as MOTO type transactions (where the card is not present and fees are higher). Note also that many POS Software products support the addition of a card reader so that you can enjoy lower Card Present transaction fees.

If you decide to use POS software to process your Internet orders, be sure to use the Electronic Commerce Indicators (within the POS software) to identify those orders that originated on the Internet. Visa and MasterCard now require that all orders accepted via the Internet must be "flagged" as such, and if you fail to indicate them appropriately, you can expect to pay a hefty fine. So be sure to read the software instruction manual on how to use Electronic Commerce Indicators, or contact the company you bought the solution from for directions.

Also, make sure you use the Address Verification type Authorization Requests for your online sales, otherwise Visa will charge you an extra .17% to 1.25% on those transactions.

Next week we look at the fee structures for transaction processing solutions, and more! See you then.