By: Matt Mickiewicz and Jim Conley

August 22nd, 2001

Reader Rating: 8

Alternative Payment Acceptance Services

Last week [1] we discussed credit card processing without a merchant account. While credit cards are the preferred method for products and service purchase online, you’ll find that not everyone is completely comfortable with credit card purchasing - and some customers don’t own a credit card at all. So offering other methods for payment is an absolute must if you want to target all types of customers. Providing payment options for your shoppers also improves their trust in your company, and increases your credibility in the online space.

Let's take a look at some of the other payment acceptance services you can offer:

Online Checks & Debit Card Processing

Online checks (commonly called eChecks) are the equivalent of standard paper checks. The online equivalent doesn't require you to have a signed check from the recipient. This is perfectly legal. All you need is the information that appears on the customer's real-world checks.

There are two ways to accept online checks. The do-it-yourself method requires that you buy a program to print the checks. You then deposit them into the bank like any normal check. The big software programs in this category is Vcheck [2], and Intell-A-Check [3]. Demand for this type of do-it-yourself online check processing is limited, as merchants have to wait several days to make sure that the check clears before they ship the order - another fraud prevention method. The better way to accept online checks is through a transaction service.

A transaction service verifies that the information on the online check is complete, and will even guarantee the check for an additional fee. What this means is that the transaction service will reimburse you if the check turns out to be invalid (and certain conditions have been met). These transaction companies charge a setup fee in addition to a per-check fee, and/or a percentage. One important thing to note is that most transaction companies only process US checks.

These programs allow you to accept checks by telephone and fax, as well as online. All you have to do is take the necessary check information and manually enter it into the program, then print out the check and deposit it at your local bank. Most check programs require you to buy special check paper on whcih to print your checks, and it's relatively cheap. In most cases you should be ok printing checks on your Inkjet or laser printer without requiring any special, expensive, magnetic-type ink, as many banks now use optical devices to process checks rather than magnetic ones. However, before investing in any check acceptance software, contact your local bank and make sure they will be able to accept the checks that you print off.

Another thing to consider is that some of the Gateway companies' Virtual Terminals can accept check transactions. The ones that do this also run a check verification against a national database of bad check writers, to reduce the incidence of returned checks. The better services will even re-submit returned checks automatically. If you use an online check transaction service, make sure that it includes the facility to verify the checks in real time. There's not much to processing a check online, so don’t pay high transaction fees, and avoid paying a discount (percentage) rate on check transactions, unless they're guaranteed! Also make sure you're informed about fund holds on check transactions, so you know when your funds will be available.

Here are a few more check resources you should consider:

• CheckMAN [4]
• Checks by Fax [5]
• CheckMatic [6]
• XpressCheX [7]

Debit card processing is almost exactly like processing a credit card, except that the order amount is deducted from the customer's checking account. For more details, including pricing information, contact a Merchant Account Provider.

Digital Cash & Micropayments

My recommendation is to stay away from these services for now: they still haven't really caught on. However we have put them in this guide due to the enormous amount of hype that surrounds them, and because in time they'll become a viable method of accepting payment online.

The concept of Digital Cash systems is that a person has a digital wallet, which they fill up using their credit card. They can then spend that money either via a digital wallet program that runs on their computer, or via a special PIN number. The future of these systems is in micro-transactions (Micropayments), where a user might be charged 5 or 10 cents to read an article or access a Webpage. At the present time charging people a few pennies to view content is impractical, but hopefully Digital Cash will solve this problem within a few years. Another downside to Digital Cash is that only a small number of merchants actually accept these payments - so digital cash acceptance is not even close to being as common as credit card acceptance.

At the moment, some of the biggest Digital Cash service companies are:

• RocketCash [8]
• InternetCash [9]
• Echarge [10]

Micropayments have been around for quite some time, but they aren’t widely used by online merchants. This has caused several micropayment service companies to close up or halt further marketing of their services until the demand increases. As previously discussed, micropayments are particularly good for sites that offer online products (documents, music files, etc.) whose prices range from a few cents each, to a maximum of around $10. Micropayment solutions work in the same way as typical credit card acceptance, except that the amount taken per transaction is much smaller, so the merchant keeps a larger portion of the profit.

If a Micropayment service is what your company needs, check out these sites:

• eTelCharge [11] - Adds charges to your phone bill
• iPin [12] - Puts charges on your ISP (Internet Service Provider) bill
• microCreditCard [13]
• Cardis [14] - Click on "The Ultimus Solution" once you reach their homepage

Escrow Services

Escrow services act as middleman for a payment transaction. They ensure that the buyer is happy with the product they've received, and that the seller gets paid accordingly. This solution provides the security and trust that are essential for high ticket items (e.g. domain names, company buy-outs, etc.) and many auction Websites.

Here's a step-by-step explanation of how Escrow services work:

Step 1: The Buyer pays the Escrow service for the order with a credit card, money order, check (business, personal, certified), wire transfer, or direct deposit.

Step 2: Once the Escrow service receives the Buyer's payment, they notify the Seller to go ahead and ship the merchandise to the Buyer.

Step 3: After the Buyer receives the merchandise, he/she then let the Escrow service know that they are happy with the purchase.

Step 4: The Escrow service then pays the Seller by either check or wire transfer into their bank account.

If the Buyer is not satisfied with the merchandise, he/she can notify the Escrow service that the item(s) has been returned to the Seller. Once the Seller receives the returned merchandise, they are given a period of time (usually about a week) to inspect the returned item(s). The inspection period allows the Seller time to ensure the merchandise was returned in the same condition in which it was shipped. After this inspection, the Escrow service will refund the Buyer the amount paid, less the Escrow service fee (usually around $5 or so).

If you’re interested in Escrow services, check out these companies:

• Escrow.com [15]
• Escrow.ca [16]
• i-Escrow, Inc. [17]

More Information

The search to find the Merchant Account Provider that best suits your business needs can be a long and tedious process. One service that practically does the searching for you is MerchantSeek [18], who provide a free service that allows you to search for a Merchant Account Provider that suits your needs and budget. The site also contains some very detailed and informative content on payment acceptance, including a lot of what we've discussed through this series, and more. The service can be a time- and money-saver, and is certainly worth a look.

Special thanks to Robb Hanisee of ECHO Inc. [19] for his assistance in writing this guide.

[1] http://ecommercebase.com/article/500
[2] http://softwaresolutions.net/vcheck/
[3] http://www.icheck.com/productover.html
[4] http://www.checkman.com
[5] http://www.checksbyfax.com
[6] http://www.checkmatic.com
[7] http://www.xpresschex.com
[8] http://www.rocketcash.com
[9] http://www.internetcash.com
[10] http://www.echarge.com
[11] http://www.etelcharge.com
[12] http://www.ipin.com
[13] http://www.microcreditcard.com
[14] http://www.cardis.com
[15] http://www.escrow.com
[16] http://www.escrow.ca
[17] http://www.i-escrow.com
[18] http://www.merchantseek.com
[19] http://www.echo-inc.com