You can read our explanation of the options for building an on-line shop in our Website Components section by clicking here.

Once visitors have selected the contents of their basket & passed through the checkout pages of the on-line shop, there are several options available for processing payments for orders received from your web site. They fall into two categories.

  1. Automated On-Line Payment Processing (Credit Cards)
  2. Off-Line Payment Processing

Most e-commerce websites will offer the customer more than one method of paying but may indicate their preferred method. Each method will have different set up costs, fees, administrative duties and risks associated with them and so the best one will be specific to each business.

1. Automated Online Payment Processing (Credit Cards)

Automated online payment processing of credit cards can save the customer and the merchant time and make for a smoother transaction process.

There are three main options:-

Use a Payment Bureau

A Payment Bureau retrieves payment on behalf of the merchant and then deposits the money into their regular Business Account. Payment Bureau's are essentially a 'one-stop' shop and offer everything the merchant requires in one place.

Set up fees, annual charges and transaction charges vary, so pays to shop around.

Advantages include;
  • The merchant uses the Payment Bureau's Internet Merchant account
    (This is very convenient where the merchant is a start up and is unable to supply an account history.)
  • Benefits from the use of reassuring brands (e.g. World Pay, PayPal)

The disadvantages include;
  • More expensive transaction fees than using own Internet Merchant Account (see below) (debit cards circa 3% and credit cards circa 8%)
  • The Payment Bureau may hold funds for up to a month before release.

Use an Acquiring Bank and a Payment Service Provider PSP

This approach requires the merchant to obtain Internet Merchant Account from an Acquiring Bank and then integrate their website with a Payment Service Provider (Gateway), who will transmit card details from the merchants website to the Acquiring Bank. The Acquiring Bank deposits the money into the merchant's regular Business Account.

The Acquiring Bank will carry out thorough credit checks. Typical charges for an Internet Merchant Account might be a set up fee of £200.00 plus a monthly fee of £25.00. It pays to shop around. The more transactions made, the less each transaction will cost.

UK Acquiring Banks include:

  • Santander
  • Barclaycard Merchant Services
  • HSBCi
  • Lloyds TSB cardnet
  • Royal Bank of Scotland & NatWest Bank

The Payment Service Provider collects card details over the Internet, passes them to the Acquiring Bank, receives the Approval or Disapproval notice and then conveys this back to the website. The Payment Service Provider acts like an online PDQ machine.

Protx are one such Payment Service Provider and are a Lloyds TSB Cardnet partner. They have a transaction fee of £20 per month for under 1000 transactions per month.

The money from the transaction is deposited into your Bank account in 2 to 3 working days. Refunds and Voids can be administered through an online account control panel.

The advantages include;
  • Debit or credit card payments are paid directly into the merchant account within three or four days of the transaction.

The disadvantages include;
  • The organisation needs its own Internet Merchant account

Shopping Portals

Some websites allow merchants to develop shop fronts within a larger website. An example is eBay, which some companies use as an alternative or addition to developing their own website.

Advantages include:

  • low entry cost
  • the convenience of simple shop building templates
  • traffic generated through the shopping portals marketing and perceived competitive pricing.

The disadvantages include:
  • shop building template limitations
  • perceived compromising of brand/image
  • relatively high transaction charges

Merchant's should acquaint themselves with the fraud protection and chargeback policies of the various Payment Processing Companies and Banks.

2. Off-Line Payment Processing

Some merchants prefer to process payments off-line. A merchant may already have a cost effective process in place which they use to process payments that do not originate on the web. Or perhaps the product is a complex one and customers may sometimes order the wrong one. A merchant can confirm the details of the order with the customer and avoid refund expenses if there has been a mistake.

The Off-Line Payment Processing Cycle

  1. An e-mail containing the order and contact details are sent to the merchant. It will also include the customer's preferred payment method. The merchant might typically offer the following options.
    • Cheque
    • BACS
    • Direct Debit
    • Postal Orders
    • Credit/Debit Card
  2. The relevant information for any of these methods may be obtained by
    • Telephone
    • Fax
    • Post
    • Secure Server - credit/debit card details could be obtained via a page on a secure area of the merchant's website. - Customers enter their card details into a form on a secure page and which are then stored on the server. The merchant can access these details using a secure password and then process them as if they were given over the telephone.

      Important Notes: There is no "live" authorization of card details so incorrect details will still appear to have been accepted. Contact (by telephone) will then be necessary.

      Credit Card details MUST be downloaded as soon as possible after the order has been placed.

      The merchant then uses their ordinary merchant account, to process the credit card payment off-line. Some bank acquiring services disapprove of merchants using an offline merchant number for Internet transactions so the merchant may be in breach of their acquiring bank's terms and conditions.

      Processing payments like this is described as a Customer Not Present (CNP) system.
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