Accepting Credit Card Payments

For many of the smaller businesses setting up shop online, finding the best way to accept payments has been a confusing and frustrating task. Brick and mortar shops can accept cash, check, credit or debit cards using the traditional EDI system and network. The good news is, if your business is interested in allowing its customers to use similar payment methods via the Internet, you may find that many of the procedures are very similar. However, because of the nature of the Internet, added steps must be taken to provide for secure transactions and authentication of both buyer and seller.

Paper or Plastic?
Last year approximately $900 billion in consumer purchases took place using credit or debit cards (from American Express, Discover, Diners Club, MasterCard and Visa). This represents about 18-20% of total purchases using traditional payment systems -- cash (not surprisingly) and checks are still the overwhelming method of payment in the US. Yet credit card volume is huge: The top five processors handled more than five trillion transactions last year.

A credit card transaction is actually a loan. If you pay back the loan on time, it is interest free. But if you don''t the rate of interest can be very steep-- although it cannot exceed 25% according to federal banking laws. Consumer protection laws (issued by the Federal Reserve Board) also limit a customer''s liability for the fraudulent use of their card to $50.00. This is partially why banks will sometimes wave this fee if you report a lost or stolen card to them immediately--this cuts down the potential loss to the bank by allowing quick deactivation of the account.

As a cyber merchant, you should understand the process by which credit is approved in order to determine if accepting credit cards on your online store makes financial sense and if so, how you can "price in" this cost to your merchandise or set a minimum for each order. After all, the trillions of transactions and the billions of dollars lent to customers are not free; they generate big revenues for banks and credit card transaction processors.