Small business success in e-commerce is a delicate balance of technology, product, pricing, marketing and the all-important question: Which payment processing service should you use for your Web site?
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To help you make the best choice in selecting a payment processing service, I talked to an industry expert, e-commerce processing pioneers and threw in a bit of my own wisdom and experience from running an e-commerce site. To help you out, here are some questions to ask:
Do You Understand the Contract?
Selecting a payment processing service is akin to buying a car or any major purchase that has your life and livelihood riding on it. A wrong decision can lose you sales, cost you unnecessary fees and mire you in non-responsive customer service. Sign the wrong contract and your best intentions can lead to a detour full of frustrating distractions as you manage your service provider.
Therefore, plain and simple: Read the fine print.
"Don't just believe what the agent tells you," said Tina Brandon, a payment processing veteran with more than 15 years of industry experience. "If it's 10 pages of small print, read the contract. There are going to be all kinds of fees and stipulations and some are really skewed against the merchant."
Contracts typically cover a variety of scenarios involved in an e-commerce relationship. PayPal's contract, for instance, covers transaction fees, discount rates, monthly service fees, terms for payments, fraud management, charge back management, and your obligations as a merchant.
While PayPal's Corporate PaymentPro accounts don't penalize merchants for canceling their contracts, other payment providers may bury early cancellations fees deep in the long contract.
Will Customer Service Live up to Its Promise?
Accepting money online isn't as simple and streamlined as it may sound. You'll encounter criminals trying to use stolen cards and even customers who say they never received the product you know you sent them.
Your provider's customer service department will be your first line of action when resolving these potential costly issues. So look for companies that answer their phones, respond to e-mails, and are available 24 hours, seven days a week to resolve your issues.
You can vet customer service using Google to read customer responses, blogs, and complaints. Even call other merchants and ask them directly about their experience with the payment-processing provider.
Does the Payment Processing System Truly Support Your Business Model?
Selecting the right payment processing system is a matter of understanding your business model. Start by asking yourself:
- What are you selling? Sellers of low-cost digital items such as downloadable music and virtual greeting cards — one of the fastest growth e-commerce segments -- should avoid payment processing services that charge a monthly use-fee, a per-transaction fee and a discount rate. After a $30 a month fee, a 25-cent per transaction fee and a 3.5 percent discount rate, your one-dollar sale looks like 70 cents, or less.
- Who are you selling it to? Younger people may be more inclined to pay using their mobile phone, allowing the buyer who might not have a credit card to purchase from you. Instead of whipping out a credit card, buyers use their cell phones and have the purchase billed to their cell phone bill, according to Tina Brandon, vice president of Dallas, Texas-based Best Solutions Source. "More people have mobile phones than credit cards," said Brandon.
- Where does your market live? If your business is in North America, you may be U.S.-centric and inadvertently cut off lucrative sales to European and Asian e-commerce growth markets, according to Melissa Jones, vice president of sales and relationship management at PlanetPayment.
Merchants wanting to remove barriers to international sales may want to consider selecting a payment processing company that can offer foreign buyers Visa or MasterCard transactions in their own currency. The money is then transferred to the merchant's U.S. bank account in dollars. PlanetPayment, among others, offer this kind of service.
- Are your payment options broad enough for an international market? Brandon recommends that merchants going for international sales offer an ample variety of payment options.
Offer North American buyers the option to pay with Visa, MasterCard, American Express and Discover. E-checks are popular with customers who don't have credit cards.
Outside the U.S. for sales in Asia look for a payment processing company that will accept JCB, an international credit card. For European sales look at providers who can offer your European customers local bank transfers. These services push money from your customer's local European bank to your U.S. account.
Three good options are Globalcollect, an international payment service, and Moneybookers , an Internet wallet that lets buyers charge up their online wallet and spend at participating merchants. The service is big in the United Kingdom and has gained popularity through services, such as VoIP play SKYPE.
The ubiquitous PayPal service, internationally known and gaining traction with even large companies, including American Airlines, offers skittish buyers the ability to not reveal their personal data to you.
- What's the price point? A low price point may cause you to move away from payment services that charge a price per transaction. Inversely merchants selling high-ticket items may benefit from services that offer buyers credit terms.
BillMeLater offers consumers no payments for 90 days, great for customers buying computers, cars, home appliances, and the like. "Merchants pay up to 5 percent to offer that to buyers, but it's a good way to get sales from people who may not have all the money to pay at one time," said Brandon.
- What's the Future Hold? The popularity of mobile phones will make payment by mobile phone even more popular, according to Joel Mayer, director of corporate development at PlanetPayment. But mobile phone's innovation won't stop there.
Now GPS activated telephones are ushering in a new automated pay-by-phone option to the consumer, who, while walking down the street can be notified of sales at their favorite stores nearby with an automated SMS message.
"Dial a number and buy in the moment instead of waiting in a long line," said Jones. "Mobile commerce (m-commerce) just may be the new e-commerce."
(Editor's Note: If you're just starting an e-commerce business and want more information, read our story "Setting Up Shop: A Checklist for New E-tailers." )
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