Published on August 28, 2013 Is it worth accepting credit cards in your online store?
If you are a small business owner, is it worth your while to accept credit cards in your store, should you just accept direct bank transfers and PayPal e-cheques?
In today’s modernised online business world, it would be very hard to succeed as a serious online seller without accepting credit cards. In countries like Australia where there is no real-time bank transfer system by not offering credit cards as a method of payment you are merely adding another potential hurdle to your sales process if you only accept bank transfers. This is because customers who want to get items quickly will be discouraged having to go through the process of logging in to their online Internet Banking service, making a transfer and then waiting another 2-3 business days for a bank transfer to clear.
Options for accepting credit cards in your online store
If you want to accept credit cards in your shopping cart website, you have three basic ways you can do this:
- Using a payment service – like PayPal or Paymate
- Using a specialist payment gateway service with a merchant bank account – there are many specialist providers in Australia for these
- Using an all-in-one merchant bank account and gateway service – all of Australia’s main banks have their own combined merchant and gateway service
Let’s look at these one at a time:
Using a Payment Service
A payment service like PayPal or Paymate are usually quick and easy to set up, which is particularly appealing to many small businesses starting up. For sellers who are opening a store after running auctions or an online store on a website like eBay, they may already have a PayPal or Paymate account set up that they are actively using. This makes these services a convenient option for new online businesses.
How these services work are that the money is paid from the buyer into the seller’s holding account at the relevant payment provider and that balance can be used to purchase other goods from other sellers using the same service, or withdrawn and deposited into a regular business bank account in Australia. These withdrawals are treated like a cheque in the banking system, so can take a number of business days to clear.
Not having money that you earn being paid directly into your business banking account is one of the downsides of payment services like PayPal.
Using a specialist gateway service with a merchant bank account
The main difference between this and the previous scenario is that your transaction is processed by the specialist third party and then deposited into your business bank account – via your merchant bank account. You therefore need to apply for two types of payment account:
- Your merchant account – at your bank or financial institution. This is a special type of trading bank account expressly for accepting funds from credit card transactions. Money that transfers in or out of this account are reflected in your business’ real bank account. There are merchant accounts that are specifically for use in electronic funds transfer at point of sale (EFTPOS) transactions in stores, and Internet Merchant Accounts for processing online transactions.
- Your payment gateway – at a specialised provider or via your financial institution. A payment gateway is simply the software that sits between the merchant account where the money ends up and shopping cart that actually facilitates the transfer of funds between the buyer’s credit card and seller’s gateway account. In practice what payment gateways do is accumulate a balance of funds from a day’s worth of transactions and then transfer the day’s total balance at set times on set days of the week. The number of days a week that gateways transfer funds varies from 5 to 7, so it pays to shop around. Some of the specialist payment gateways in Australia include eWAY for real time transactions or e-path for offline transactions
- A complete payment and gateway solution – each of the banks and some of the leading financial institutions provide their own end-to-end complete payment gateway and merchant solution. NAB call their system NAB Transact, ANZ call theirs eGate, Commonwealth Bank call theirs CommWeb, Bendigo Bank call theirs Bendigo Website Payments, Westpac call their system Payway, Suncorp call theirs Suncorp Virtual POS. 2Checkout from the USA also support Australian, Canadian, European, and many more merchants and offer an end-to-end package.
Each option comes with its own fees structures so which is best for your business will depend on what fees structure works best for you. Some of the big considerations for you will be:
- Gateway fees and pricing structure (gateways and merchants have different percentage charging rates and different up-front or annual fees)
- Convenience (how long are you prepared to wait for money to be transferred into your bank account? do you want one provider or multiple ones to deal with? do you want your bank to be both your merchant and gateway provider?)
The fees structures for payment gateway providers vary. Some of the types of fees structures that gateway providers offer include:
- Flat rate per transaction
- Flat rate per transaction with monthly minimum
- Annual fees, fixed number of free transactions, per transaction fee after that
- Monthly fee, fixed number of free transactions, per transaction fee after that
- Flat Rate monthly fee
What you will be offered by the gateway provider will usually depend on how many transactions you expect to do per month so we suggest that you shop around. For a list of Australian providers and details of the Australian payment gateways that are supported by Ozcart shopping carts, please see our payment gateways information page.
A note about security and online payment gateways
If you are accepting credit cards in your online store, you need to ensure your business processes and website complies with a set of security standards known as PCI DSS. These are mandatory security standards for online sellers accepting credit cards and cover a range of things like how you process credit card and the personal information, your password and computer policies, and of course your online shopping website.
If you have a hosted ecommerce solution like Ozcart, the technology side of security should be taken of for you by the provider, so your choice of shopping cart provider is as an important consideration in starting to sell online as choosing your payment provider. Ozcart uses a redirect to the actual payment provider for payments, so you can rest assured that your business will stay compliant in the payments process.
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