Online Card Payments
If you are thinking about taking credit and debit cards online then we’ve put together some useful information to help get you started. It may be that you already have a simple payment system in place such as a basic PayPal account or you may be a new business looking to get ecommerce enabled from scratch.
Whatever your situation, being able to take credit or debit cards as a form of online payment is becoming more and more important as consumers are increasingly turning to debit and credit cards to pay for online transactions.
Nine out of 10 UK adults carry a debit card*
Statistics from The UK Cards Association show that in the UK alone total online card spending increased by £5 billion in 2012, with consumers spending over £68 billion online. In 2012 there were 148.5 million credit and debit cards in circulation in the UK and 47 million debit card holders*. This continued growth in card ownership and card payment transactions indicates that cards are becoming consumers preferred way to pay online.
“Observations of e-commerce in the card payments industry showed that there were more than 1 billion purchases made online” UK Cards Association’s Annual Report 2013
In order to grow successfully long term, shopping cart and checkout systems need to be able to offer consumers the option of making payment by credit or debit card.
Setting up credit and debit card payments
Essentially there are two main ways of taking online credit and debit card payments:
- Through a third party payment processor (think PayPal and Google Checkout) that will process your customers debit and credit card transactions through their own merchant account on your behalf.
- Through setting up your own internet merchant account and integrating a payment gateway into your checkout (through a payment service provider (PSP) such as WorldPay, CardSave, SagePay, eWAY). Your PSP essentially links your online shop to the bank.
There are advantages and disadvantages to both options and you will need to decide which is better suited to your business. A third party payment processor such as PayPal or Google Checkout is simple to set up as you don’t need a merchant account and often appeals to start-ups. However, bear in mind the transaction fees may be higher and your customers will be directed away from your website to the payment processing company’s website in order to make a payment.
Setting up an internet merchant account and using a payment service provider gives you more control, your customers’ payment goes directly into your own account, transaction fees are usually lower and the payment process is more seamless for the customer.
A quick word on terminology
Strictly speaking a Payment Gateway, Payment Service Provider and Payment Processor have technically different meanings however, over the past few years in terms of everyday ecommerce they have become interchangeable. So, for the purposes of this blog the easiest way to define them is as simply the way in which customers securely pay for their order online using their debit or credit cards.
Internet Merchant Account (IMA) is the account you will need to set up in order to be able to accept online card payments. Essentially it is a special account that holds the funds from online credit and debit card transactions before they are transferred out into your business bank account.
Step-by-step: how basic payment processing works
Essentially online credit and debit card payment processing follows the same step-by-step process worldwide. In the simplest terms…
The customer enters payment details into merchants online store’s payment system
Purchase and payment details are sent through to the payment processor / payment gateway who identifies the card scheme (MasterCard / Visa /Amex) and forwards verified details to the issuing bank for authorisation
The issuing bank runs a series of checks such as the cardholders identity, that the account has sufficient funds and that the card hasn’t been reported lost or stolen. The issuing bank then authorises and reserves the amount requested.
Once the payment transaction has been completed the payment processor / payment gateway requests that the issuing bank debits the funds.
The internet merchant account* (either your third party payment processor’s or your own merchant account) is credited with the value of the card transaction usually between 3-5 working days (depending on the card issuing bank)
If you decide to take online credit and debit card payments directly then your first step is to contact your bank and set up a Internet Merchant Account (IMA). Once you have done this you can choose a PSP to securely pass your customers’ payment details on to the issuing bank for secure processing.
If you currently only have a very basic shopping cart and checkout that limits you to a third party payment processor, you may need to upgrade to a more sophisticated shopping cart solution, one that is able to offer integration with a choice of payment service providers. There are some excellent shopping cart providers available and for those looking for a simple ecommerce solution, a hosted shopping cart is a quick and easy way to turn a website into an online shop. Whatever your businesses website platform, adding a hosted shopping cart and checkout can be a simple case of copying and pasting ecommerce buttons to a website.
Don’t forget to make sure your shopping cart software and PSP are secure and PCI DSS compliant (this is the Payment Card Industry Security Standard) so you are protected against credit and debit card fraud.
Finally, in order to maximise sales, you should be offering your customers a complete choice of payment options including PayPal, credit and debit cards, bank transfers, as well as offline options such as payment by cheque or phone.
*UK Card Association Annual report 2013 http://www.theukcardsassociation.org.uk/welcome/index.asp
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