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Originally published at Internet.com
As noted in setting up an online business requires gathering a number of tools - in essence, building the technical infrastructure required to serve your customers (and to maintain your sanity).
Three of the truly critical tools you'll need are a merchant account, a Web hosting provider, and an accounting package. Along with your core e-commerce platform, these three key elements form your e-business's basic foundation.
Be aware that these three elements are often sold as part of an integrated package. Several e-commerce platforms offer their own hosting service, a built-in accounting package, and an alliance with a company that offers merchant accounts.
Many online business owners prefer these integrated packages because they know the elements work together - and they don't have to shop for each one. However, if you're assembling your items a la carte, check out the tips below for selecting each of these three essential e-business tools.
Setting up a Merchant Account
To accept online credit card payments from your customers, you must have an Internet merchant account. You set up a merchant account with what's called an acquiring institution, in other words a bank, or a middleman company that works with a bank. This bank authorizes the transaction - or declines it, if there's a problem with the shopper's credit card - and deposits the money into the merchant's bank account.
Setting up a merchant account is far from hassle-free - in fact, it requires serious shopping around at the many businesses that offer this service, and at no small expense.
First, some jargon. As you shop around, realize that there's more than one type of merchant account. Brick and mortar businesses use merchant accounts that accept point-of-sale (POS) transactions, because the customer is standing right there. In contrast, online businesses need a merchant account that accepts transactions in which the customer isn't present, or CNP (cardholder not present) transactions. This type of merchant account is sometimes called a MOTO (mail order/telephone order) merchant account.
Because there's a higher rate of fraud over the Internet than at brick and mortar stores, the fees tend to be higher for an Internet merchant account. Because of the higher fraud rates, banks tend to be leery of Internet merchant accounts. Many banks won't offer an Internet merchant account to a first-time online entrepreneur. Instead, plenty of new e-business owners get their merchant accounts through an ISO, or Independent Service Organization.
These ISOs are middlemen who work with banks. The ISOs are more tolerant of risk, and are geared for working with the transient population of Internet business owners. However, since the ISOs take more risk, their fees are higher.
You can tell a bank from an ISO by its URL. Banks have URLs like WellKnownBank.com. But ISO's have URLs like Rock-Bottom-Rate-A1-MakeAFastBuck.com. (Actually, that's not fair to ISOs - there are plenty of reputable ones.)
Whether you get your merchant account from a bank or an ISO, you'll face an array of fees. As you consider the offers from various ISOs and banks, it's a good idea to write down each provider's fees, so you can easily compare them - the fees are numerous, and they present a blizzard of variables.
Setup fee: This can range anywhere from $50 to $300, in some cases more.
Monthly fee: Most providers charge a minimum monthly fee, regardless of whether a merchant makes any sales.
Discount rate: All providers charge a percentage of each transaction, knownn as the discount rate. This varies widely, though usually fits somewhere in the range of 1.8 percent to four percent per transaction.
Per-transaction fee: Most providers charge a fixed fee per transaction (in addition to the percentage charge). This might range from 10 to 40 cents per transaction, regardless of how much the item costs.
Termination fee: It's not uncommon that a provider charges an account cancellation fee, usually if you close your account within a given time period. Read the fine print on this one - watch out for those providers that require a two-year commitment.
Extra fees: When you give a shopper a refund, your provider will charge you a fee, and this can be a hefty, in some cases $10 to $20.
How to Choose
As you compare the various prices, think about the specific needs of your business - a deal that's good for one kind of business might not be appropriate for a different type of business.
Low or high volume? If you sell lower-cost items in high volume, you need to find a provider with low fixed fees per transaction; be willing to accept a higher percentage per transaction charge to get this lower fixed fee.
Batch or manual transactions? If you chose manual (the cheaper option) you'll be processing transactions one by one. You'll manually route the credit card information from your online order form to the card processing company.
If you expect a lot of transactions, you're better off choosing batch processing. Although you'll pay more, in many cases you'll be able to provide faster service, and spend far less time doing it.
How turnkey is it? Some merchant account providers handle many of the technical and data flow issues that confront online business owners. For example, as part of setting up an Internet merchant account you'll need a payment gateway, which is a data-routing bridge from your e-business to the credit card processor. Some of the big firms that provide this service include Verisign and Authorize.Net. A number of Internet merchant account providers offer turnkey solutions, so chores like setting up a payment gateway are handled for you.
Can you trust them? In response to the many new Internet merchants that have sprung up, many new ISOs have sprung up to service them. Not all ISOs are created equal. Some of them hide big fees in the fine print. It's a good idea to get customer references from any ISO you're considering; find out how happy those merchants are with the service they receive.
Be careful of rock bottom rates, and those "everyone's approved" vendors. A good ISO will have a customer service department that takes calls - and then actually handles issues.
A Possible First Step
One highly popular and well-respected Internet merchant accounts provider is Paymentech. If you're brand new to the idea of merchant accounts, it's worth your while to browse this site and find out the terms, conditions and services it offers before venturing off to try and find a cheaper price. Yahoo Merchant Solutions is one of many popular e-commerce solutions that partners with Paymentech.
Or, PayPal?
PayPal this year launched an aggressive program to build up its Internet merchant account business. In the old days, a seller who used PayPal to accept credit card payments needed to route a shopper to the PayPal site to accept payment. Now, with PayPal's Website Payment Pro option, buyers can make credit card payments directly on the merchant's site, and PayPal processes them in background. During this program's introductory period, the fee structure is highly competitive.
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Author: James Maguire
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