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5 steps to taking credit cards online

Posted Saturday, March 15, 2003

Accepting credit cards online is imperative for successful e-commerce. It makes it easy for customers to purchase from you, encourages impulse buying, reinforces your company's professionalism and increases your chance of closing a sale.

Follow these steps to begin accepting credit cards for online sales.

1. Decide what you need. Many online businesses want to give customers a wide range of payment options, and therefore pursue multiple credit card issuers. The most common choices are bankcards issued by financial institutions (Visa, MasterCard), and travel and entertainment cards such as American Express and Discover.

Some businesses choose card issuers based on how their fees are structured. For example, companies that sell a small number of expensive items may be interested in an issuer that charges a set amount per transaction, as opposed to a company that sets fees as a percentage of total sales.

2. Obtain online merchant status. To accept credit cards, you will need what is called "merchant status" — authorization from the card provider that you can accept its card.

Accepting credit cards on the Web frequently requires a special type of merchant status. Called a "card-not-present" account, this status authorizes you to process sales without face-to-face interaction with customers. Even if your business accepts cards at a physical location, it may need to re-apply for this type of account.

If you don't yet have a merchant account, you will need to apply either with a bank or directly from the card issuer. Bankcards require that you apply for merchant status through an issuing bank. Entertainment cards grant merchant status directly.

If you're turned down by a bank, consider working with an independent service organization, also known as an ISO, which acts as a middleman between businesses seeking merchant status and banks. ISOs often will accept more risk when granting merchant status than traditional lenders, but their rates are likely to be higher. Be aware that ISO charges can vary greatly, so be sure to talk with several before signing on.

3. Choose a bank processor. Many bankcard issuers do not provide bank processor services — the back-end functions such as billing, reporting, and settlement. This means you'll need to find a company to handle these functions for your account. To ensure seamless transaction processing, look for a company that supports the e-commerce software your Web store uses.

4. Decide on an authorization method. Transaction authorization can be done two ways — deferred "batch" processing or real-time processing. Batch processing is done offline at your physical location after a group of orders comes in, and may make sense for companies with lower sales volume. Real-time authorization occurs online immediately when an order is placed, and reports on whether a card has been approved or declined. Real-time authorization can be more expensive than batch processing.

5. Choose settlement software. This software is used to settle credit card transactions from your PC. It is the equivalent of a card swipe terminal, telling you whether a card is valid, and managing the transfer of funds between the customer's card provider and your merchant account. When you choose this software, look for a product that imports information directly from your order entry system so you can avoid having to re-key data. Features that help you track transaction trends and other sales information also can be useful.


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