Online Credit Card Processing – What Are The Steps Involved In Accepting Payments?

Most of us use credit cards – on e-commerce websites as well as physical stores. However, not many people understand the working of a credit card and the elements involved in moving funds from their account to the merchant’s. In this article, we explain that process (for online transactions specifically).

Types of transactions

Credit card processing includes a set of transactions. These are explained below:

  • Preauth transactions: In a preauth, the validity of the credit card is verified. The charge for preauth is typically around $1.
  • Postauth transactions: In these transactions customers place an order and the product is shipped at a later date. At the time of order, a card hold is applied on the customer’s card. The merchant applies a postauth to transfer the funds after the order has been shipped, also releasing the card hold.
  • Credit transaction: This is the transfer of funds from the merchant’s account to the customer’s.
  • Sales transaction: In a sale transaction, the customer makes a purchase and uses the card to transfer funds from their account to the merchant’s.
  • Chargeback transaction: Chargebacks are cases where the customer disclaims a charge to her card. In such a dispute, the bank withdraws the amount from the merchant’s account and deposits it in the customer’s account till the issue is resolved. The merchant is given some days to prove their case. If they can satisfy the bank with evidence, the amount is transferred back to the merchant. Each chargeback costs the merchant as banks levy a charge for the time and effort involved.

Prerequisites for accepting online credit card payments

You need to have the infrastructure to accept credit card payments on your business website. The requirements are:

  • a Card Not Present merchant account
  • an account with a gateway such as AuthorizeNet, CyberSource, WorldPay, etc.
  • a Vital Tear Sheet to submit to the gateway (provided by the bank)
  • a relationship with credit card types such as American Express; to be informed to the gateway
  • a SSL enabled server

Steps in online processing of credit card transactions

We focus on the processing of a sales transaction. This is how it works:

  1. The customer places an order by filling a form that collects the card details. On submitting the form, the details are sent to the server.
  2. The server processes the information received and directs it to the appropriate software installed on it for card verification.
  3. The software verifies the details provided by the customer. If it is valid, it sends the information to the gateway for further checks.
  4. The gateway validates the card and the availability of funds. Based on the result, it sends an “approved” or “declined” message back to the software. The gateway charges the merchant a fee for this service which can be a fixed monthly rate or a per transaction rate.
  5. Gateways route the transactions to designated clearinghouses (selected by the bank for a credit card type) in batches.
  6. The clearinghouse receives transactions from multiple gateways, batches them for various banks and transfers funds accordingly. Again, this service comes at a fee that ranges between 2%-5% of the cumulative sale.
  7. The clearinghouse transfers funds from the customer’s bank to the merchant’s bank.
  8. On receiving the transaction, the merchant’s bank transfers the amount from the customer’s account to the merchant account. Again, the bank or card issuing company will charge a set of fees for various services – setting up the merchant account, discount rate, chargeback fee, etc.

As you can see, credit card processing isn’t so baffling after all. However, because of the various roundabouts involved in the process, businesses prefer to pay a credit processing company to manage the services instead of taking on the task themselves. With the fall in processor rates, this also makes sense financially.

Internet Marketing–Various Online Business Models

There are many different methods of making an online income. In reality, they are all very similar to the business models you see in the offline world. You can sell goods and services, you can produce products for wholesale distribution, you can sell information, you can sell tools to help people in their own business model, you can sell advertising, or you can provide consulting services.

Do you see a common theme in all of these models? That’s right—to have a viable business, you have to literally provide some kind of a good or service that adds value to someone or something, either online or offline.

I think that when people think about going into business offline, they look for a need in their community and try to fill it. Online, they tend to think, OK, what can I do to make a lot of money? There is a huge difference between the two. Online, I think people really believe that if they put up a web site and sell something, the money will just come in. It is simply not an accurate thought, but I think that just about everybody has thought it at one time or another.

So to create an income online, you must meet a need, just like you would in the offline world. You meet that need by producing, developing, distributing, or brokering a product or service. That is just about it. You will never earn long-term viable income from schemes and scams, no more than a bank robber will earn a long-term viable income robbing banks.

Here are some of the basic business models you can find on the web:

1) Production model. This is a company that produces value by transforming one good into another for online consumption. An offline equivalent would be a shoemaker or a gold mining firm. The online equivalent might be the development of new software or search technology, or the development of online technology that aids in the execution of some of the other online business models.

2) Merchant model. This is a company that specializes in the sales and organizes the delivery of goods and services to an online market. This can be compared to the offline equivalent of a merchant. Some examples online are bookstores, food stores, catalog web sites and other goods and services sales organizations.

3) Advertising model. This is a company that specializes in providing the service of advertising or promotion to other online firms, for example, those firms that operate using the production or merchant model. This model charges these companies a fee to advertise the goods and services provided by the other online business models.

4) Affiliate model. This is a model that resembles the advertising model, but is different in that it focuses on recruiting many individual companies or individuals to do the advertising in a systematic and piecemeal way. Whereas in the advertising model, the advertiser is paid based on the amount of advertising distributed, the affiliate model pays the affiliate marketer when a sale or step in a sales process is completed. This step may be an online visit, a request for more information, or the actual sale itself.

5) Brokerage model. This model is one that compensates the broker for bringing together buyer and seller, usually in the form of a personal, one-on-one introduction. An example of this might be an online auction or a processor of online payments.

6) Information model. The information business model is one in which the company provides information to a specific field or niche market. This information would typically instruct another company or individual on an easier or more efficient method of performing a task, or actually teach the task or the implementation of the task.

7) Subscription model. This is an overlay model, one which is generally incorporated into one of the other models. This model would provide a good or service over a protracted period of time, and provide a guaranteed and generally consistent level of that good or service for a period of time, for example over the course of several months. Two products that fit into this subscription model might be that of online monthly video rentals or services like food or medicines which are delivered on a regular basis by commitment.

8) Utility model. This model operates in much the same way as an offline utility might operate, offering a product that has, through its use, become a necessity and is often tightly controlled. An example of an online utility model would be that of internet access or telephone service via an online network.

9) Community model. This is a business model that focuses on bringing together individuals or companies of similar interest for the purpose of developing relationships and sharing information. Two examples of the community web phenomenon are the recently created Myspace and the older online forum.

When deciding to go into business online, it is important to determine which of these business models most interest you. To which of these models are you best suited? In which of these models are you most likely to be considered an expert, or in which would you have the willingness to become an expert?

The Basics on Becoming an Online Merchant

Online selling is on the rise because of the changing shopping habits of today’s consumers, those under 30 years old who were either entering into their teens or have just graduated from college when the Internet bloomed in the mid-90’s.

This is the generation who spend most of their time reading and sending Twitpics, shout-outs, reposts or jejespeak on their FB, Flickr, tumblr, and Blogspot pages, in their desire to be visible and look cool on the Internet (now broadband and a powerful tool for business) that has become collaboration-friendly, thanks to Web 2.0 technologies.

Fast forward to a cool question. Do you want to join the world of Internet retailing as a pure player to earn extra income out of the Net Geners whose disposable income will remain ‘awesome’ at least until 2020. Do I hear a resounding ‘yes’ out there? That means you’re getting into a winning ambit.

Online retailing poses the biggest opportunity for all Internet users to earn from the web. After all, you spend more than 4 hours before your computer screens doing any or all of these: researching, working, playing games, online chatting or instant messaging, Skyping.

Caveat: you will not immediately strike gold from your Internet selling but, initially it will give you an extra income and one that will grow in due course.

Consider this data from the March 2010 ITIF (Information Technology & Innovation Foundation) report.

For the last 10 years, among the world’s top 10 Internet firms are those that have been successfully selling products and services like Amazon, eBay, Expedia, TD Ameritrade (into trading services), and of course Yahoo, Google and AOL, which collectively earned $58-B in 2006. Countries leading in e-commerce are UK, US, Sweden and Denmark.

E-commerce is growing in Asia too, where total B2C sales in Japan, China, Korea and India are expected to reach $115-B this year. At 52% (in Asia), Japan has the highest percentage of online buyers, followed by Korea at 45%. China, the world’s second largest Internet population with its 210 million Internet users, is expected to see large growth in its online retail sales – $18 billion in 2010.

In other parts of Asia like the Philippines, about 90 percent of the 28-M Filipinos with access to the Internet visit social networking sites to chat, play games and promote business and civic events. Social media has become a ubiquitous tool in any business marketing campaign.

To cut your mark in online retailing:

number 1 – you must have products or services to sell

number 2 – study the basics like on-time deliveries and packaging (you don’t want the merchandise getting squashed or broken)

number 3 – you must know how to use new media.

It is wise to focus first on a small range of products and know where to source reliable suppliers. Your products or services must be sellable like mobile phones, gadgets, fashion and accessories, souvenirs, homeware, health and wellness, appliances, travel reservation, insurance.

You can earn from your hobbies and interests like bead stringing, cross-stitching, photography, handicrafts, gardening, carpentry, used or antique items.

The Internet gives you the global marketplace, hence there will be customers in Trinidad, Los Angeles, Glasgow, Shanghai, Puchong, Cebu who will like to have those items on your web store.

Here are basic tips on becoming a trusted online retailer in the net world.

Build your website. If you can’t, ask friends and kinfolk who can. It’s an integral part of running an online business. Or you can buy an e-commerce software that has a complete e-trading platform that integrates payment gateways and logistics system for local and international deliveries. This way, you don’t have to worry about setting up payment and distribution intermediary services on your own. It’s never too late to have your own website up and running and be one of the over 80 million dotcoms in the world. Going by their sheer numbers, you’re in great company.

Get yourself discovered through social sites. Your FB friends and Twitter followers will be excellent starting points for engaging with consumers. You can advertise on popular social sites or you can create a Facebook fan page or a Multiply product page. Be innovative in your spiels (but don’t overdo it) about the benefits of your products so that consumers can connect emotionally to them, notwithstanding your commercial agenda.

Attend trainings. Learning additional skills on creating compelling customer content, photo editing, viral videos, SEO, etc. will boost your confidence as a netpreneur and if you cleverly apply them, you’re on your way to building a good customer base.

It’s usually in the first year when it’s all about deciding what to sell, where to source your products, and generating awareness for your online store. You need to keep intact your enthusiasm for your business and your customers so that in the succeeding years, you can get ahead and stay ahead.

Now this is looking beyond 2020, Net Geners and their progeny – because of their online behavior – put premium on time and convenience which online retailing meets 100% spot-on.