Important costs and things to know when considering and/or accepting credit cards on your website


THREE PARTS INVOLVED
The online credit card transaction process has three parts –
• the merchant account - a ‘bank account’ designated to handle online transactions

• the gateway  - the ‘gateway’ is the provider that connects the merchant account to your bank account and actually puts the money into your bank account

• the SSL certificate - required to process credit cards safely and securely on line. These can range from $40-$100 depending on who you buy it from.

You can either acquire all three of these items from one party or you can acquire each individually from different parties. PayPal for example, offers all three in one “package” or you can get the merchant account from your bank (like Wells Fargo, Chase, etc…), gateway from a provider like Authorize.net, and the SSL from GoDaddy. I find it easier to get them all in one place but it might be cheaper to shop them and piece them all together.


WHY NOT JUST USE PAYPAL?
PayPal does offer merchant accounts, gateways and SSL’s all in one package.  When you use their free service, when a transaction occurs the user is taken to another website, the transaction is processed and then the user is returned to your website. This can be disjointing to a website user and might interfere with the user’s experience and purchase process.

I strongly suggest NOT using PayPal. In addition to the page exit as mentioned above, they are hard to work with and charge higher fees than other providers. And they require “reserves” for some products being sold/offered (see below for what a ‘reserve’ is). PayPal has always left a bad taste in my mouth and many of my other fellow developers agree.

HOW MUCH DOES IT COST?
As with any online credit card transaction, fees are subtracted from the amount of the purchase. These fees are somewhat negotiable – see below for more details.

All credit card processors charge these fees. Some companies, like PayPal, charge a blanket fee of 3.5% of every transaction plus $0.35 per transaction. So a $100 purchase would cost you  $3.50 plus the $0.35 so for a total of $3.85. So at that point – only $96.15 would be deposited into your account.

Some processors deduct the fees per transaction – like the example above – some processors deposit the full amount of the transaction, so the $100 goes into your bank account, and at the end of the month, the bill/deduct the total amount of fees that have been accrued for the month.

Other fees involved with online credit card processes:

• Monthly fees – I’ve seen these range from $7.00 to $30 – depending on processor – This is strictly a fee you pay just for having the service

• Gateway fees – the gateway provider will charge a fee as well – ranging from $16 a month to $30 a month

• Monthly Fees minimum – some processors require that you process at least a minimum in fees per month. The fees are accumulated as purchases are made. So in the example above, you would have accumulated $3.85. The processor might require at least a minimum of $15.00 a month, therefore you would need to accrue another $11.15 or the processor will take it out of a transaction or bill you at the end of the month. I’ve seen these range from $15.00-$30.00 a month.

• PCI compliance  - you will have to provide documentation that you and your processor are securely managing credit card information. If you do not submit proper and approved documentation, or don’t want to, then you might have to pay something like $15.00 a month for non-compliance or for letting your processor handle all that. This fee is easily avoided by just doing the documentation as needed. This has to be reviewed and submitted once a year.

• Batch fees – processors charge a batch fee. Batching is done at a designated interval and this is the process that actually sends the money to your bank account. I’ve see batch fees range from $0.20 to $0.35 per batch. So if you are batching every night, that adds up to $8.52 a month based on an average batch fee of $0.27.

• credit card transaction fees – so as in the example above, for every transaction that occurs, the processor takes a percentage. These percentages vary from 1.99% to 3.75% and I have found that these are some what negotiable – and it depends on what you think your monthly volume in sales is going to be. And on top of the percentage, they also charge a per transaction fee. I’ve seen these range from $0.20 to $0.35 per transaction. Depending on what kind of card is used, whether it’s debit card, a credit card, a company credit card, a government credit card, a ‘rewards’ card (i.e. “earn airline miles with every purchase) – the percentage rate can change.

One company I work with has quoted me for one of my clients
1.99% + $0.20 for qualified cards (regular old credit and debit cards)
2.10% + $0.20 for ‘rewards’ cards
3.34% + $0.20 for government, international and corporate cards


WHAT DO YOU MEAN THERE’S RISK INVOLVED?
This whole process of credit card transactions is based on risk. In a brick-and-mortar store, a vendor can verify a credit card presenter with a photo ID and a signature. Online, that’s not possible. Your rates and fees for online transactions will be determined by the risk of your business, the amount you engage every month and the overall assessment of your online ‘business’.

I personally went with one quick-setter-upper online and was able to process credit cards within 10 minutes of setting up my account. I processed a card and then received notice that my funds would be held for 120 days before I could move them to my bank account because “web development” was considered risky. This is called “reserves” – the processor decides to withhold your money for a specific amount of time or a portion of it must always remain in the account for whatever reason – “risk assessment”….

So I cancelled my account with them and went with a more legitimate processor – BankCard Services. They managed the entire process which included me submitting a letter from my bank validating my business checking account, my LLC paperwork establishing myself as a real business, and I had to provide detailed description of what my business is.

The first ‘underwriter’ rejected my offered services of Search Engine Optimization. This was all about risk again – it’s harder to prove that the services I do for search engine optimization really work (there’s no proof or hard core guarantee on a service like that and I am not selling a physical, tangible ware or item here) so therefore the underwriter wouldn’t support it  - too much risk of a disgruntled customer requesting a charge back. Once I removed SEO services from my offered services, they granted me my merchant account services and I was all good to go.

I’ve also ran into the “risk factor” when setting up an ecommerce site for electronic cigarettes. Underwriters are leery about providing services for things that might be potentially harmful or misused  - i.e. porn/adult content, cigarettes, alcohol, pharmaceutical products, etc… So for instance, if you are building a site pertaining to alcohol, even though you are not selling alcohol, you might run into this. I’d suspect that in addition to the SSL, business establishment paperwork, services provided, etc…,  one would have to submit to the processor proof that your site is doing its best to keep underage users off the site.

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