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Taking Payments Online

As more and more individuals are using the internet to purchase goods and services online it makes sense from a commercial point of view to provide an online method of payment for your customers. Such transactions are often referred to as Card Not Present (CNP) and can be exposed to a higher risk of fraud than a regular swiped transaction. With that said, taking payments online can significantly increase the reach of your business and can provide additional savings in processing costs and human resources compared with that of manual payment methods. When you consider the advantages against the added risk involved, with the right knowledge you can reduce this risk and significantly increase your revenues.

How does it work?

There are a number of companies who can provide online payment systems to existing website owners, these companies are often referred to as Payment Service Providers (PSPs). A number of these services require that you already have a merchant account however there are options available with certain companies to obtain an integrated service that includes a merchant account as well as the online payment interface.

Taking payments through a PSP is quite straightforward, here's what happens:
  1. A customer selects a product or service from your website that they wish to purchase.
  2. The website then posts a collection of details to the PSP to allow them to process the transaction on a separate server. The details usually consist of an account number, description, cart ID, amount and the currency.
  3. The PSP server reads the information you have posted and sets the basic parameters for the transaction. The customer will then be confronted with a page that requests the card type, number, expiry date, verification number, billing address and email address. This page will utilise 128/256 bit encryption to ensure the information is transmitted securely to the PSP.
  4. Once the customer hits submit the PSP will perform a number of checks in the background to ensure the card is valid and there are available funds to process the transaction. Some PSPs will also perform basic fraud checks, however it remains at the discretion of the company as to whether the goods are delivered an what additional checks are carried out if any.
  5. Once the PSP has completed the transaction their server will post a collection of information back to your website that contains information about the transaction. This will often include the customer's name, address, email, telephone number (if supplied), the time of the transaction and the results from the AVS (Address Verification System) checks.
  6. Most e-commerce websites will log the information posted back from the PSP into a database so it can be viewed from the websites back office functions. The PSP will usually post out a receipt to the customer and then it is your responsibility to fulfil the order.
  7. At the end of the day the PSP will total up the transactions you have taken in the day and pass all the credit card details over to the companies merchant service provider who are responsible for processing the transactions and paying the company's remittance at regular intervals.

What does it cost?

The cost of processing an online payment using a PSP can vary in terms of the amount and how it is calculated and billed. Typically every transaction processed carries a small charge this is usually a percentage of the transaction amount for credit cards (around 1 to 5 percent) and a fixed fee for debit cards (around 20 to 70 pence). If the transaction details are passed onto a separate merchant service provider then they too may levy charges on each transaction.

To register with a payment service provider there is usually a setup fee this can be anything between 100 to 300 pounds. If the PSP is also responsible for the merchant services provided to the company they will be responsible for setting the deferred settlement period, this is usually 3 days for established online traders but could be anything up to 30 days for new businesses with no trading history.

Manual card payments

It is not essential to employ the services of a PSP if you wish to take payments online. An alternative would be to collect all the card details from your customers using your own web pages, these details can be stored in your database and keyed manually into a PDQ terminal. This method means there is less automation to the process and the security of your payment pages must ensure that the card details are taken with a high level of encryption. If you are seeking to take manual card payments then you should always contact your merchant service provider to ensure you are meeting their own guidelines relating to how the payments are processed.

What are the risks?

There are risks involved in taking payments online due to the increased anonymity of the person initiating the transaction. Provided the right checks are carried out on each and every customer the risks can be significantly reduced. I would recommend you read our guide on merchant accounts for information and tips on protecting yourself from online credit card fraud.

How to use shopping baskets

If your business has a multitude of different products that you would like to sell online then it would be sensible to create some added shopping basket functionality to your website. People like to shop online like they would do in any other shop. If you are buying a number of items then you would place these in a shopping basket before heading to the checkout. The same can be done in a virtual sense if your website has this added functionality. A shopping basket will allow your customers to add products to their basket as they browse your online store, once they have completed their shopping they can click to go to the checkout that will then post all the information including the total cost to your PSP for processing.

There are lots of ready made shopping basket plugins that you can add to your website without having to have too much knowledge of programming. Before purchasing a shopping basket for your website you must first ensure that it will run on your web server, if you have any doubts contact your hosting company before continuing.

Setting out Terms and Conditions

When selling anything online you must have a clear set of terms and conditions that you make available to the customer. The terms and conditions must clearly state your returns policy and the circumstances under which the products you are selling will and will not be considered for refunds and exchanges. All customers have a statutory right to obtain a refund within a certain timeframe providing the goods have not been damaged or cannot be resold. It is important that you do not attempt to restrict these rights within your terms and conditions.

We provide a template for building your own terms and conditions here

Useful links

You may find the following links useful in answering any further questions you may have about taking card payments online.

Stripe - US based card processing company for merchants.
PayPal - Well known quick and simple to setup payment processor
GoCardless - An alternative to card payments, uses the Direct Debit system for one-off and recurring payments.
Worldpay - Offers online card processing a merchant service facilities for UK businesses.
SagePay - Provides card processing facilities for a fixed fee, no setup or transaction fees for the first 1000 transactions per quarter.

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