Resource 3.9. A Guide to Online Payment Facilities

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1 A Guide to Online Payment Facilities Resource 3.9 Online consumers expect a high level of service and a seamless shopping experience when they purchase goods and services over the Internet. One of the key factors in that experience is a choice of payment options. There is now a wide variety of online payment facilities available to businesses. By offering customers a choice, you can make it easy for them to pay for your goods and/or services quickly and efficiently and you will widen the appeal of your online shop to as broad an audience as possible. This factsheet introduces the various online payment facilities available to businesses that are considering trading online. It explains the practicalities of implementing them on your website and outlines how to get the most from the payment facilities you use. It includes hints and tips and sources of further information. The benefits of paying online There are a number of benefits to be gained from trading online, including: Instant payment - many of the payment systems you can implement on your website offer instantaneous transfers of payments. For example, customers paying by PayPal can send a credit to your PayPal account immediately. Speed and security - traditional payment methods such as cheques or postal orders can get delayed or lost in the post, but online payments are often credited to your merchant account the same day. Customer card details are kept by the Payment Service Provider (PSP) and not passed on to you so you avoid the security issues of protecting sensitive customer data. Also, because payments are made account-to-account, the risk of fraud is reduced. Customer tracking - online payments are usually linked to orders made via your website so your business can use website usage statistics to track the shopping habits and preferred payment options of your customers. Convenience - online payment facilities offer your customers a convenient way to pay for their goods or services and your business can reduce the amount of administration and associated costs involved with manual payment processing. Choosing the right payment facilities In order to identify the most appropriate online payment facilities for your business you should ask yourself the following questions: Do you already have the ability to accept credit and debit card payments? - If you already have a merchant account set up with your bank, using your existing offline credit and debit card facilities makes sense. You can expand the use of your existing account and make the most of the costs you already incur in transaction charges. Talk to your bank to find out what options are available for using your existing merchant account on your website. Will your business operate on ebay? - If you are considering trading on ebay, you can use the PayPal electronic payment system, which is completely integrated into the auction site. Once you have set up a PayPal account, anyone with an e- mail address can make a payment to your business via PayPal. However, it is Page 1 of 5

2 important to be aware of the transaction charges you will incur when using this system. Is your online business stand-alone or part of a larger e-shopping mall? - Many online retailers set up their businesses as completely independent stores. This means that they can decide for themselves which payment system to offer. The alternative is to set up your store within an online shopping mall such as Google Checkout ( and Amazon ( which have their own payment systems. Which 'cart' and 'checkout' system is your website using? - Whether you build your website from scratch or use an off-the-shelf application, the cart and checkout system you use will usually have preferred electronic payment method(s) attached to it. Before deciding on a cart and checkout system, ensure it can offer you and your customers a range of payment options. If these are too limited it could mean your business loses customers who are unable to use your payment facilities. Will your online business sell to an international market? - The Internet offers your business the chance to sell to a global audience but you must carefully consider how you will offer electronic payment facilities to customers outside the UK. Credit cards are the obvious choice, but always pay close attention to the exchange rate that your card provider will be using if you offer your overseas customers the chance to pay in their own currency. Fluctuating exchange rates can have a huge impact on your business' overall profitability and cash flow. Online payment facilities There are three main categories of online payment system: online card payments; payment bureaux; and secure order forms. Online card payments An online card payment process is the online equivalent of manually 'swiping' a credit or debit card at a shop's till on a PDQ machine. Shops that have swipe machines have signed up for a 'standard merchant service' from an acquiring bank. Acquiring banks pick up the magnetically encoded details on the debit or credit card and then authorise the payment. Standard merchant services are set up for use in shops when the customer is present. For online payments, these elements are replaced by a combination of an Internet merchant service and a PSP. Although you will need a PSP to take electronic payments from your online store, this service is often offered by acquiring banks and can be negotiated as part of their overall package. Go to for detailed information and comparative reviews of Internet merchant account providers and PSPs. Payment bureaux A payment bureau provides a simple, easy to set up, one-stop solution for offering an online payment facility to your customers, but this convenience comes at a higher price than acquiring banks would charge. A bureau usually takes between 28 and 60 days to clear your funds, and will usually charge a higher commission for its service. However, Page 2 of 5

3 as a starting point for trading on the web, this system is probably more suited to small businesses as it offers benefits to both the seller and their customers. Payment bureaux generally accept most types of businesses that have an existing business bank account and an address to confirm their identity. The bureau collects from credit and debit cardholders using its own acquiring service on your behalf. Payment bureaux are approved by the major banks and offer a high level of security. Examples of payment bureaux and their services available in the UK are: Netbanx ( authorises and processes payment cards online and provides immediate confirmation to your customers that the transaction has been accepted. PayPal ( is fast and easy to implement on any website and anyone with an address can pay you directly. PayPal is available in over 45 countries and caters for multiple currencies. Sage Pay ( takes credit and debit card details securely via the Internet or phone. It offers the latest fraud checking software as well as multicurrency and real-time reporting. WorldPay ( accepts payments made over the Internet or by phone, fax and by all major credit and debit cards as well as by bank transfer, instalments, standing orders and Direct Debits. Secure order forms This is a cheap method of accepting payment because all the customer has to do is fill in their order details on a form on your website, and this to you. Software can automate the process by providing a 'buy now' button in your online catalogue. However, this can be clumsy as it produces a separate form for each item selected. The major drawback of this method is the lack of security if your customer provides credit card details in an open . This is enough to put off many potential buyers. However, using 'shopping cart' software allows credit card details to be transmitted securely by . It also produces a single list of the items required to fill an order. You will still need to have a standard merchant account and PDQ machine (or manual slip system) to process the payments. Secure order forms are therefore not the recommended option for most small businesses. Other electronic payment methods If you trade primarily business-to-business, you should also consider setting up other electronic payment systems such as Bacs and Direct Debit. You will need to contact your bank to set up these payment systems. A new service called the Faster Payments Service has been established (go to Payments into your account using this system are much faster than they have been previously. You can check if your bank is participating in the scheme by entering your bank's sort code into the UK Payments Administration website Page 3 of 5

4 The costs involved Page 4 of 5 Resource 3.9 The wide range of charges made by the different online PSPs can lead to confusion when trying to make comparisons. Some payment processors vary their charges according to the type of business you run and your trading record and in many cases it is possible to negotiate lower-than-advertised rates. For payments via an Internet merchant account with a bank and a PSP, you can expect to pay a set-up charge of around 200, a monthly leasing fee of between 10 and 15, a percentage commission for each credit card transaction (usually between 2.5% and 3%) and a small fee for each debit card transaction. Payment bureaux usually charge a lump sum to open an account and a percentage commission (usually 4-8%) plus a fee (usually between 10p and 20p per transaction). Some also charge monthly fees. Providing a secure form on your website for customers to leave their card details involves no additional charge, but this method still involves running a merchant account and paying the fee to lease a PDQ device. In addition, each transaction will incur a fee. Payment regulations Whichever payment system you choose, your business must comply with various payment regulations. From a practical standpoint this means complying with the Payment Card Industry Data Security Standard (PCI DSS) protocols, which stipulate that your business' payment systems must have high levels of security to ensure card fraud is kept to a minimum. All the major credit card providers are members of this standard and more details are available from Your website's design and the checkout, trolley and payment mechanisms must comply with this standard and if you use a third party or payment bureau to process your business' online payments it is important to check that they are complying with the PCI DSS. How to combat online payment fraud One of the most important aspects of dealing with online electronic payments is to ensure that your business implements systems that minimise the risk of card and payment fraud. It is in your business' best interests to look closely at fraud prevention techniques to avoid charge-backs from your PSP, which you will incur if you are the victim of fraudulent transactions through your payment system. You can learn more about card fraud and how to prevent it on the Financial Fraud Action UK website ( To minimise your business' exposure to online payment fraud, follow the checklist below: Be vigilant with transactions - it is important to be acutely aware of the transactions that are processed through your online business. You should be able to spot any suspicious transactions, such as large numbers of orders being placed with one credit card, or one customer making multiple transactions from different credit cards. If you are suspicious about any transactions, call or the customer if you can to check the validity of their order.

5 Use the AVS (Address Verification System) - the credit card issuing companies have developed the AVS system to give retailers that are using 'card not present payment' systems the ability to check that the address of a cardholder is valid. Both Visa and MasterCard support this system in the UK. Use CSC (Card Security Code) - as an added layer of security. Your website's checkout system should be set up to prompt customers to enter the three-digit security number on the back of their credit or debit card. Your PSP can crosscheck this number to ensure it belongs with the card number that the customer is using. Use SecureCode and Verified by Visa - now widespread across the industry, many PSPs like WorldPay and Sage Pay offer these systems as an added layer of security before a card is accepted and the payment is processed. Ensure your payment mechanisms are set up to use these systems, as they offer a better method of checking whether a card is valid. You can learn more about SecureCode on the MasterCard website at and about Verified by Visa at visa.jsp. Hints and tips Choose the right payment systems for your online business. No matter how good your website design, customers will inevitably judge your business by how efficiently they can shop. Your cart, checkout and payment systems are a crucial component of your online business. If you are building your online business from scratch you have maximum control over how your payment systems integrate into your website. If you outsource your website construction, ensure your service provider has detailed knowledge about online payment systems. If you choose to use off-the-shelf systems like MrSite or Actinic Catalog, or the many website construction services now provided by Internet Service Providers, investigate their online payment support and the associated costs before starting to construct your website. If you already have a merchant account with your bank it can be a great asset when trading online. Talk to your bank about how you could integrate your online and offline payment processing to reduce costs. And don't forget that your bank can be a great help with preventing online fraud. Ensure you are fully aware of the costs your PSP will charge for processing online transactions. Sage Pay is attractive for very small businesses as they have a fixed payment-processing fee. Services like PayPal can become expensive as you pay a percentage of your sale to process the payment, and when you transfer the money from your PayPal account to your normal bank account another fee is payable. Use fraud prevention techniques and services as fraud is a real threat to all online businesses. Using systems like AVS and the card checking services developed by the major credit card providers is essential and you should check that your PSP is also using the latest in fraud detection systems to safeguard your payments. Page 5 of 5