Increasingly, customers expect to be able to pay online not just place orders. Investing in an electronic payment system makes sound business sense for many companies. WHAT ARE ELECTRONIC PAYMENTS? A website that is enabled to accept electronic payments, particularly credit and debit card payments, offers convenience to customers and streamlines the purchasing cycle. But helping your customer to pay isn t everything your website needs to be user-friendly and easy to navigate if you expect your customers to make it to the checkout. The following pages give you a good, brief introduction to electronic payment systems and how to implement one. If, after reading them, you want more detail on web payments, visit www.electronic-payments.co.uk THE BENEFITS Enabling online browsers to purchase conveniently, electronic payments could turn them into online shoppers. UK consumers now spend over 1 billion online a month (IMRG, 2002). WHAT ARE ELECTRONIC PAYMENTS? 1 THE BENEFITS 1 DECIDING TO USE AN ONLINE PAYMENT SYSTEM 2 E-PAYMENT METHODS 3 SECURE ELECTRONIC PAYMENT SYSTEMS 7 PREPARING FOR AN ELECTRONIC PAYMENT SYSTEM 9 IMPLEMENTATION CHECKLIST 10 FURTHER HELP AND ADVICE 13 Speed Sending cash or cheques by post for goods is slow, and has security and currency conversion implications. Convenience Electronic payments ensure that your store is open for business globally, 24-hours a day, seven days a week. Efficiency Electronic payment systems leave behind an electronic documented audit trail, streamlining your auditing and accountancy processes. Bank wires are cumbersome and expensive. Accepting payments online streamlines the buying cycle. By making your order, stock, purchase, payment and dispatch processes electronic, from website to back office, you don t have to re-key order data. Examples of products and companies included in this leaflet do not in any way imply endorsement or recommendation by DTI. Bear in mind that prices quoted are indicative at the time it was published. 1
Shopping site software can be easily integrated with popular back office packages, such as Sage, to automate ordering, stock control, invoicing and accounting systems. Reduced costs Accepting online payments means that many banking processes become automatic. Increased customer base Online payments take advantage of impulse buyers. 95 per cent of electronic purchases are by credit card. If your website doesn t offer payment by credit cards as an option, you could lose out on this market. DECIDING TO USE AN ELECTRONIC PAYMENT SYSTEM Before implementing an electronic payment system, there are various issues you need to consider. Will electronic payments increase your profits? What about the added expense of accepting payments online? Many smaller businesses simply download online orders in batches, process them offline and dispatch the goods. It may still be possible to keep data in an electronic format throughout the purchasing cycle, either by linking the website s back-end system to the back office ordering system or by having both systems linked to a database. See our factsheet on Integrating back office systems for more information on this (www.dti.gov.uk/bestpractice). When considering costs, the volume of online business you do will determine how good a deal you get with regard to bank processing and credit card authorisation charges. Do your sums: will any investment in hardware, software and training, or the charges you need to pay per transaction for outsourced processing, be offset by an increase in profit? Will you need to set a minimum price for credit card transactions to safeguard your revenues? Many online shopping sites pass on these charges to the cost of product or delivery charges, but if you do this, will your goods remain competitively priced? Are you ready to handle electronic payments? Estimate how many transactions may be channelled through your website. What percentage of sales come via your website and will this increase by offering electronic payments? Will you be able to fulfill the additional orders? 2
Is your website ready for electronic payment processing? Links may need to be made from your shopping cart software to a third party transaction processor or a Payment Service Provider (PSP) which, assuming that you have a professionally designed website, typically requires only simple programming. Get advice from a Business Link adviser (or the equivalent in Scotland, Wales or Northern Ireland) on whether your website is ready for handling electronic payments. Even the data from automated, outsourced systems needs to be analysed and checked over. Do you have the staff and expertise to oversee the system? Your customers will hold you responsible for the security of their data. Are you ready for that responsibility? E-PAYMENT METHODS There are several approaches to taking electronic payments. Some of them can co-exist with others and some are mutually exclusive. In this section we look at: Traditional card payments Mail order Online payments Payment bureaux Secure order forms BACS Alternative payment options Traditional card payments You can accept cards online by processing it as a card not present transaction where the card owner isn t there to sign the slip. There are three main aspects to a traditional card payment: Merchant service this is the generic term for the service provided by banks that allows you to swipe credit and debit cards at your place of business. 3
PDQ machine a generic term for the machine that is used to swipe a credit or debit card. They can be rented for about 12.50 per month with a 125 start-up fee. Acquiring bank once you have swiped the card, the customer s details are passed to an acquiring bank for processing. The acquiring bank checks the details of the card and authorises the transaction. The acquiring bank is the bank that provides your merchant service. Mail order Mail order payments involve more risks for banks and financial institutions, so acquiring banks usually ask for more commission per transaction (perhaps 3.1% instead of 2.79%) and a more detailed agreement on the fraud checks you use. If you already have an offline service it s best to negotiate with your bank to avoid paying another set-up charge. Online payments To take online electronic payments you need to get a specific Internet Merchant Service and also a Payment Service Provider to collect the card details over the internet. Obtaining an Internet Merchant Service from an Acquiring Bank is quicker and easier if you already have offline card processing facilities set up with the bank. Banks can be very cautious about setting up these internet merchant accounts, especially for new businesses without a trading history. If you have no prior card processing the bank will carry out a thorough credit check (lasting anything up to eight weeks). The main high street banks will give approved businesses quotes, typically between 2-3 per cent. A Payment Service Provider (PSP) is a virtual PDQ swipe card machine that collects the card details over the internet and passes them to the acquiring bank. If you want to take electronic payments over the web then you will need a PSP and this has a small transaction cost associated with it. Some acquiring banks offer PSP services as part of their product and there are other less expensive options available on the market. PSPs generally charge: an initial set up fee of about 50 an annual fee of about 150 (which might include processing 2 or 3 different currencies) 4
a 1.5-2.0% charge for every credit card transaction and a fee of 20-25p for every debit card transaction, plus an additional fee for every currency being processed. Payment bureaux A payment bureau such as WorldPay or Netbanx is a one-stop solution collecting and processing the card details on behalf of the business without requiring an Internet Merchant Service with an Acquiring Bank or a separate PSP to be set up. As a result of their simple application process, bureau services are a popular choice for electronic payments and a good solution for a smaller business s first step into e-commerce. Advantages These services will accept most types of business. Trading record or length of trading will not usually be an issue. Fast turnaround for applications can take as little as a few working days compared to weeks for new merchant acquiring applications. Disadvantages Merchants funds are held for minimum of 30 days and up to 60 days. Transaction charges are higher, in the range of 4-8%. Secure order forms An order form is a simple page on your site that the customer fills in with their details and the details of the goods they want to buy. There is no automation and the fields in the forms are sent to you as an e-mail and do not use a PSP. This is a very basic method of taking orders through your online catalogue and can be very labour intensive. A slightly more advanced option is available by using a shopping cart software product as most carts have the ability to either store credit card numbers securely so you can view them over the internet or send them securely over e-mail using a secure server. Advantages Secure forms require a minimal outlay. No need to pay for a Payment Service Provider facility. No need for an extra internet merchant number for online transactions. 5
Merchants can manually screen orders. Site superficially appears to be fully credit/debit card enabled. Disadvantages Secure forms struggle to accommodate wide product offerings. Violates some acquiring banks terms and conditions. There is no real-time authorisation of card details. Transactions are processed manually. BACS This is a payment method that is ideally suited to business-tobusiness (b2b) transactions with regular or repeat customers. BACS payments are usually processed as batches using dedicated software linked in with the bank s system. As the BACS process is electronic, it removes the need to write cheques, which can be a costly process, subject to human error. Payments can be made much later in a business day, up to 9pm and are cleared within two business days to any bank account. The method is a suitable payment method for customers who are making more than 150 monthly payments and is already used to pay over 70% of salaries of the UK workforce. Alternative payment options Other ways of taking payments online can work as a first step to enabling payments on your website or allowing payments from customers without credit cards. Person-to-person an entry-level payment solution where consumers set up an account using their bank account details which is then debited by eligible merchants. Mobile commerce allows a sale that has been conducted over the internet to be confirmed by sending an SMS to the customer s mobile phone. Pre-paid cash card these cards can be charged up and then used at participating websites and high street stores. Useful for small transaction amounts (even down to a few pence) where the credit card transaction charges might make the sale. 6
Micro-billing these offer a premium telephone number billing service that is essentially pay-per-view internet content hosted in a private area of the web. Customers pay for this content via their Internet Service Provider (ISP) or their phone bill. How to choose the right method If you need more details about any of these methods, refer to the e-payment methods section of the electronic payments website available from www.electronic-payments.co.uk Evaluate which system is right for your business. Do you want to offer payment by credit card? Set up a manual system? Invest in software? A lot will depend on the type of business you run, the volume of customers and type and value of goods you sell. To compare the varying costs of electronic payment solutions available from the different service providers, use the selfservice tool at www.electronic-payments.co.uk Consider how your system will integrate with the rest of your business, such as accounting, stocks and order processing. Take a look at our factsheet on Integrating back office systems for more information. SECURE ELECTRONIC PAYMENT SYSTEMS Keeping your payment details secure Most electronic payment systems encrypt customer information and card details. Encryption scrambles the information so it can't be read when it travels over the internet and offering your customers this option will make them more likely to buy. Look closely into the security of your set-up and that of your bank or PSP. Guard against fraud and protect legitimate customers by keeping the transaction, funds and personal details of customers secure. Under current legislation it is the merchant who bears the cost of fraudulent transactions, being obliged to refund the purchase price (chargeback) as well as losing out on the value of the goods. If a customer disputes ordering or receiving the goods, or if the card is a stolen one, the payment is automatically debited from your account. Many banks and PSPs allow you to pay your way out of this problem by carrying any chargebacks for a fixed monthly fee of around 20 and an additional transaction fee, usually 1 per cent. Examples include: MasterCard s SecureCode or Verified by Visa. 7
A high percentage of fraud occurs when hackers get access to insecure merchant data being held on insecure servers. Leaving the processing in the hands of the PSPs means that you don t need to hold the credit card data or get involved in anti-fraud or data protection issues. Use secure links and servers Use SSL (Secure Sockets Layer protocol) encryption when transmitting data. A closed padlock sign at the bottom of the screen shows that details are protected when being sent. Only store credit card data on a secure server. Remember that encryption and other security measures cannot prevent unreported stolen cards being used in transactions. Be vigilant. Check credit card addresses Some PSPs also use an AVS (Address Verification Service) that checks the address of the cardholder against the billing address. Many can only offer this service in their home country while international operators charge a small fee, typically six pence per transaction, to check international addresses. Alternatively, visit an online electoral roll website and check delivery addresses with the names on customer orders. A free web-based service called Early Warning (www.earlywarning.org.uk) lists known credit card fraudsters. Some PSPs can also look for patterns in the way purchases are made. The more transactions that are stored, the more data the system has to analyse and the smarter it gets. E-mail or IP addresses that look suspicious can be blocked when using these smart systems. Check the content of the orders Beware of users placing orders with free e-mail addresses such as yahoo or hotmail. It is very easy and completely anonymous for potential fraudsters to use these free webbased services. Certain countries have a higher percentage of fraud risk and may be considered suspect. 8
Recognise the way your average customer does business, the size of transactions made and how much information is provided so you will become familiar with purchasing patterns. Orders for large quantities of easily saleable electronic goods, for example, should ring alarm bells. For more information on all these topics, visit the Security section of our website at www.dti.gov.uk.bestpractice PREPARING FOR AN ELECTRONIC PAYMENT SYSTEM To implement an electronic payment system you will need: an account with an established Internet Service Provider, ideally a broadband service a working domain name such as www.yourdomain.co.uk a professional, dynamic website (written in a scripting language such as ASP, ColdFusion or PHP, JSP) an online database or some means of storing product and order information an online form or a shopping cart package to capture credit card information an internet merchant account to accept payments, a secure server and secure links to your bank or a PSP to handle transactions. You will also need to prepare your website. Make sure your website works well enough to justify adding further facilities. If not, consider upgrading first online shoppers are notoriously fickle. If a web page takes too long to download or a click doesn t deliver a fast enough response, they ll be off to a rival site. Visit other online stores to see how the most efficient sites and checkout systems work. It should be easy to navigate forward and back through the purchasing process. Make sure your site is bang up-to-date with inventory listings and that your stock checking, sales processing and delivery options are effective. 9
Customers are impatient. Consider one-time sign-in services such as.net s Passport. This enables customers to create a digital ID certificate (rather like an online passport) that both authenticates and authorises its owner to enter Passport-enabled sites without re-keying personal information. These services can also allow customers to create an online wallet that stores billing and shipping information and could, potentially, handle payments. Make sure that final invoices and delivery details are clearly displayed and that the customer receives copies. Provide as many channels as possible for customers to contact you if necessary, including a phone number (not a mobile) and a postal address (not a PO Box) for customers this helps develop trust. Make sure your terms and conditions for accepting electronic payments are legally watertight, comprehensible and prominently displayed. IMPLEMENTATION CHECKLIST Research & analyse Set targets Set goals for electronic payment systems, such as increasing profits, reducing costs or growing the customer base and agree specific, measurable objectives for what you want to achieve, such as: increased profits reduced costs due to banking processes becoming automatic speeding up payment for goods greater productivity from staff due to streamlining of buying cycle and audit and accountancy processes increased customer base. Cost benefit analysis Establish the costs of electronic payment systems, including website upgrading (as applicable), software, bank charges, staff training and maintenance. 10
Compare these with the benefits, including faster payments, increased efficiency, reduced operational costs, increased customer base and streamlined audit and accountancy processes. Evaluate options There are several approaches to taking electronic payments, some of them can co-exist with others and some are mutually exclusive. The options are: traditional card payments mail order online payments payment bureaux secure order forms BACs alternative payment options. Evaluation criteria Do you want to set up a manual or an automatic system? Offer payment by credit card? Invest in software? How quickly do you want to set up your solution? What is required of your trading record? For example, banks have higher requirements. Cost use the self-service comparative tool on our electronic payments website available at www.electronic-payments.co.uk How will your system integrate with the rest of your business, such as accounting, stocks and order processing? 11
Consult Professional advice If you lack the skills in-house, contact a Business Link adviser (or equivalent if you are in Scotland, Wales or Northern Ireland), in the first instance, for help on how best to: outline your requirements establish how much you can afford to pay scope the project advise on implementation provide training and software support. Talk to your trading partners Find out whether they use electronic payment systems and the pros and cons of the ones they use. Plan & test Plan the roll-out phase Does your website need upgrading before you implement your electronic payment system? Look at training implications what will the cost be? Decide which staff will require training and allow time for them to adjust to the new system. Act Implement electronic payments Rollout any necessary training. Encourage staff involvement and feedback. This will help smooth implementation, as staff buy-in can make or break a technology project. Consider setting up a cross-departmental taskforce to manage the implementation process it will help with staff buy-in and ensure that implementation works company-wide. 12
Evaluate Monitor and review the impact on your business and against your objectives. Get feedback from staff, customers and suppliers on the changes. Evaluate the impact after 6 months and 1 year. Have you achieved your objectives? Establish how you could improve things further. FURTHER HELP AND ADVICE For more detailed information on electronic payments, including an assessment of your options and a tool for costing the alternatives, visit www.electronic-payments.co.uk the Scottish Enterprise site dedicated to the subject of web payments. Other general information www.apacs.org.uk UK trade association of banks and building societies. www.setco.org/set.html website for the SET Specification an open technical standard for the commerce industry developed by Visa and MasterCard as a way to facilitate secure payment card transactions over the internet. Payments bureaux www.kwikpay.co.uk www.datacash.co.uk www.worldpay.co.uk www.netbanx.com www.netpayments.co.uk www.protx.com www.secpay.com www.securetrading.com Acquiring payment service providers www.epdq.co.uk 13
Person-to-person www.nochex.co.uk www.paypal.co.uk www.fastpay.com Merchant account providers www.mastercardmerchant.com MasterCard www.visaeu.com/microsite/verified/main.html Visa www.lloydstsbcardnet.com Lloyds TSB www.ci-card.com Ci-Card Pre-paid e-cash card provider www.splashplastic.com Splash plastic card www.perpay.com Personal Payments e-cash card DTI is not responsible for the content of external websites and inclusion in, or exclusion from, the above list does not imply recommendation, endorsement or otherwise of any company, product or service. Remember that technologies and markets change rapidly so it is always wise to undertake your own independent research. For more information on Achieving best practice in your business: Visit our website at www.dti.gov.uk/bestpractice Call us on 0870 150 2500 to order from our range of free best practice publications or visit www.dti.gov.uk/publications Contact your local Business Link adviser by visiting the website at www.businesslink.gov.uk or calling 0845 600 9 006 Published by the Department of Trade and Industry. www.dti.gov.uk Crown Copyright. URN 04/649; 04/04 14