The True Cost of Merchant Services
Please note that the costs stated will vary between different Merchant Account providers
A number of companies have entered the Merchant Services market as a one stop e-commerce solution, however, all is not what it seems! The companies offer you "the chance to accept credit cards and sell your goods/service world wide in a matter of days".
Although this claim is possible, it is highly improbable. You will need to apply to your bank for an Internet Merchant account (even if you have a current Merchant account for mail order). If you do obtain the authorization to trade on the Internet you may find the cost prohibitive to your profit margins. The company offering the one stop solution will charge you 2-4% of each deal, with a set up fee from around £500. The Merchant Services will also charge 2-3% per deal, again with a set up fee if you do not bank with their bank.
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May 2000 Secure Payment Systems (excerpt from the firsttuesday group)
Sorry, I appear to have the wrong end of the stick. I thought you were after a low cost, cheap to run solution handling up to, say, a hundred payments per day, with dynamic (as opposed to static) web-site contents directly under your control. It seems you want to play with the big boys and go for it from day one. Seriously, though, your idea of a hosted site is fine if you don't mind your server being in someone else's premises, and paying for that privilege. In either case, if you use a commercial card-accepting service the actual payment part shoots off to their encrypted web site anyway.
You can easily "do it yourself" on a slow connection provided that the slow connection is used for your "dynamic" content, and all your static rubbish (gifs, standard text, eye-candy, etc.) is on somebody else's server, for example the 10Mb or so usually provided free by any ISP you want to use, or several of them. You would be amazed at how many clients you can service on a slow connection using this technique.
Of course, your slow connection must also support (upto 128-bit) encrypted user entry of credit card payment data (peanuts in terms of data flow). That's all the commercial sites really do, plus look up the card details in the issuers/notified-stolen databases to check validity (this is definitely not 100%!) and give you a yeh or ney, crediting the money to your account less their whacking great commission. You could submit those details yourself (if the numbers are not too great) just like someone taking orders over the telephone. You have all the usual checking facilities available to your local garage/restaurant/shop for any you are not sure of.
Finally, you can register your encrypted site with a Certification Authority, say Verisign, just like the big boys do for about £50 for a year. Personally, I think this is a con, as all it does is involve a third party who "guarantees" that your web-site is actually your web-site (if you see what I mean). If the actual IP address has been diverted, any hacker clever enough to subvert the entire web addressing system could easily subvert this as well, and if its a case of the user's local DNS being sabotaged or simple miss-keying you have had it anyway. As it is a holder-not-present credit card transaction, the user can always get his money back.
And the big benefit? Well, when you have your own account and your own server on your own connection, you can do as you damn well please.....almost.
So, all of this depends on what you are selling, how much payments usually are, how many transactions you need to handle, and how much of your margin you want to shell out. When you have contemplated all of this, if you still want to go for the cheapskate solution, that's where I live, otherwise good luck in the BIG POND!
Now, as I intended this information for the general titillation of firsttuesday north, rather than as free consultancy for your obviously wealthy international dot.com (oh, come on, we have all read about the hundreds-of-millions-of-pounds available to dot.com's!), I am taking the liberty of CCing it to them, having first removed your personal data.
P.S. A Linux PC Apache server from Rimsco Ltd. mounted on your ADSL connection (now BT have publicly stated that each user will have an IP address - see Computer Weekly) and capable of serving thousands of clients per day costs only £1000, or we can run one for you until you are ready to go in house starting at £250/month subject to our normal conditions on ethics and content. And there must be hundreds of people reading firsttuesdaynorth who will do you great web pages to stick on it for very reasonable prices.
Update May 2000 (excerpt from the firsttuesday group)
Consider the impact of chargebacks to your business planning, cashflow and potential profitability. You need to build a percentage into your business plan (expense account) to compensate for potential losses through credit card fraud. You will also need to budget HR within the working week to administer the aligning accounts both on and offline, security check any suspicious orders (more common than you think) talk and communicate with the banks to substantiate validity of any chargebacks, checks on payment gateway, initiate refunds and consequent paperwork or online activity etc.
FYI Although an online sale is authorised by the bank and payment gateway - if that sale turns out to be fraudulent, they reverse the payment out of your account under the card holder not present clause of your merchant agreement. You are given time to show that you shipped the products/service but even if you did ship the goods; if the card was used without the permission of the credit card holder, they will still credit the credit card holders account and debit your bank account. All outlined eat into the bottom line (or make red - redder !) I learned this a valuable but expensive lesson early on in the companies set up and we have since taken steps to reduce the possibility of online fraud - it could make up to 10% difference in your projections if you count the administration and the loss of goods, profit margin etc,
Update February 2000 (excerpt from the firsttuesday group - the content has not been authenticated)
There are a few aspects you may need to look at. You can go down the route of getting your own merhcant number or use a Bureau such as Worldpay or Netbanx. Acquiring your own merchant number is a lot harder than going under a bureau and takes longer but reduces your costs and improves cash flow. Most Merchant Services ask for a deposit of approximately =A320,000 to insure them against fraud but can be redeemed when you have proven to be trustworthy! (approx 1-2 years) Whilst Worldpay is the easiest to setup, giving you an answer within a couple of days, they charge 4.5% commission.
Although this is almost half what Netbanx quote, you cannot integrate their system within your site. i.e. your site looks cheap when the customer comes to the checkout. Datacash use a company called Kleline for their Bureau Merchant. However, I believe that Easily.co.uk had many problems with their system. I'm not quite sure what but one problem was that Kleline was a German company therefore when it came to changing the currency back to sterling , the customer was charged more than quoted on the website, forcing Easily to pay the difference. The best thing for you to do if you can't afford a security deposit is use Worldpay as its the cheapest and easiest, if you don't mind how your checkout looks and once you're doing the business, a merchant service provider may be willing to let you use their services. You need to specify to them that you'll be using a 3rd party secure host (Datacash, Secure Trading , Netbanx, etc.) and they may be more helpful as the transaction won't be done through a PDQ where the cardholder is not present. This takes away an element of risk.
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