Wednesday, 11 December 2013

What Service Providers need to know about online booking payments?

What Service Providers need to know about online booking payments?

OK, you want to start taking payment when a customer books your business online. This involves linking 4 components together to process the payment.
You need a (1) website with a (2) booking widget connected to a  (3) Payment Gateway linked to a (4) Merchant account.

Before this can happen your need to setup a merchant bank account and attach a payment gateway.

What is a merchant account?

Put simply, a merchant account links a customer's payment to your business' bank account. This will let you accept debit and credit card payments.
To automatically process credit card payments online, businesses need:
·         A secure server with PCI compliance certification. Use SSL encryption so the data is protected.
·         An order form on a secure server. This is where your customers will type in their banking information.
·         A payment gateway. This works with the merchant account to make sure your customers' information gets processed so that you can get paid.

What costs should you be aware of?
Unfortunately, they're not exactly cheap. There are lots of rates and fees to be aware of:
Application fee. Your application may be rejected, but you have to pay a standard application fee, and may even have to provide a copy of your business license, P&L statements, tax return copies, and a photo of your office.
Per transaction fees (for example, 50 cents per transaction).
Monthly minimums. Vendors usually have a minimum fee that is charged if a certain amount of money isn't processed. They may also charge annual fees like this.
Discount rate. This includes fees, dues, assessments, markups and network charges that merchants must pay for accepting card payments. They are usually between 2 and 3% of every sale.
Chargebacks. It's expensive to process these, so your provider will pass the charges onto your business (it can range from several dollars or more). These are usually charged per occurrence.

Some things might influence your discount rate and fees:
·         The length of time you've been in business,
·         Your personal credit rating,
·         The percentage of sales that are made on the phone or internet,
·         The type of business you're in,
·         The total amount of sales per month,
·         The average dollar amount of each sales transaction, and
·         Service fees tacked on by third party providers.

What options do you have?

1. Banks
Although banks do provide merchant accounts, they are highly regulated and generally unhelpful for businesses who are just starting out. This is because banks will either reject or charge a higher fee for businesses with high possibility for returns and refunds.

2. Credit card companies
Small businesses usually get their merchant account through credit card companies, and not their business bank. Credit card companies will either set up merchant account processing, or ask you to use a third party processor (this is the case for Visa and MasterCard). Some credit card processing companies require you to maintain an account in their bank before you can process cards.

3. Third parties
Small-sized businesses typically need to go through third party providers to secure the merchant account. One example is PayPal. They collect customers' data and do all the work to process payments for your business.
The upside is the sign-up process is much easier and quicker than it is with a bank or credit card company. Also, if you're just starting out and your sales volumes aren't high, this option can save you money. The disadvantage is that if your sales start to grow rapidly, it will start to become very expensive.

What is a Payment Gateway?

A payment gateway is used to process the credit card payment and transfer the payment to your merchant account.  Banks and 3rd parties offer payment gateway services.
A payment gateway is an e-commerce application service that authorises credit card payments for online businesses. It is the equivalent of a physical point of sale terminal located in most retail outlets. Payment gateway services are offered by banks and 3rd party service providers. Bank transaction fees are often a lot higher than 3rd party payment gateway providers.
What costs should you be aware of?
Most payment gateway providers offer a variety of plans that cover pre-purchasing transactions or pay as you go. Like phone companies they do not make it easy to compare plans.
Setup fee are often charge to establish the account
Per transaction fees can range from 26 cents to 50 cents
A failed transaction can often incur a fee.

What about Paypal?

Paypal is an alternative to using a Payment Gateway and merchant account but the fees are high (2.4% + 30 cents a transaction) and the user experience requires jumping to a separate site just to pay you. This looks unprofessional and can result in a customer abandoning the payment which results in unpaid booking. Instead, you could connect your PayPal account with SecurePay, so that the payment process is seamless and processed within your website fully and it's easier for your customers. Using SecurePay and PayPal does not require a merchant account.

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Topics: credit card transactions, online payment, payment gateway, merchant account, PayPal, SecurePay.

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