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Payment Options for Online Shoppers

When Web site visitors become Web site shoppers, offering them a variety of ways to pay will make it easy for them to do business with you.

It still amazes me how many bright online business owners will spend countless hours working on their Web sites and developing their offer only to neglect one of the key elements of closing the sale--making it easy for customers to buy.

The most popular online payment method, by far, is paying by credit card, and that's why I'm going to show you how to quickly get set up to automatically accept credit card purchases on your site. In addition, I'll also be discussing the benefits of accepting:

  • Online checks
  • Debit cards
  • Digital cash
  • Person-to-person e-mail payments

As you read this information, think of choosing the payment options that will be just the right "fit" for your online business. Offering one or more of these "extra" choices (in addition to accepting payment by credit card) could become your secret weapon, a competitive service advantage that you offer and your competitors don't. Neglect these potential buyers, the ones who never pay by credit card online, and it's the same as taking a 10 percent cut in pay.

Payment Option #1: Accepting credit card payments. Since 90 percent of all Internet payments are made by credit card, your first priority should be to get yourself set up with this payment option as quickly as possible. I've seen businesses increase their sales by as much as 400 percent right after they gave their buyers this convenient way to pay.

Let's face it: The entire mentality of the Internet is "instant" access to information, products and services. If your potential buyers have to stop surfing and free up their phone lines, call in their orders or, even more time-consuming, hunt around for their checkbooks, envelopes and stamps, your order process will discourage all but the most resolute shoppers.

For you, the merchant, accepting credit card payments builds credibility in the minds of potential buyers (since you look like a "real" business), makes it easy for buyers to make impulse purchases, and provides you with a fully-automated payment collection and tracking system. And this means no more trips to the bank, bounced checks to deal with, or hours spent manually processing orders and accompanying paperwork.

The first step to being able to accept credit cards on your web site is to become an authorized credit card merchant. You can apply by contacting a merchant account provider (also known as an independent service organization), which provides the hardware and software you need to accept credit card payments right on your site.

Merchant account providers fall into three main categories:

1. Direct processors. Direct processors, such as banks, offer direct access to the credit card processing centers. The completed order form is transmitted from your site through a "payment gateway," which is a secure server that captures the credit card information, and then passes it along to the bank.

Banks, in general, are cautious about granting credit card merchant status to any business that doesn't have the large majority of transaction slips personally signed by the cardholders. That's why many banks will charge a hefty deposit of several thousand dollars in addition to a minimum monthly fee, whether you have any sales that month or not.

2. Brokers. A broker acts as an intermediary between you and the direct processors. I recommend using a broker to match your needs and situation to the right supplier. I've found one who has a 98 percent approval rate for online businesses, even for applicants who've been bankrupt or reside outside the United States and wish to get U.S. merchant accounts. You should be able to get a discount rate of between 2 and 3 percent. (The discount rate is the amount of each sale that you will be charged by the supplier for providing a payment service. In other words, a 5% discount rate means that if your product sells for $100, the merchant account provider will keep $5 of every sale and you will receive $95.)

3. Third-party processors. Third-party processors send the credit card payments through from your Web site's order page to a direct processor. They often provide "extra" services (such as the ones listed below) beyond those offered by direct processors and can be divided into two categories:

  • Fulfillment houses. A fulfillment house will take orders for your products through their toll-free number, provide a "live" operator for your buyers, package your goods and then ship them . . . all while providing you with a complete online record of the transactions.

    Many netrepreneurs start out doing all the work themselves and then, once their business is thriving and reaches a point where their time is better spent focusing on the promotions rather than the chores, the order processing is offloaded to a fulfillment house. Fulfillment houses charge around a 5% discount rate.

  • Service providers. When you sign up with a service provider, the payments your buyers make are actually being processed through the service provider's credit card merchant account. In other words, you don't have to qualify for credit card merchant status on your own since the service bureau is the legal retail seller and you, the merchant, are their "agent." These services are popular with smaller online businesses, especially those just starting out. Yes, the transaction fees are usually higher than dealing with a direct processor, but there's often no minimum monthly service charge and no hefty deposit requirement so you're only charged on those sales you make.

Since these services offer different packages, they may or may not include a fraud control service, online sales and transaction reporting or shopping cart functionality. Service providers such as iBill can get you set up to accept not just credit card payments, but also online checks and payments by phone.

Choosing whether to go with a direct processor or a third-party processor primarily depends on your monthly sales volume. Since rates and services are constantly changing, it would be a wise investment of your time to compare current discount rates, monthly charges and other fees. As a very general guideline, if your monthly sales are under $750 to $1,000, and you don't want to pay for a merchant account, then a third-party processor will probably best suit your needs.

Once you've reached $750 to $1,000 a month in sales, you may want to look at switching to a direct processor that offers a lower discount rate, reduced processing costs and shortens the time delay for receiving payments. One final cautionary note: Before you sign any long-term lease, I suggest you wait until the profits from your business are in your hand and you can accurately forecast future earnings.

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Corey Rudl, president and founder of the Internet Marketing Center is the author of the best-selling course Insider Secrets to Marketing Your Business on the Internet. An internationally sought-after Internet business consultant and speaker, Corey focuses his energy on the research and development of practical, cost-effective Internet marketing strategies and software for the small and homebased business owner.

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