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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.

By Corey Rudl

entrepreneur daily

Opinions expressed by Entrepreneur contributors are their own.

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.

Other Online Payment Options

Payment Option #2: Accepting checks online. It's interesting to note that "traditional" checks are used for 11 percent of all online purchases. Since these online shoppers are willing to go through the hassle of mailing checks, offering them the option of paying by online check through your site should be an instant profit booster for you, provided you have a special section on your site explaining how online check payments work and that buyers' personal information is secure.

Online checks (also called e-checks) are virtual checks that allow consumers to pay by check through the Internet. The buyer fills out a form (that looks like a check on the screen) with his or her banking information, the date and amount, and then clicks the "send" button. That information will then either go to your computer or to a transaction service, depending on which of the following two ways you choose to accept check payments:

a) The "print and pay" method. This method is called print and pay because you need to buy software that allows you to print the checks (such as that offered by CheckMan) and deposit the checks at your bank to receive your "pay." The checks are processed just like regular checks, so you have to wait until each check clears to be sure that it is good for funds, etc. This method is less expensive but more labor-intensive and time-consuming than the following method. (Before you decide to go the print and pay route, make sure your bank will accept these checks and find out if you need to purchase any special paper for printing the checks on.)

b) Transaction service. Using a transaction service is similar to using the print and pay method for the buyer in that they enter all their check information on an online form. That information is then encrypted and transmitted directly to a clearing house and generally settled within 48 hours. The funds are then withdrawn from the purchaser's account and deposited into the merchant's account with a receipt e-mailed to the buyer and an online report available for the merchant.

Using a transaction service is faster than the print and pay method since they confirm that all the required information is input online by the customer at the time of purchase and, for a fee, will guarantee that the check is good for funds. Most services, such as XpressChexOnline, deal with U.S. checks only and charge a set-up fee and a per-check charge.

Both the print and pay method and transaction services allow you to accept payments online, by phone or by fax, since you can take the buyer's checking information and manually input it yourself.

Payment Option #3: Accepting debit cards. When a payment is made through a debit card, the funds are immediately withdrawn from the purchaser's bank account. The advantage to you is that you know the buyer has the funds to make the purchase and that it won't be charged back to you (like a check with insufficient funds). The advantage to consumers is that purchases are paid for right away, so there's no credit card shock when the statement arrives in the mail.

Contact your merchant account provider and ask them if you're able to accept debit card payments as part of their service. While debit cards are still not widely used by online shoppers, this payment method is gaining popularity, so it's at least worth being aware of.

Payment Option #4: Accepting e-wallets (digital wallets). Right now, there's some disagreement on what exactly an e-wallet is. Many companies are calling their products e-wallets, yet, since there's no standard, their interpretations vary widely. e-wallets can be placed into two broad categories based on their capabilities:

a) e-wallets that store card numbers. The easiest way to think of an e-wallet is as a virtual wallet that can store credit card and debit card information, passwords, membership cards, health information and all the numbers of cards that currently get stuffed into a real wallet. Software such as Ilium's e-Wallet, for example, can be installed on a Palm Handheld, Pocket PC or Windows PC.

Some e-wallets make it easier for consumers to buy from you since credit card numbers can be copied from the e-wallet and pasted onto the online order form. To accept payments from this type of digital wallet, you don't need to add any additional software or change your order form.

Other e-wallets, such as Microsoft's Passport, automatically fill out the order forms with the consumer's credit card and contact information so that future purchases don't require resubmitting the same information on the online order form. As a merchant, you can visit Microsoft's Web site and download a version of their Passport software so you can accept payments from their subscribers.

b) e-wallets that store card numbers and cash. The second concept of a digital wallet has been around for several years but has not really taken off with either merchants or consumers. In this version, consumers store digital cash, which has been transferred from a credit card, debit card or virtual check inside their e-wallets. Digital cash is like having a virtual savings account where charges are made for ongoing purchases, particularly micropayments--small payments from $0.01 to $10 that can be used to pay for access to digital information such as newspaper articles or software.

e-wallets that store digital cash require both the merchant and consumer to download and use the same software. As a result, acceptance has been poor and so there's no need for you to be concerned about accepting digital cash at this time, but I wanted you to be aware of this payment method since it could become more widely accepted in the future.

Payment Option #5: Accepting person-to-person e-mail payments. Person-to-person (P2P) e-mail payments allow individuals to use their credit cards or bank accounts to pay through e-mail. This process is similar to sending a greeting card over the Net. For example, when you send a greeting card, you select a card, add a personal message and then e-mail the link to the recipient to let him or her know where the card can be viewed. You don't actually send the card through e-mail. Likewise, with P2P, you don't send the payment through e-mail; rather you send the link where the recipient can redirect the funds to his or her bank account or credit card.

To transfer money by e-mail from a bank, for example, the sender: (1) logs onto his or her financial institution's online account; (2) clicks the e-mail payment feature; (3) inserts the recipient's name, e-mail address, the amount, and the credit card number or account where the funds are to be taken from; and (4) has the option of adding a personal note for the recipient.

The recipient then: (1) receives notification that the funds have been sent; (2) is given a hyperlink to accept the funds; and then (3) decides whether the funds should go on his or her credit card or into an account. Here's the big advantage of P2P: Neither party has to reveal their account information to the other party, nor is any money actually transferred through e-mail.

If you sell a service where your clients may wish to maintain their privacy (such as for investment counseling for offshore banking) or if you sell a service where the client pays after the work has been completed (such as freelance Web design), then this payment method might be especially attractive to your clients since it's less expensive than wiring funds bank-to-bank.

Person-to-person e-mail payments are offered through Yahoo!, the U.S. Postal Service, and Citibank. For Canadian readers, this service is currently available through CertaPay. MasterCard offers P2P payments using a digital wallet (e-wallet) to make payments from a MasterCard credit or debit account to any person in the world, in their local currency, directly into their bank account or as a check mailed to that person.

Final Thoughts
With 90 percent of all online purchases made with credit cards, you literally cannot afford not to add this payment option to your site. If you've been hesitating to accept credit card payments online, the good news is that, as soon as you give your customers this option, you should see a noticeable jump in sales.

However, that still leaves more than 12 million U.S. households that don't have a credit card and the many other potential buyers (approximately 10 percent of all online purchasers) who prefer an alternative payment method.

Making it easy for your potential customers to do business with you is an essential ingredient to your online success. You don't need to offer all the payment options mentioned in this article, but it's a good idea to match the payment choices you offer to your type of online business and customers. You will close more online sales and gain a real advantage over your competitors by offering your buyers easy, simple, secure options for giving you their money.

Corey Rudl is the owner of four highly successful online businesses that attract more than 1.8 million visitors per month and generate more than $6.6 million in sales each year. He's also the author of the bestselling Internet marketing course online. To check out his site to get the information you need to start and grow your own Internet business, visit http://www.marketingtips.com. Contact questions@marketingtips.comfor more information.

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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