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Guide to E-Commerce

 

Beginners' Guide to E-Commerce

Accepting Credit Card Transactions
It's worth mentioning again. Your sales will increase dramatically when you offer your customers the ability to pay by credit card transaction. Those of you who already accept credit cards in your offline businesses can skip this section.

Credit card transaction is a big topic. For simplicity's sake, let's break it down into three categories: Merchant Accounts, Internet Merchant Accounts and Credit Card Processing Services.

Merchant Accounts
A Merchant Account is a relationship between a business (i.e. a merchant) and a merchant bank that allows the merchant to accept credit card payments from customers.

Acquiring a Merchant Account can be difficult. Many banks or financial institutions have stiff requirements and regulations regarding the issuing of a merchant account. The situation will differ depending on your bank, your country's banking regulations and your individual situation. Many a merchant has approached their bank to discuss a merchant account only to discover that the friendly banker becomes less friendly. These accounts are often beyond the means of people who are operating small or new businesses.

When you apply for a merchant account at your bank, you will be required to
demonstrate that your business has had an extended period of financial stability. Expect to present your business plan, your financial statements and various other documents. Factors
considered include cash reserves, the length of time you have been in business, your tax returns, your credit history, debt load, refund policies, volume of business, cost of item being
sold and other sources of income. Those who pass the stringent requirements might be asked to put up a substantial sum of money (several thousand dollars) as a safeguard against chargebacks or credit card fraud. They could also be asked to pay for the software or terminals that they will be using.

Those who are eligible for a Merchant Account will need the necessary hardware or software. In some cases, depending on the bank and depending on the type of business that you are operating, you will need to purchase or rent a processing terminal -- the equipment that merchants run your credit card across when you charge a transaction. You might also need to acquire special software.

Before getting your merchant account, be sure to find out the full charges that you will incur for using the service. In addition to the aforementioned chargeback deposit, investigate hidden equipment costs, setup fees, line charges, bank transaction fees and credit card discount rates. These costs eat away from your profits, and you will need to price accordingly

Also, be aware that most banks allow you to process one credit card only.

About Chargebacks
All major credit card companies offer their cardholders the right to contest charges on their statements that may be the result of theft, fraud or error.

A customer contacts his/her credit card company and complains that the merchandise was unsatisfactory, did not arrive as promised, or that the sale resulted as a result of a lost or stolen card. These contested charges are called chargebacks. When a chargeback occurs, the merchant will end up reimbursing the issuing bank the amount of the purchase price, in addition to a chargeback fee that can be as high as $50 or more. For example, if you sell a book for $20 through a credit card transaction and the cardholder later contests the sale, you will end up paying your bank the $20 PLUS a chargeback fee of $10 to $50 dollars. When you add to this the amount that the book cost you and the cost of mailing, if applicable, you can see that your losses can be add up quickly.

Banks ask for a sizable deposit to protect themselves in the event that the merchant is unable to cover the chargeback costs at the time they occur. Merchants who incur too many chargebacks are at risk of losing their merchant account. Somewhere between 1-3% of total transactions is usually acceptable.

Chargeback issues are of foremost concern to a merchant hoping to acquire a merchant account. They can result in serious financial loss.

Note that chargebacks are not the same as the fee you pay for a merchant-issued refund. The latter might cost you only a few dollars to process.

High Risk Processors
Since so many small businesses are unable to arrange Merchant Accounts, an industry has arisen to meet the need. High-risk processors are financial institutions or companies that that issue merchant status accounts to high-risk businesses. In this case, a high-risk business is one that cannot arrange a Merchant Account through the bank. These companies offset their risks by charging higher transaction fees and higher rates than the banking institutions. However, the initial outlay of cash that you will be asked to put up is usually much less than the large deposits that the banks require. Some high risk processors might offer other added features such as shopping cart software, web site templates, forms or secure lines for ordering.

Many companies offer this service. Most are available only to US residents, and terms of service vary. Read the fine print on the contract and be sure you know all of the hidden charges that might apply.

Card Service International and Electronic Transfer Inc are arguably two of the best-known companies of this type in the US. However, merchants who live outside the US may encounter difficulties. Refer to the section on International Merchants.

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