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E-commerce (Electronic commerce)

There are several options available for processing payments received from your web site. They fall into two categories.
  • Off-Line Payment Processing
  • On-Line Payment Processing

Most e-commerce websites will offer the customer more than one method of paying but may indicate their preferred method. Each method will have different set up costs, fees, administrative duties and risks associated with them and so the best one will be specific to each business.

On-Line Payment Methods

Accepting credit card payment in real time can save the customer and the merchant time and make for a smoother transaction process. There are two main options:-
  • Use a Payment Processing Company (Bureau)
    A Payment Processing Company retrieves payment on behalf of the merchant and forwards the money to a nominated account. Set up fees, annual charges and transaction charges vary.

    The advantages of a Payment Processing Company include;
    • The merchant uses the Payment Processing Company's Internet Merchant account
      (This is very convenient where the merchant is a start up and is unable to supply an account history.)
    • Benefits from the use of reassuring brands (e.g. World Pay, PayPal)
    • Relatively easy to set up
    The disadvantages include;
    • More expensive transaction fees than using own Internet Merchant account
    • The Payment Processing Company may hold funds for up to a month before release
  • Set up an Internet Merchant Account (Gateway)
    Debit or credit card payments are paid directly into the merchant account within three or four days of the transaction. The set up, annual and transaction charges vary but tend to cheaper than through a Bureau. However the acquiring bank may charge the business if refunds are issued. (These are called chargebacks.)

Merchant's should acquaint themselves with the fraud protection and chargeback policies of the various Payment Processing Companies and Banks.

Off-Line Payment Processing

Some merchants prefer to process payments off-line. A merchant may already have a cost effective process in place which they use to process payments that do not originate on the web. Or perhaps the product is a complex one and customers tend to order the wrong one. A merchant can confirm the details of the order with the customer and avoid costly chargeback fees if there has been a mistake.

The Off-Line Payment Processing Cycle

  1. An e-mail containing the order and contact details are sent to the merchant. It will also include the customer's preferred payment method. The merchant might typically offer the following options.
    • Cheque
    • BACS
    • Direct Debit
    • Postal Orders
    • Credit/Debit Card
  2. The relevant information for any of these methods may be obtained by
    • Telephone
    • Fax
    • Post
    • Secure Server (See No.3 immediately below)
  3. Optionally credit/debit card details could be obtained via a page on a secure area of the merchant's website.

    Customers enter their card details into a form on a secure page and which are then stored on the server. The merchant can access these details using a secure password and then process them as if they were given over the telephone.

    The merchant then uses their appropriate merchant service, to process the credit card payment off-line.

    Processing payments like this is described as a Customer Not Present (CNP) system.