How to take payments online

by James Agate

The following is a guest post from Lucy Langdon who works for Merchant Account Forum, a website that helps visitors find the right merchant account for their business.

If you’re thinking of setting up on online presence for your business, or already have one and want to start accepting payments, you’ll need to spend a bit of time learning about how transactions work on the Internet.

Step One

Let’s say you’re shopping on a straightforward ecommerce website that sells clothes. You add a pair of jeans to your shopping basket and then proceed to the checkout page. This will all be managed by ‘shopping cart software’, a piece of kit you’ll probably have to invest in if you want a similar service on your site.

Step Two

You arrive at the checkout, check your order and then hit ‘Buy Now’. You’ll then get taken to a secure page to enter your card details (you’ll be able to tell it’s secure because it will start ‘https’ rather than ‘http’).

Step Three

You enter your details and click something like ‘Confirm’. The form is then sent to a Payment Gateway, which acts as a go-between for all the different parties involved, in this case your bank and the merchant account of the shop you’re buying from. The Payment Gateway will query both banks to check the transaction can go ahead and then relay the message back to your website.

Step Four

The transaction takes place and you’ll receive a message confirming the payment. You can now start getting excited about your new jeans!

Whether you want to sell jeans or MP3 downloads on your site, you’re going to have to work out a way to take money from your customers. Online payments are more or less expected these days, and will lend an air of professionalism to your online presence. However, setting up the payment process can be quite a slog. Below, I have weighed up the pros and cons to help you make a decision:

The advantages of selling and taking payments online

• Increase sales – you’ll have a much larger market, you’ll be able to take advantage of impulse buys and, if you have some half-decent shopping cart software installed, you’ll be able to cross-sell and up-sell to your heart’s content.
• Professionalism – a business that requires customers to send cheques or postal orders does not look as trustworthy as one with a slick, well-designed checkout.
• Time – in the long run, a well setup payment process will take a lot of time-consuming book keeping off your hands.
• Analytics – all knowledge is good knowledge when it comes to customers. Being able to understand and analyse how they navigate and eventually buy from your site will allow you to improve your service and, ultimately, raise prices or sell more.

Some disadvantages of taking payments online

• Costs – setting up a payment process with shopping cart software, a payment gateway and a merchant account will cost you money, either upfront or on an ongoing basis. In most instances, the more you pay upfront the lower your costs later on.
• Time – ecommerce is a complicated area of the Internet and there are few worthwhile shortcuts. Applying for a merchant account can be particularly time-consuming as you might get refused a few times (depending on your business model).
• Risk – there are lots of opportunities to make mistakes along the way, such as purchasing incompatible software, not spotting hidden charges or breaking your site.

The Alternatives

For many small business owners, these cons are hard to get around, despite the potential rewards.  There’s an inherent risk that the time and money they put into setting up a payment process won’t pay off – they’ll be out of pocket, they will have wasted time and they will probably have annoyed a fair few customers.

Services like Paypal and Google Checkout are a great way to bridge the gap between having no ability to take payment and creating a fully-fledged ecommerce website. Both are free to setup in their simplest forms, which means you can get going almost immediately with very little risk. However, you’ll be paying a higher ongoing rate through transaction fees so do make sure to revisit the setup once you and your business are a bit more secure.