Accepting Credit and Debit Cards for Payment-Merchant Services

Selling online usually involves accepting payment via credit cards. For small businesses this process is handled by a payment provider like PayPal and so there is no need to become involved in this process.

However for completeness we will look at the way credit card payments work and alternatives to card payments.

Normal high Street Card Transactions

Almost everyone has bought a product using a credit-card or debit-card to pay for it. When paying for products by credit or debit card you hand over your card to the shop assistant who proceeds to collect your card number and card expiry date.

Shops used to use a paper sales voucher and a manual imprinter to collect the details which you later signed. These manual based systems have mostly been replaced by electronic systems which collect the card details and link directly to the bank where the card details are checked and the transaction is approved or rejected.

This process involves three main elements:

1. Acquiring bank -The bank that the card details are passed to is known as the acquiring bank.
2. Merchant account - The shop has a unique identity (merchant number) to identify themselves to the acquiring bank .This is given to them as part of a merchant service provided by the acquiring bank.
3. PDQ machine -The merchant service will also provide the machine that the cards are swiped through; this is called a PDQ machine.

Mail order and internet payments

The previous example covered a customer in a shop giving their credit-card to a shop assistant for the details to be recorded and the payment taken.

A variation on this is when the customer is not actually present as when the placing an order over a phone or by using mail-order. This situation is known as a Customer Not Present transaction.

The Acquiring Banks make a distinction between customer present and Customer Not Present transactions as there is a potential increase in fraud when the customer does not present the card or sign a sales voucher at the point of sale.

Orders over the Internet also fall into the class of Customer Not Present transactions and are treated differently by the Acquiring Bank.

Using Credit Cards Online-The process

This is five stage process described below and shown in figure below:

1.  The customer connects to your web site and chooses the product or products using either the templates provided by the payment provider or your own.

2.  When ready to purchase the customer activates the payment link and he is then presented with a delivery form. This form is usually stored on your web server. After the form is complete and submitted he is transparently sent to the payment providers secure server.

3.  When the payment and form is complete and submitted the purchase need authorisation. he is redirected back to your server, usually to an order confirmation page and the order is complete.

4.  The acquiring bank is contacted and the customer credit card details, payment amount along with the Merchant account number is passed to the acquiring bank for authorisation.

5.  The customer is redirected back to the web server usually to an order thank you and confirmation page.
    

Merchant Accounts

Internet card payments require a merchant account in the payment chain. Here we will look at the types of merchant accounts that are available.

Alternatives to Merchant accounts

Because of the initial set up costs of merchant accounts and also to the length of time taken and the difficulty in obtaining them there are a number of merchant account alternatives available which are more suitable for the small business.