Setting up shop on the Internet
Read any of the Internet magazines on the shelves of your local newsagent and you would believe that setting up shop on the Internet is as easy as falling off a horse - and a very small horse at that. No pain involved, just pay your money, start selling, blink and become an e-millionaire.
It may well be true that setting up shop on the Internet isn't that difficult, but this is only once you have figured and 'digested' all the relevant bits and pieces. But if you don't know what you don't know, so to speak, how do you find out what you need to know? In-depth articles about 'shopping cart' systems in the latest Internet magazine are not going to do the business.
It took me a while: a lot of reading; a good bit of surfing on the Web; and the personal experience of setting up shop on my Web site were all required in order to figure out all the relevant bits of this particular jigsaw. The critical question - at the core of success or failure is:
how do I accept payment for my services, goods or products?
There are numerous ways of accepting payment online, but if you are serious about making money online, there is only one that you should consider - and that is payment by credit card.
You have to make it as easy as possible for people to buy from you - and today that means you need to be able to accept credit card payments online as over 99% of all transactions on the Internet are carried out by credit card. You can have a form for people to fill out and send to you with a cheque, you can subscribe to all sorts of 'micro-payments', beanz or digital cash systems. but all of these require your potential customer to either go off-line or have previously signed up for one of the systems you have subscribed to.
You need to leave your computer to fill in a cheque and send it - so do your customers and there is a chance they will change their mind or forget all about you in the process. In the case of micropayment and other systems there are preparatory steps a customer would have had to carry out before visiting your site, e.g. by signing up and paying money into one of these new payment systems. What is the chance that the customer looking at your goods that day has previously signed up for such a system? As things stand today, it's not that likely.
To accept credit card payments online you need a bank or a 'bureau' to grant you Internet Merchant Status. (We will not get bogged down here explaining what a bureau is I will pick up on that later on.) Let's start by answering some basic questions.
What is Internet Merchant Status?
When you go into a shop and you pay for your goods by credit card - the shop has merchant status. This means that a bank has allowed that shop to take payment from customers by credit card and transfer the payment from the customer's account to the shop's account. So having merchant status is simply the ability to accept credit cards for payment of goods, services or information.
To accept credit cards over the Internet is exactly the same - but because you can take credit cards off-line doesn't mean you can take them online. You need Internet Merchant Status, which is harder to obtain because it is perceived by the banks to be less secure.
The ability to accept payment by credit cards is not granted lightly by banks. As far as banks are concerned accepting credit cards over the Internet is more open to fraud than accepting them in a face to face transaction - whether this is true or not is neither here nor there - the fact is that banks believe it and they act in accordance with these beliefs.
Face to face transactions or 'Cardholder Present' transactions are considered to be more secure because the merchant can carry out certain security measures like checking the signature and cardholders details. Internet retailing, on the other hand, involves what are called 'Card Not Present' (CNP) transactions.
Examples of CNP transactions are mail order or telephones transactions. The next time you phone up to pay for those theatre or concert tickets you are carrying out a CNP transaction - and the retailer is probably paying more to the bank for the privilege. Accepting credit cards over the Internet is of course also a CNP transaction - and, therefore, regarded as less secure by the banks than face to face transactions.
The story goes like this - if a cardholder disputes a CNP transaction it may not be possible for you as the retailer to prove that you dealt with the real card holder. Authorisation for payment of a credit card only checks to the see if there is enough funds in the persons account - what it doesn't do is check that the request is coming from the owner of the card. The banks have the right to 'chargeback' the value of any fraudulent transactions to your account - in other words take the money from you rather than take any loss themselves.
So how do I get Merchant Status?
Ok so we have established that if you want to accept credit cards online you need to have Merchant Status - and we now know what is meant by Merchant Status. The obvious question now is how do I get this?
Simple - you go and speak to your bank and ask them to grant you Internet Merchant Status. Surely not I hear you say - so what is the catch? Well, it took LastMinute.com, one of the biggest capitalised '.com' businesses in the UK over a year to be granted Merchants Status in the UK by the banks they approached.
Things are changing but the fact is that it is still extremely difficult to get Merchant Status from a UK based bank. A mixture of conventional business assessment, fear, ignorance, misinformation, in-built British reluctance to embrace new business models, and a reticence to get in involved in an area, which appears to offer greater opportunities for fraudulent transactions have made banks reluctant to grant Internet Merchant Status to UK businesses.
But having said that, I recommend as your first step to you try to obtain Merchant Status from your bank. Because in terms of transaction costs, this has been proven by many people to be the cheapest solution. This did not, in fact, turn out to be true though when I first approached my bank, the conditions they set, over and above the actual transaction costs, where so severe it was not possible for me to go ahead with this option. Their assessment of the risk of fraud was way beyond what anyone would consider reasonable: one quarter of the yearly value of credit card sales would be held back by the bank. i.e. kept in my account but unavailable to me - in case of charge backs. I won't name the bank, maybe they will have embraced the online economy by the time you read this - I hope so.
Ok so you try to obtain Merchant Status from your bank - and you fail. Hopefully not - but if you you do - what are your options now?
There are organisations other than your bank who will grant you a Merchant account - as long as you pay them a commission on top of the normal transaction costs. There is no guarantee that you will obtain Merchant Status from these 'bureau' services but it tends to be easier to obtain .
Bureau Merchant Services are different from your bank, in that, when you process a transaction through a bureau you are actually using their merchant account - they then pay you as a client of theirs. So you pay more - because you pay for the use of their account on top of the normal transaction costs.
Who offers these alternative Merchant Services?
If you search the Internet you will find plenty of organisations who will offer you the opportunity to accept credit cards over the Internet. Most of them turn out to be based in America, which you might think shouldn't be a problem - after all the Internet has created a global market place and what does it matter who you use to get merchant status. However, there is a catch - many American based companies only process payments and pay you in dollars.
For this reason I would prefer sticking to those based in the UK. The following are the leading players in this field.
Netbanx
One of the most well known Bureau Services in the UK is Netbanx used by, amongst others, BT and Pipex (http://www.netbanx.com). Netbanx give you the ability to take credit card orders on your Web site and can authorise or reject those transactions instantly (informing both you and the customer of the decision). As the merchant you never actually see any of your customers credit card details - a feature well worth telling your customers about - as it can help inspire confidence in the security of your service.
Netbanx is also an affordable solution for the small business - if you consider spending a few hundred pounds to get started affordable.
Netbanx Web site: http://www.netinvest.co.uk/ncr/netbanx/
WorldPay PLC
Worldpay, who are one of the longest established players in the e-commerce field, offers similar features to Netbanx but until recently was not considered an option for the small or home business. They had a reputation as a company who only accepted accounts from large companies. Their current publicity material does not seem to support this perception - and they are encouraging any business to apply for a merchant account .
They have also changed what was, a too long and complex , application process - making applying for a merchant account a less daunting task. They are now trumpeting the fact that you can be accepted or turned down for a WordPay merchant account within 48 hours. This time scale depends more on how how quickly you can put the relevant bank and business information together than how quick WorldPay can process it.
Their latest publicity material states that they grant merchant status to over 90% of those who apply.
Costs: An annual fee of £125
WorldPay is currently the Merchant Bureau I recommend.
WorldPay Web Site: http://www.worldpay.com/uk/index.html
MultiCards
With Multicards you do not have to apply for Merchant Status - in effect Multicards use their account to offer your companies goods and services. In a sense they sell your goods for you; you become a supplier of products to Multicards. In return for this service MultiCards charges a commission - from 10% down to 6% per transaction (depending on your monthly turnover).
The fact that MultiCards is the retailer does not make any difference as far as the customer is concerned - goods are ordered from your Web site, and you ship those products to the customer and the customer pays you for the goods. Payment is carried out via a secure server
MulitCards Web site: http://www.multicards.com/
Which one should you choose
What you should do is look at them all, read all their literature and make up your own mind. But before you dash of to fire up your modem here is what I did.
The first thing I did was to search for Web sites running each of the above payment systems, I then sent the Webmasters an e-mail asking for their thoughts. From my very limited sample Multicards came bottom of the pile, with no-one recommending them. A few people saying that they where the easiest to get merchant status with - and therefore may be worth using, in order to establish a track record as a trader. Both Worldpay and Netbanx got reasonably good reviews and there was little to choose between them.
Based mostly on their low transaction cost I decided to apply for Merchant Status with with Worldpay. Of the three they had the cheapest transaction cost (4% if my memory serves me right), and their payment gateway was compatible with my shopping cart system. Their literature indicated that they had been around for a long time and they seemed to have a credible track record.
My application for merchant status with Worldpay was successful and I have used them now for 6 months and so far I have had no complaints. I was told by one of the people I got in touch with during my research that to get Merchant Status with Worldpay (or any other bureau I assume) you must ensure that you have some money in your business account; you will be required to send your accounts with your application.
Shopping cart Systems
I spent just as long looking at shopping cart systems but that’s a story for another time. I eventually choose a system called Jshop mostly because it was a standalone application I could run on my PC at home and it was cheap (a one off fee of £100). You can see it in action on Pat’s Guide to the West End of Glasgow (http://www.glasgowwestend.co.uk), click on the ‘Art shop’ link on the top navigation bar to find the shop.
Online shopping cart systems that ask you to pay a monthly charge for the privilege of using their system seem to me to be a tremendously expensive way to run an shop - but then maybe I’m just a cheapskate.
Happy shopping,
Jim Byrne