Introduction - Online payment solutions
Online payment solutions are the means by which customers can make payments to your web store with their credit card. To do this you will need a bank account (naturally) and an account with one of the payment solution providers. This isn’t as complex as it may sound, although the range of offering and fees from the various providers can seem complicated. Let’s look at how to make the most cost-effective choice.
While getting the lowest fees is the main thing we’ll look at today, there are in fact several factors to consider for the different payment solutions, such as trust, eligibility, and costs. Let’s briefly consider the first two before looking at how to find the lowest costs.
One thing to consider beyond simply getting the lowest fees is the trust factor, and how the choice of provider can actually affect your sales – or the conversions you get on your website. If your website has no obvious credentials, and no well-known payment provider badges on your site, conversions are likely to be lower. On the other hand, if you use PayPal or another service with wide recognition (like Amazon Payments or Google Wallet), visitors will be more ready to hit the buy button. In fact, a study by Nielsen indicated that merchants gained a 15% increase in total customer spend after integrating trusted payment solutions. Certainly something to keep in mind.
This will depend on the country that you live in, or more precisely the location of the bank account that you use for your store. Merchants in countries such as the USA and the EU member states will have the largest number of options, while those in some other countries will have fewer options for payment solutions. But wherever you are located, don’t despair! There are solutions for sellers in every international location.
Merchant vs Payment Gateway (Aggregated) Accounts
The two main types of accounts that you will find are merchant and payment gateway (also known as aggregated) accounts. These are not bank accounts – don’t get confused with a merchant bank account. Rather, they are specialist payment accounts which enable you to receive credit card payments.
The merchant account means that you are recognised by a credit card processing company as a merchant, and you have a contract with them. This works out well for flourishing businesses as they can potentially get lower rates and even negotiate.
The other kind, aggregated accounts, are easier to set up and are offered by names such as PayPal and Stripe. With this kind of account, your account is aggregated with others for the purpose of processing by the credit card company. It’s simpler but often fees and rates can be higher.
Fees and Charges
The main fees charged by the providers usually include the following (note that each provider has its own unique payment structure and may not use all of them):
- Set-up Fee: a one-time payment charged by a few providers.
- Monthly Fee: ongoing monthly flat payment, typically ranging from around $5-$30. Some providers have no monthly fee.
- Monthly Minimum: if your store transaction fees do not meet this threshold, you will be required to make up the difference. A typical monthly minimum might be $25.
- Gateway Fee: the gateway provider is the service that encrypts and handles the actual transactions. Some payment providers charge a gateway fee per transaction, some don’t.
- Chargeback Fee: this is one to watch for. When a customer claims the chargeback as guaranteed by their credit card provider, the merchant will need to pay a fee, typically $20 or more.
- Transaction fees. These are the most significant cost and need careful consideration.
Transaction Fee Types
Transaction fees are charged as a percentage of each payment, or as a percentage plus a set transaction cost – for example, 2.9% + $0.30 per transaction. Transaction fees are where the bulk of merchant costs are and they come in three different types: flat, tiered, and interchange.
- Flat fees are a simple percentage, such as PayPal’s 2.9% (3.9% for international transactions). This structure is most common for entry-level accounts.
- Tiered fees are common for larger merchant accounts, and mean that you can be charged at a different rate, according to the “qualification” level of the transaction. These qualifications are determined by the provider and depend on some financial factors which may appear hidden to the merchant. Overall however, this structure can result in savings especially if you have a high volume.
- Finally, the best value is often to be found with the interchange rates. Once reserved for high-volume merchants, the structure is increasingly available for smaller businesses. Essentially, the interchange rate is a wholesale fee which you will pay as a percentage plus a transaction fee – so it looks like the flat rates, but you will be getting a better deal.
In selecting the best payment solution for you needs, you will need to consider the volume of business you intend to do. Some low-rate solutions will not be available to merchants doing only a small amount of business. As you increase your transactions, you will gain increased power to negotiate with the provider as well. If you have a genuine and profitable business, don’t settle for quoted rates without speaking to a representative first.
Finding the Right Solution For Your Business
When you are ready to choose your payment solution, first consider some of the major names, like PayPal, Stripe, Amazon, Square and so on. Looking through their plans you may find that they work out well for you, especially if you are starting out and you are willing to pay a somewhat higher rate in return for ease of set-up and name recognition. As you get established, while these companies do have excellent services that may work for you, it will become increasingly important to do some more research and find out about some of the other specialist companies that may offer better deals. Run through scenarios based on volume of sales, number of sales, location of sales (i.e. different rates may be charged for international transactions), number of expected chargebacks, and the other typical month-to-months aspects of your online sales. Take note of the provider’s customer service – do they provide accessible support and, even better, a representative that you can actually speak to and negotiate with? If so, you may be able to get certain fees waived and get a package tailored for your business. The payment solutions business is competitive and innovative and low-priced solutions are increasingly available.
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