Ecommerce presents exciting opportunities for business owners: to better meet the needs of existing customers, to tap into new markets and to grow the value of individual transactions over brick-and-mortar purchases.
While the ability to sell online is hardly a new innovation – Jeff Bezos launched Amazon in 1994, the same year Pizza Hut sold its first pie over the Internet – the exploding growth of e-commerce makes it a sales channel many businesses cannot afford to ignore. In 2018, online sales in the U.S. grew by 15% year-over-year, and analysts believe that by 2040, a whopping 95% of all retail transactions will take place over the Internet.
In spite of the potential, many businesses are lagging, with challenges related to accepting e-payments frequently cited as a key deterrent. But accepting payments online via an eCommerce merchant account can be simpler and more seamless than you might expect – if you choose your service provider right.
Keep reading to learn why your choice for an eCommerce Merchant Account Provider can make a big difference for your business as well as the top tips for choosing the provider who will best fit your needs.
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Why Your Choice of eCommerce Merchant Account Matters
From the outside, eCommerce Merchant Account Providers all seem to fulfill the same function – to enable credit card processing for your online business. But the similarities between providers may end there.
For starters, there is a silent third party known as a Payment Gateway that acts as a go-between, communicating between your Merchant Account Provider and the payee’s bank. While some Merchant Account Providers include Payment Gateways as an all-in-one service, that’s not always the case, and the use of separate providers can add cost and complexity to your experience as an eCommerce merchant.
There are lots of other ways your choice of an eCommerce merchant account can affect your experience selling online – from the technical ease of integrating with your shopping cart software to security considerations to hidden costs, there is a great deal of variability between merchant account offerings. If you’re overwhelmed by the options, fear not: this guide will help you find the best fit for your business needs, as well as helping you to sidestep hidden fees and reduce other risks.
Top 7 Tips for Choosing the Best eCommerce Merchant Account to Fit Your Needs
Tip No. 1: Skip a Bill, and Avoid Needless Complexity, with an All-In-One Provider
If you’re used to in-person transactions, the structure of processing online sales might take some getting used to. While you might only have to deal with a single Merchant Service Provider for your brick-and-mortar sales, eCommerce transactions involve a number of players and steps:
- Payment information is manually entered into the shopping cart software.
- Payment information is delivered to the Payment Gateway, which then passes it on to the Payment Processor.
- The Card Association receives the transaction details, assesses the Interchange transaction cost, and determines whether there is sufficient funds or credit available to approve the transaction.
- The card issuing bank transmits the authorization to the Card Association and the merchant.
- The Payment Gateway confirms authorization to the shopping cart software and the sale is confirmed.
These added communications relative to a standard in-person transaction can add cost and complexity to online sales. This is enabled by a Payment Gateway, which acts as a middleman for the various players involved. While your eCommerce merchant account allows payment to reach your bank, you cannot accept online payments without this vital intermediary.
But as Payment Gateway is a separate service from your merchant account, it can add additional fees and require you to deal with an additional service provider – unless you seek out an all-in-one service. A single Merchant Account and Payment Gateway provider can reduce certain charges, such as gateway fees, which cover the cost of Payment Gateway software. To illustrate, if you use separate providers, you might pay your Merchant Account Provider a percentage on each transaction plus a monthly service fee, along with additional service and transaction fees to your Payment Gateway provider. An all-in-one provider can eliminate your Payment Gateway bill altogether.
Tip No. 2: To Reduce the Risk of Hidden Fees, Understand How eCommerce Billing Works
Payment Gateway fees aren’t the only way your choice of a Merchant Account Provider can hurt you financially. Like all credit card transactions, online sales are also subject to Interchange fees, which is the wholesale rate for processing a credit card. These costs vary by credit card brand, as well as by how a card is processed; online sales, which by nature mean the credit card is not present, are riskier and thus subject to a higher Interchange rate than transactions processed where the card is physically present.
But the models for Interchange pricing can vary tremendously, and thus so can your bill. While Interchange fees reflect the Interchange cost (which will vary depending on the risk level of the transaction) plus a markup by your provider, there are several common models. Three common structures include Flat rate, Tiered and Interchange-plus pricing. For Flat-rate pricing, merchants are charged the same rate for all transactions, regardless of risk level. For example, if your provider offers flat-rate Interchange costs of 2.9%, then that’s what you would pay on every transaction, even if the Interchange rate assigned to that transaction is only 1.6%.
Tiered pricing segments transactions into three categories based on their risk and reward: Qualified, Mid-Qualified and Non-Qualified. While this might seem simple enough, there is no regulation to determine how a transaction is tiered, meaning your provider has free range to make this determination. And – since the provider keeps the difference between the tiered rate and wholesale Interchange costs – there is little incentive for your provider to alert you to ongoing, preventable issues that can downgrade your transactions.
Interchange-plus pricing is considered the most transparent type of rate plan because it is based simply on the Interchange cost for each individual transaction, plus your provider’s markup. These costs are itemized separately so that you can clearly determine the Interchange fee and markup for each transaction.
Tip No. 3: Don’t Forget to Ask About How the Fee Model Affects Refund Processing
Returns are inevitable from time to time, and the resulting need to issue a refund adds another layer to the discussion around Flat, Tiered and Interchange-plus pricing models. But how much returns cost you can vary depending on your Merchant Account Provider.
If a customer cancels an order before it has been settled, you can typically void the charge and save any processing fees. But if a customer changes their mind about a purchase after a transaction has been processed, the charge can only be reversed by applying a refund – and the pricing model can further impact your costs. Because the fee reflects a blend of the Interchange rate and your provider's charges, Flat and Tiered pricing models will not reimburse processing fees on refunded transactions. But because Interchange-plus transparently breaks down both the Interchange rate and the Merchant Account Provider’s fee, an ethical provider will refund you the Interchange fee.
Tip No. 4: Choose a Provider That Integrates Seamlessly with Your Shopping Cart
If the notion that get starting with eCommerce sales requires a high level of technical expertise has been a deterrent, it’s time to stop dragging your heels. While it can be complicated to connect your website and shopping cart software, which allows customers to browse and select what they want to buy, with a Payment Processor, it doesn’t have to be. Yes, some providers require developer-level skills to get everything up and running, but not all do.
If you prefer to reduce the amount of time you spend on IT configuration, look for a Merchant Account Provider that makes integration easy and seamless. PayJunction offers integrations with more than 80 shopping cart platforms, so you’re just a dropdown selection away from hassle-free setup.
Tip No. 5: Don’t Get Locked into a Lengthy Contract
If you’ve ever tried to change your cable or cell phone providers, then you might be familiar with the hassle of trying to sever ties with a company that isn’t meeting your needs. Merchant Account Providers can be just as bad.
The difficulties customers face in switching providers are by design – service contracts are written by providers, and these one-sided agreements often make it challenging, if not costly, to quit your agreement midterm, even if you’re not getting the service you expected. Many providers charge fees if you cancel your service – or even make changes to your services – before the term is over. Some contracts also include automatic renewals, meaning if you fail to give notice before the current term is over, you can be locked in – or face penalties for switching – for several more years.
The best way to avoid early cancellation fees is to look for a Merchant Account Provider that won’t lock you into a contract in the first place. Pay-as-you-go month-to-month services mean you only have to remain committed to your provider for as long as it makes sense for your business. But as an added bonus, service providers that don’t use contracts as a means to enforce loyalty actually have to work for your loyalty – so you may find that they employ measures, from regular technical upgrades to exemplary customer service – to ensure you remain a happy customer by choice.
Tip No. 6: Seek Out Best-in-Class Security
When customers make a purchase from your eCommerce site, they are entrusting you – and your Merchant Account Provider and Payment Gateway – with sensitive financial information. Not only can a data breach put you on the hook for financial damages, but it can also cost you customer trust and inflict reputational damage that can be challenging to overcome.
To reduce this risk, it’s critical to evaluate the security measures your provider employs. PCI Level 1-compliant providers employ the highest level of Payment Card Industry Data Security Standards to card processing, including encryption of cardholder data and annual third-party audits to identify vulnerabilities. As not all providers employ the same security tactics, to best protect your customers, it’s important to specifically ask about what method any prospective providers you are evaluating employ.
Tip No. 7: Don’t Forget to Protect Yourself
Your customers aren’t the only ones at risk of criminal behavior. As with other types of transactions, online retailers can be at risk of fraudsters who make purchases using unauthorized payment methods. But the fact that online purchases are, by nature, card-not-present transactions makes them inherently more risky when it comes to the potential for chargebacks.
Just because you can't take steps to verify a purchaser’s identity in person doesn’t mean there is no way to protect your business from fraud – and your Merchant Account Provider is a key partner in helping to reduce your risk. For starters, it’s important that your provider implement the Address Verification System (AVS) and Card Verification Value (CVV). AVS verifies that a customer’s address matches the one associated with the card (as a bonus, this verification can lower your Interchange rate), while CVV is a security code imprinted directly on the card.
Because a signature is still considered your best source of verification in the event of a chargeback, it’s also worth looking for a provider that is capable of capturing signatures remotely, especially if your transaction values are typically high.
Selling online represents a tremendous opportunity for businesses today. But while collecting payment for eCommerce purchases may seem more complicated than traditional in-person sales, it doesn’t have to be – especially if you follow these tips and take the time to seek out an eCommerce Merchant Account Provider that provides the features and security you need, with clear transparent pricing.
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Which tip stuck out to you and why? We’d like to hear how you’re going to implement some of these!
Editors Note: This post was originally published in September 2019 and has been updated for comprehensiveness and accuracy.