When establishing your start-up e-commerce business, you’ll find there’s a lot more to consider besides what you’ll be selling. Now that you know what risks are involved in online businesses and how to write great website content, let’s talk about the credit card processing aspect.
Part 3: Finding the Right Payment Processor for your E-Commerce Business
In my final installment of the Back to Basics trilogy, I’ll go over a few basic payment processing terms as well as a few tips to help you find the right payment processor for your e-commerce business.
Payment Processing Terms
Every industry has its own specific jargon, and payment processing is no different. As a start-up e-commerce merchant, it’s good to know at least a few basic terms and what they mean. Here are a few to get you going.
Acquiring Bank: The bank that provides merchant accounts and holds the approved funds from a merchant’s credit card, debit card, or check transactions.
Billing Descriptor: A short business description that appears on customer’s credit card statements.
High Risk Industry: An industry with factors that raise your business’ risk profile–such as a high chargeback rate or if your industry has constantly changing regulations–and make it difficult for banks to approve you for a merchant account. High risk industries include online pharmacies, casinos, escort services, and travel agencies.
Issuing Bank: A bank that issues credit cards to consumers. When a customer purchases goods or services from a merchant, the issuing bank transfers the approved funds to the seller’s merchant account.
Merchant Account: A special kind of bank account provided by acquiring banks that allows businesses to process credit cards.
Merchant ID (MID): The identification number assigned to a merchant from a merchant account provider that distinguishes them from other merchants.
Payment Gateway: An online application that allows merchants to process and manage credit card transactions.
Payout: When a merchant receives the approved transaction funds from their acquiring bank or merchant account provider.
Underwriting: Regarding merchant accounts, underwriting refers an acquiring bank evaluating a merchant’s application, processing history, credit history, etc., to determine whether to approve or deny the request for a merchant account.
What to Look for in an E-Commerce Payment Processor
There are several factors that come into play when searching for the right e-commerce payment processor for your online business. Here are some of the most common questions you should ask yourself when applying for a merchant account:
- How long has the payment processor been in business? Finding out how long the payment processor has been in business may be a telltale sign of how reliable they are. Chances are if they’ve been processing credit cards for more than a few years, they’re less likely to be doing anything illegal. Another way to find out if the payment processor is trustworthy is by researching them on consumer agency websites. For example, Instabill has been in business for more than 10 years, and we have an A+ rating with the Better Business Bureau.
- Does the payment processor work with your type of business? Some payment processors specialize in specific types of merchant accounts. Instabill, for instance, specializes in offshore, international, and high risk merchant accounts, while others may only offer low risk or domestic merchant accounts. Another thing to keep in mind is that not all high risk merchant account providers facilitate all high risk e-commerce industries.
- If you’ll be selling to consumers all over the world, does the payment processor offer multi-currency processing? One of the most important factors of being an international e-commerce merchant is being able to accept payment in multiple currencies. Say you’re a PC repair merchant in India and your payment processor only allows you to accept payments in Indian rupees. Your potential customers in the United States may choose another online PC repair business that allows them to pay in US dollars.
- What shopping carts are compatible with their payment gateway? There are hundreds of shopping carts available to e-commerce merchants, but not every payment gateway is compatible with every shopping cart. With that said, be sure to first get your merchant account and payment gateway, and then get your shopping cart.After your payment processor approves you for a merchant account, ask them what carts work with their gateway, and if they have any plug-ins readily available. While plug-ins aren’t necessary to integrate a shopping cart with a payment gateway, they make the process much, much quicker and easier. Learn how to pick the right shopping cart for your e-commerce business.
- Does the payment processor offer any fraud prevention services? Although you should be doing your part to protect credit card data and prevent fraudulent transactions, a great e-commerce payment processor will help you mitigate risks. Here are a few more questions to ask yourself in terms of your payment processor’s fraud prevention services:
- Is their payment gateway PCI compliant?
- Does the payment processor offer 3D Secure merchant accounts?
- Do they have a risk management department?
- Does the payment processor have a list of known fraudulent merchants?
- Do they perform Address Verification System checks to help you spot fraud?
- Can you learn how to prevent and dispute chargebacks from your payment processor?
- Can the payment processor help you get an SSL certificate for your website?
While all of these things aren’t necessary from an e-commerce payment processor, being able to answer yes to all of the above questions will let you know that your processor hard at work keeping your business and your customers safe from fraud.
The End Is Just the Beginning
Well, folks, this concludes my three-part series on what you should know as a start-up e-commerce merchant — but this is just the beginning for you and your online business’s success. Come back and visit our blog frequently because we’re always sharing tips and secrets on how to grow and protect your e-commerce business.
What tips do you have for start-up e-commerce businesses? What was your process for establishing your online store? If you’ve been in business for a while, what changes have you seen in the e-commerce industry over the years?