Over the past couple of weeks I’ve been investigating the world of Payment Processing for accepting Credit Cards online.  I’ve come to a few conclusions.  First, it’s an interesting industry.  Second, there are lots of details that make it tough to compare providers (akin to comparing cell phone plans).  Third, what a racket Visa & MC have!

If you’re considering accepting payments online,  you need three primary components: A Merchant Account, A Payment Gateway and a Shopping Cart. I’m not going to discuss shopping carts here – haven’t done the research (i.e. Zen Cart vs. OS Commerce), and probably won’t need anything sophisticated.

A Merchant Account is an account with a service provider (Bank or underwritten by one) that is part of the Visa Network.  A Merchant Account allows you to accept payment by credit card.  This is different than your bank account to which fund are actually deposited.  So, you could sign up with “MerchantAccounts4Less” which is underwritten by HBSC, and funds are deposited to your Bank of America business bank account.

A Payment Gateway allows you to accept credit cards over the Internet.  Think of it as virtual Point of Sale (POS) or Credit Card Scanner.  As an online business, you don’t have a physical terminal for buyers to swipe their card through, so you need a “Card Not Present” or CDP method of accepting transactions – phone or internet.  On the net it’s a Gateway.

The biggest name in the game is PayPal, the second is Authorize.Net.

The nice thing about PayPal, is that it’s the Merchant Account and Gateway rolled into one.  You sign up with them on “PayPal Standard” and you’re off to the races.  The only problem is that buyers need to use PayPal for the purchase.  They CAN use a credit card, but will be setting up a PayPal account in the process.

PayPal standard also includes subscriptions (aka Automatic Reoccurring Billing – ARB).  However, subsequent payments will be through the users PayPal account not their Credit Card.  PayPal Standard also means the check-out is on a PayPal page not your own.

You can avoid this “PayPal-ish” nature using PayPal Pro or PayFlow Gateway, but the level of implementation effort appears to be significant using the PayPal API’s.

The other nice thing about PayPal is the pricing is pretty straight forward.  One thing to note – if your average sales price is below $12 ask for Micro-Payment rates!  Instead of %2.9 + .30 per transaction, it’s %5 + .05.  When you do the math, $12 is the cross-over point.

Authorize.Net is well known and a favorite of many development shops.  Plus there are a TON of Authorize.Net Resellers (and they have a nice Affiliate Program), lots of supported shopping carts and form level integration.

The challenge becomes comparing all these resellers.  Each one as it’s own mix of Transaction Percentages, Transaction Fees, Monthly Minimum, Transaction Percentages etc…  To help make sense of these fees, I’ve put together a Spread Sheet called Merchant Fee Calculator.  The items in Yellow can all be changed and the rest of the numbers are calculated.  After talking to a few resellers and banks my head was spinning so I found this useful for a side by side comparison.

One extremely important thing that the spreadsheet obviously doesn’t take into account is reliability, customer service, etc…  For this reason, I would not recommend just trying to sign up for a Merchant Account online.  You should call each provider ask about fees, service, etc… and get a feel for the company.

Hope this was helpful and please comment if you see any errors (or errors on the spreadsheet).

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