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Understanding Online Payments

Internet Payment Options

There has been much talk about how the Internet is becoming an important channel for buying and selling products and services. Companies are looking to exploit the Internet in a variety of ways to increase sales to both existing customers and to customers in new markets.

To make these initiatives work in practice requires the application of a range of technologies, from servers to software. An increasingly-critical piece of the e-commerce equation is the ability to pay for goods and services using Internet-based applications.

Internet-based payments offer the benefit of convenience to customers who can pay for their products or services and receive immediate feedback on the status of their payment. Well thought-out payment interfaces will address the payment needs of the bulk of your customers, and offer them valuable features such as electronic receipts, recurring billing options and more. For merchants, online payments can mean that bad debts are reduced and cash flow is improved, improving the bottom line of your business.

The type of payment that you choose will be dependent on your customers’ needs and the type of business that you operate.

E-Commerce Payment Types

Many types of payments can be used in online transactions (here we refer to those transactions that use the Internet as the communications channel). The major types include:

EFT: Electronic Funds Transfer (EFT) is a system of transferring money from one bank account directly to another without any paper money changing hands. It provides a means of transferring funds to and from customers and business partners.

Electronic cheques: Different types of electronic cheque services are available, but all essentially provide a mechanism for paying over the Internet by enabling purchasers to use their existing chequing accounts to transfer funds to another party. A secure infrastructure ensures that confidential information is not compromised in transit.

Debit cards: Wildly popular for “bricks and mortar” purchases, they have not caught on as a mechanism for Internet purchases because the banks and payment processors have only certified a limited number of devices for transmitting the PIN Number associated with a debit card over the internet. Limited pilots are underway using wireless debit card devices for applications such as pizza deliveries and taxis.

Credit cards: Still the dominant online payment type, it is popular because of its ubiquity and the familiarity that customers have in using them in a variety of settings.

Internet banking: Some businesses (typically large ones such as telephone companies) enable customers to transfer funds from their bank account to pay bills. Online bill payments are usually facilitated by the major banks where you can log on and pay your bills at your convenience.

Alternative payment types: A large number of niche payment types have arisen over the past few years (typically with minimal or no success). These include stored value cards, Internet (digital) cash, pseudo-currencies (e.g. Flooz) and others. No doubt at some point one or more of these payment types will gain a foothold, but none have sufficient critical mass at this time to be a viable alternative for most merchants.

For the purposes of the rest of this article, we will focus on credit card payments, which represent a substantial amount (95%+) of the payments being processed over the Internet today.

Getting Started with Credit Card Processing

If you are a merchant that is looking to accept credit card payments, there are a few steps that you should follow to ensure a successful implementation. None of them are difficult, but some can take time to complete. It is recommended that you follow each of the steps in sequence to avoid compatibility issues between your application and the financial network.

Let’s examine each step in order:

1. Determine the Right Payment Interface

The payment interface is the application that you are going to use to process credit card payments. There are many options available to you, and the right choice will be dictated by the type of business you have and the requirements of your customers. Some of the more popular interface options include:

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Useful When …Your customers may be purchasing multiple items from you in a single purchase
Make Sure That … You understand the features that you need and that you purchase from a reputable vendor