Online Payments - Choosing the Best Option

When you ask your customers to pay online the method you choose can be the difference between making the sale, or not. And the right payment processing option can determine whether processing your orders is efficient, painful, or simply not viable.

The most popular options are Internet banking and credit cards. Internet banking is simple enough - your customer places an order, pays via internet banking, and you send the order when the money arrives.

There are so many options for accepting credit card payments that you may be inclined to use the first option you find that you can understand. This guide explains the most popular options, and shows you the complete costs, so you can make an informed decision that saves you time and money.

Internet Banking

All the major banks now offer online banking and this allows people to make payments directly to your nominated bank account. All you need to do is give customers your bank account number - usually on your web site.

Payments are typically processed over night so you will usually see the funds in your account the next day. Internet banking is less efficient for processing payments than credit cards.

There's a misconception that it's not safe to show your bank account number on your web site. This is not true - the only thing people can do with just your bank account number is deposit money.

Advantages

• Free or very low cost to set up
• Easy for your customers to use
• Payments can not be reversed

Disadvantages

• Payments can not be confirmed until the next day
• You need to check your bank account for payments (or use automated accounting software)

Credit Card Options

If you have a credit history with your bank you can usually get a credit card merchant account, which allows you to accept credit card payments using mail order forms, an EFTPOS machine or even an old Zip-Zap credit card machine.

Payment Gateways

To maximize efficiency you can use a real time payment gateway such as www.paystation.co.nz, which processes (accepts or declines) credit card payments immediately. When an order comes through from your online shopping cart you know it's already been paid for.

While this incurs additional set up and monthly fees, it can save you a lot of time and money if your order volumes are high enough.

Manual Processing

Most banks won't tell you that you can process credit card payments from your web site manually (using mail order forms) because they prefer to have everything automated.

If your order volumes are low this can be a good option, especially if the average value of your orders is high. With low volumes and low average order value (less than $50) commissions are high (up to 8.9%). With higher average order values (over $250) the bank's commission is lower (about 6.2%).

Manual processing can also be a good option if you have a retail store with an EFTPOS machine, and if you want to use your EFTPOS machine to process payments. This is just like when a customer pays by credit card over the phone. The shopping cart on your web site collects the credit card number (securely), and you get the credit card number from the shopping cart and process the payment using your EFTPOS machine.

Bank commissions are lower for EFTPOS payments than for manually processed payments.

Online Payment Services

If you have no credit history, or if you're in a hurry, you can use a credit card payment service such as www.paymate.co.nz or www.paypal.com.

The main advantage of these services is that there are no set up fees and you can set up an account in a few minutes. This is a great option when you're starting out and want to avoid monthly overheads.

Having your own merchant account means when customers pay you the name of your business shows on their credit card statement, so there's no confusion about where they shopped.

When you use a credit card payment service such as Paymate or PayPal, your customer sees 'Paymate' or 'PayPal' on their credit card statement. This can be confusing if they expect to see the name of your business on their statement.

Shopping Cart vs One Off Payments

Once you've chosen the right payment processing option you can process credit card payments. Now you need somewhere on your web site that your customers can visit to shop, or to initiate a payment.

An online shopping cart allows customers to browse through your web site and add the products they want to buy to their shopping cart. When they've selected all the products they want to buy they visit the checkout and enter their details and credit card number to pay.

In Summary:

Here are 3 suggestions to help you choose the best option quickly.

1. Small/Start Up Business, $500 per month - use Internet Banking and Paymate. Main benefit: low cost to set up. Main disadvantage: for Internet Banking you need to check your bank account for payments. For Paymate, customers see 'Paymate' on their credit card statement, not the name of your business.
2. Medium Online Business, $5000 per month
   • If you have a retail store with EFTPOS facilities use manual credit card processing. Main advantage: low cost/effort to set up. Main disadvantage: you need to manually enter credit card details in to your EFTPOS machine.
   • If you do not have EFTPOS facilities use Paystation or similar online service Main advantage: payment is in the bank before you receive the order, with no involvement from you. Main disadvantage: monthly fees are relatively high until sales reach a few thousand per month.
3. Large Online Business, $20,000 per month - use Paystation or similar online service Main advantage: payment is in the bank before you receive the order, with no involvement from you. Main disadvantage: if you have a retail store you may need to import a daily list of orders into your till software.

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