Online Payment Processing

There are several options for processing your payments online. The solution you choose will probably be determined by the number and dollar amount of payments you are collecting. If you own a small business where you only have a few products and sales are infrequent then a payment processor such as Google Checkout or PayPal is going to be you best bet.

If you own a retail store with many products and expect your online sales to be frequent, then you may be better off to set up a merchant account with you bank and use the payment processing relationship they have already established. These two options are explained in more detail in the following sections.

Bank / Merchant Account Option

A Merchant Account is a commercial bank account established to receive payment via credit cards. Three parts are required to accept credit cards. Besides a merchant account, you need a local bank checking account to deposit funds and a payment processor to take credit card payments. Most banks are very familiar with this process and will be able to set everything up for you and provide your web developer with the information needed to set up your online store. Additionally you will need a Secure Socket Layer (SSL) Certificate to ensure that transactions made on your web site are secure and a dedicated IP address on your hosting account.

Costs of a Merchant Account

An online merchant account will boost your online sales, but merchant account incurs various types of cost. A merchant account usually requires a one-time setup fee between $50 - $100. Other costs include gateway fee, statement fee, annual fee, transaction fees and discount rate fees. These normally amount to 2 to 4% of the transaction amount and can be calculated by estimating the total dollar amount of transactions you expect to receive online and multiplying them by 4%, Example: $15,000 x .04 = $600. SSL Certificates may be added to most hosting accounts for as little as $100 (per year) and a dedicated IP for around $35 (per year).

Other Payment Processing Options

When you first start an online business and have limited resources, your alternative would be to use the services of a credit card processor. You can enjoy the benefits of processing credit card transactions online without the requirements of a merchant account and high costs involved. Paypal and Google Checkout are the two most popular options. Online storefronts, such as eBay Stores or Yahoo! Store offer built-in credit card processing capability.

PayPal/Google Fees

  • Fees for PayPal range from 1.9% of the transaction amount up to 4.9% + $0.30, depending on your monthly sales
  • Google Checkout fees are a flat 2% + $0.20 per transaction
  • Yahoo and eBay Store fees

Next Topic: Types of E-Commerce Stores