To gain an understanding of how different vendors make payment transactions, we must first figure out how credit cards were originally designed to work. Before anyone even thought of ecommerce, or even EDI became widespread in commercial uses, credit cards were created. However, they did not have a magnetic strip to store information, so all credit card purchases were called in, and a carbon copy of the card was made. With advances in technology, the magnetic strip was added, so merchants could submit customer card information electronically, and quickly get back approval numbers, which were then sent to the bank on carbon copies of the cards. The introduction of the internet and standard EDI for merchant to bank credit card authorizations cut out this step, so now your purchase goes to your creditor, and money is transferred to the merchant’s bank, in only a few seconds.
When you or I use a credit (or debit) card at a local retailer, the information is sent to an acquiring bank, which operates as a third party between the merchant’s bank and our own. With any purchase that is not made in person, however, the actual credit cannot be made to the issuing bank (nor can the payment be transferred) until the product is exchanged. This simply means that when we purchase something through mail order, or over the Internet, the actual charge on our credit card can only be made after the purchase has been shipped. What usually happens is the merchant will call the institution supporting the card, verify that it’s current, valid, and the needed amount of funds are available. After this process, they will place a hold on the funds, until shipment occurs.
If someone wishes to start up an ecommerce site that supports credit cards as payments, it is possible to do it all in-house. The majority of small to medium businesses, however, outsource at least some, if not all, of the duties to independent vendors. To choose the right one for your business, you must consider several things:
1) How much in house support can be used for the upkeep of the system?
2) Will the system allow us to grow, if necessary?
3) What else is needed, besides credit authorization and payment?
4) Can it be integrated into my CRM, and B2B transactions?
While there are countless vendors available today, most have found a certain niche inherent with the systems they offer. We’ll take a look at a few vendors, who offer different services to support their clients’ ecommerce sites.
Small businesses who does not have the in-house support, or the time, to integrate a new system will often turn to a vendor such as Internetsecure or Authorize.net to handle the processing of credit cards. These types of vendors offer secure transactions through their own payment portals, and deposit the money into the merchant’s account two to three days after shipment. They offer the customer fraud protection and the merchant risk management. These are very popular with high tech or web design sites, who don’t have the inkling for dealing directly with payment systems. The vendors are also popular with very small businesses who design their own web site or have it designed locally. With all of the work done, however, these vendors have the largest service fees.
The next level is vendors who provide links directly to acquiring banks or financial institutions, such as iAuthorizer or WebAuthorize. These offer direct links to payment portals or to acquiring banks, along with various other features, including order forms, CGI scripts, and shopping cart features. While these applications tend to be more technically oriented, they are directed towards the medium to large corporations that can support the systems as well as have dedicated training to use them. With the amount of in-house work involved, these systems are well suited to be integrated into CRM and accounting systems already existent within the company, to offer streamlining of purchasing.
Large corporations who do not wish to do all work in-house will often choose a vendor such as VeriSign, who offers a variety of packages to suit most any need. Applications such as VeriSign’s Payflow allow a company to have a scalable payment system, along with web site links to acquiring banks. They also offer a host of B2B solutions which incorporate their purchasing applications, including B2B online exchange support, supply chain extranets, and B2C CRM, as well as integrating the company through vertical CRM. These types of large scale systems are designed to cut costs and increase revenue through faster transactions and increased customer demographics.
The vendors listed are just a few of the many who offer credit card purchase support. When looking to a company to help with credit card purchases, always research and explore all your options. Also, consider if you will be able to support their applications, and if they can support you into the future, including any CRM changes or B2B purchases. With all the vendors available, it should be no problem to find one to suit your needs.
John Mark Kennedy is currently a Senior at the University of Kentucky pursuing a degree in Descision Sciences and Information Systems. His e commerce interests include eCRM and supply chain management infrastructure.