When you are first setting up a retail or an eCommerce endeavor, few decisions will be of as much importance as the payment provider that you choose. Your payment provider will handle each and every card transaction your online company makes, and if it doesn’t function properly, or if it has a lot of hidden fees, such as old legacy systems with long term contracts, you can be setting your business up to fail before you ever get started.
So, we are going to explain to you what you should be looking for when you reach this crucial decision in the setup phase of your business, and we will help you find a payment provider that meets your needs perfectly and sets you up to succeed in the business world.
As a general rule of thumb, there are three main factors that you really need to consider when you go to choose who you will be working with: The people involved in the transaction, the fees associated with each transaction, and how the transaction is handled behind the scenes. There are some smaller tidbits that can make a specific provider a better or worse choice, but those three factors will allow you to narrow your search down to a select few of top competitors that will truly help your company succeed.
The Parties Involved
Besides your bank and the customer’s bank, there are three different factors that go into every single one of your transactions, and a payment provider works with all three of them. There’s you, your customer, and the technology acting as a bridge between the two of you. We’ll go into more detail about all that, now.
The Customer
With this part of the transaction, we are really talking about the “issuing bank”. That’s your customer’s bank, and they handle lending the customer the money to make a purchase on your site, and they issue the card that the customer uses to make that purchase. This is your customer’s main form of interaction with the transaction process, and it’s one of the most important factors since it’s what starts the transaction in the first place. However, you have no control over this factor, and you can simply ensure that the technology, which we’ll talk about soon, makes their part of the transaction as smooth as possible.
The Merchant
This is you and your part in the transaction. You function as the merchant that the customer is engaging with, and in order to do that, you need a merchant bank to partner with and work as your company’s bank. A merchant bank functions differently than the bank you use in your day to day life. Instead of issuing you funds in advance for credit purchases and managing your checking and savings accounts, a merchant bank takes in your customers’ payments for you, and then puts those payments into a special merchant account that is a lot like a business’s checking account. Without a merchant bank, you won’t be able to succeed in the long-term with eCommerce.
The Technology Solution
Your technology, and the company handling it, is what makes a transaction possible in the first place, and there are two parts to this imperative factor: The payment processor and the payment gateway.
Processor
The payment processor is what actually handles the transaction. It moves the money between the different parties and delivers it to the banks and accounts involved. If your processor is subpar, your customer’s transaction experience will be, too. You need an up-to-date payment processor that functions smoothly and without any hassle placed on you or your customer to ensure that each customer enjoys a seamless transaction.
Gateway
The payment gateway is essentially what sends the transaction information to the payment processor. It links to your site’s shopping cart feature, and when a customer buys something, it connects to the payment processor and begins the transaction. In order to ensure that your transactions are smooth and effortless, this technological asset needs to be competent and able to easily satisfy your customers without being apparent.
How the Transaction Process Happens
The transaction process is fairly complicated, but it all takes place in a matter of seconds. In fact, it’s usually seemingly instantaneous.
Once a purchase is made, the payment gateway encrypts the transaction data to protect your customer and your business, and then it asks the customer’s bank if it will advance the funds for the customer’s purchase. If yes, the payment will be sent to your merchant account, and if not, the transaction will be denied and ended until a resolution can be found.
Once that step is completed, the funds typically end up being accessible by you the second your merchant bank acquires them and places them in your account, but you may be forced to keep a certain amount in the account to make sure you can cover any returns that pop up.
This part is not instantaneous. It can take a couple days to complete this part of the process.
Transaction Fees
This is easily the factor that you’ll want to pay attention to the most, because a lot of merchant service providers are downright misleading when they quote your rates, and you need to get a firm understanding of how a company sets up its fees to know what to actually expect from your bill.
Most often, companies will quote something like 1.8% rates to interest you and appeal to your more frugal side, but then they’ll apply all sorts of hidden fees that raise that rate as high as 11% without notifying you properly. As you can imagine, that can make your bill a bit more than what you thought it would be.
There are three rate models that are most often used:
Flat-Rate
You’re given a specific amount to pay, and whether that covers your total fees or not, that’s what you pay. You could be overpaying tremendously if you accept a quite a few low cost cards vs. the higher cost cards. The processor is banking on your acceptance of these lower cards to ensure all costs are covered.
Interchange Plus Pricing
This takes the interchange fee you pay and adds a small fixed rate on top of it. It’s not as consistent as a flat-rate fee because of the sheer amount of interchange fees out there and the number of different credit cards with all of the various reward and incentive programs.
Tiered Pricing
This is when the provider creates a few tiers of fees and charges you based on the tier your fees are in rather than each individual fee. The only bad thing about this is that the provider decides which fees go into which tier.
Other Important Things to Consider
Does your processor provide Data Security/PCI protection? What about financial breach protection, in the event you are breached?
Any business or other entity that stores, processes or transmits cardholder data must ensure that their processes meet the Payment Card Industry / Data Security Standard (PCI/DSS). Failure to do so can result in heavy fines being levied.
Understanding PCI/DSS
The PCI/DSS is a global standard defining acceptable practice for any entity involved in the storage, transmission or processing of cardholder data.
In recognition of the sensitive, confidential and valuable nature of this data the standard imposes strict regulations which must be met in full. The full requirements are detailed but are covered by 12 broad requirements. These are grouped into 6 broad control objectives as follows:
1. Build and Maintain a Secure Network and Systems – Install and maintain a firewall configuration to protect data – Do not use vendor-supplied defaults for system passwords and other security parameters
2. Protect Cardholder Data – Protect stored data (use encryption) – Encrypt transmission of cardholder data and sensitive information across public networks
3. Maintain a Vulnerability Management Program – Use and regularly update anti-virus software – Develop and maintain secure systems and applications
4. Implement Strong Access Control Measures -Restrict access to data by business need-to-know -Assign a unique ID to each person with computer access -Restrict physical access to cardholder data
5. Regularly Monitor and Test Networks -Track and monitor all access to network resources and cardholder data -Regularly test security systems and processes
6. Maintain an Information Security Policy -Maintain a policy that addresses Information Security
Any entity handling card transactions must meet the standard and be able to demonstrate (certify) that it does so. The level of certification is flexible and depends on how transactions are processed and in what volume.
A Summary of Benefits
Achieving full compliance with PCI/DSS standards is more than an obligation. It delivers genuine benefits to businesses:
– Lessen the risk of fraudulent transactions
– Prevent security breaches
-Lessen the impact should a breach occur
– Reduce your business’ exposure to risk and liability
– Provide peace of mind for your customers
– Avoid the negative PR associated with data loss
Why are These Requirements in Place?
Card transactions have grown enormously in recent years as cards become the number 1 preferred form of payment. Since no physical money is handled or exchanged as part of these transactions they are dependent on the transfer of data.
That data therefore becomes sensitive and valuable and must be protected. Failure to protect this data can lead to fraud and theft. These crimes often impact both the card holder and the merchant directly. They can also damage or even destroy the reputation of businesses or organizations involved in hacks or data breaches.
More widely card fraud has the long-term detrimental effect of eroding consumer confidence and trust – both in the individual companies affected and in the card payment industry more widely.
Millions of consumers and organizations worldwide are choosing to pay by card. And millions of businesses, professionals, traders and organizations are accepting and handling these payments. Instead of allowing an ad-hoc approach where each business sets its own level of security the PCI / DSS was imposed. This ensures a uniformly high level of data security throughout the worldwide card payment industry.
Keep your Data Secure – Don’t get caught without PCI Data Breach Protection
This organization provides an international platform for the ongoing development, enhancement, storage, dissemination and implementation of security standards for account data protection. It is impossible to be involved in the credit card processing industry and not be aware of the PCI Security Standards Council.
As such it is important to be aware of the core elements of the PCI’s Data Security Standard (DSS).
The following are the current fundamental principles and requirements:
Build and Maintain a Secure Network
Requirement a. Install and maintain a firewall configuration to protect cardholder data Requirement b. Do not use vendor-supplied defaults for system passwords and other security parameters
Implement Strong Access Control Measures
Requirement c. Restrict access to cardholder data by business need-to-know Requirement d. Assign a unique ID to each person with computer access Requirement e. Restrict physical access to cardholder data
Maintain a Vulnerability Management Program
Requirement f. Use and regularly update anti-virus software Requirement g. Develop and maintain secure systems and applications
Maintain an Information Security Policy
Requirement h. Maintain a policy that addresses information security
Protect Cardholder Data
Requirement i. Protect stored cardholder data Requirement j. Encrypt transmission of cardholder data across open, public networks
Regularly Monitor and Test Networks
Requirement k. Track and monitor all access to network resources and cardholder data Requirement l. Regularly test security systems and processes
