An online business that accepts credit card payments will achieve success by being able to serve customers worldwide. Learn how to start accepting credit cards with this guide.
Digital commerce is the way of the future
About two decades ago, we always pay for goods and services at a brick-and-mortar store or a physical location. Now, we can accomplish our transactions through desktop computers or mobile devices, without leaving the comfort of our home. The increasing interconnectivity through the internet is starting to change our lifestyles, including the way we think about spending.
The Internet of Things (IoT) market is expected to triple its growth from 655.8 million US dollars in 2014 to 1.7 trillion US dollars in 2020, according to the “Worldwide Internet of Things Forecast, 2015-2020” from the International Data Corporation (IDC). This means that customers and businesses will be making more transactions over the internet in the coming years.
Online businesses can take advantage of a growing digital marketplace by offering different payment options to their customers. In the digital commerce landscape, 71% of payments come from credit and debit cards, according to Javelin Research. Online businesses should ensure that they can accept credit card payments to gain a huge share of the market.
By processing credit cards, businesses can reach customers worldwide. In the United States, 73% of households use credit cards. The credit card transactions of Americans reach 4,000 US dollars in a year, but the transactions of Australians and Canadians exceed over 7,000 US dollars. In the U.K., the British use their credit cards more often than cash for payments.
Credit cards can also increase your sales rapidly because your customers can pay instantly for goods and services without having to think twice. For newly-established online businesses, having a credit card facility adds credibility to your reputation.
How do credit cards work?
You may notice that some credit cards come with one or two corporate logos. These logos pertain to the credit card company or the issuer, and the credit card network. The credit card company is the bank or the financial institution that loans funds to the customer to make a purchase with the credit card.
Meanwhile, the credit card network facilitates the process of credit card transactions between the cardholder, the business owner or the merchant, and the credit card company. For instance, Visa and Mastercard are credit card networks, and they can facilitate the transactions made through Citibank or Capital One credit cards. However, there are also companies that issue credit cards and serve as a credit card network, such as American Express and Discover.
In a credit card transaction, the credit card company, the credit card network, and the acquiring bank or the bank that processes payments for the merchant communicate with each other. Once the credit card is swiped through an electronic terminal, an authorization of the sale is sent to the acquiring bank. The acquiring bank then notifies the credit card company; which responds with either an “approved” or “denied” code. Afterwards, the acquiring bank sends the code to the electronic terminal, which issues a receipt showing whether the purchase is approved or denied. This back-and-forth process takes only a few minutes.
Ways to accept credit card payments
Generally, there are two ways for businesses to accept credit card payments online. They can open a merchant account, or use a third party payment gateway. A merchant account is a special bank account that authorizes your business to process credit cards. Opening a merchant account can be costly and it can take a long time because banks will hesitate to approve enterprises they consider as high-risk, such as start-ups or online businesses. Once you have an account, however, your business will be the one processing all the credit card payments.
Businesses can also accept credit card payments through a third party company that processes credit cards on their behalf. Also known as “payment gateways,” third party merchants may not require any setup fee, but they can charge a transaction fee for every sale.
A payment gateway is like a virtual version of a physical point-of-sale terminal. It encrypts the credit card information and sends it to the acquiring bank. The acquiring bank communicates with the credit card network and the issuing bank regarding the transaction. The issuing bank notifies the credit card network if the purchase is denied or approved. Then, the credit card network passes the response to the acquiring bank, which informs the payment gateway.
Payment gateways also offer other services to provide a complete billing solution. They protect businesses from fraudulent transactions that involve stolen credit card numbers. They also process electronic checks and other alternative payment methods. Furthermore, they help merchants accept payments in different currencies and provide them with customer support for quick dispute resolution.
Now, which is a better option? If you are a start-up or a small business, it’s generally better to use a payment gateway, as they will do the job of credit card processing for you. And then, they will issue you a cheque of your earnings after each payment period. In return, you will be able to focus on other aspects of your business.
There are also payment solutions that combine the characteristics of a merchant account and a payment gateway. However, some of those companies may be limited to processing credit cards, preventing your business from maximising revenues by integrating other payment methods.
Whatever option you are considering, remember to think about the interests of your business and your customers. To get your venture off the ground, you need a solution that can be set up easily, without compromising your business or your customers. This will help you establish credibility in your industry, and enable your business to expand globally.
Paymentwall is a global payment and content distribution platform that can help your business accept credit card payments. To be able to use Paymentwall, you need to open a merchant account by signing up here. Paymentwall can also provide you with over 120 alternative payment options, to help you improve customer experience and expand your business worldwide.
If you have more questions, contact us at bizdev@paymentwall.com.