Card Payment Processing Made Simple!

This white paper will explain how online payment processing works and what you need to know before you get started.

In our experience, very few IT or design companies understand all the intricacies of taking payments online. With half of our staff being "ex financial services" the Something4 team have produced this guide which we hope you will find useful - either as a client or a partner/agency. Please do contact us here if you would like to leverage our expertise and become a partner.

 

What is it?

Online Payment Processing refers to taking customers money via a transaction on the internet and having the funds deposited into your chosen bank account

The first step to trading is to have a designated bank account to receive your business proceeds - and help differentiate it from personal expenditure. You should also advise the government, ie, tax office, national insurance, of your plans.

But having a bank account is ­NOT sufficient to enable your business to take card payments or online payments. To take any payment via a card, ie, even if you are just trading via a shop, you need a relationship with a card transaction ACQUIRER who acquires the transaction from you and passes them onto the various card issuing companies, or card schemes, globally.

There are normally only a small number of acquirers in any country, generally divisions of major banks. You cannot trade take payments by card without one of these accounts.

Many businesses that then branch out into online trade process their online payments via the shop till / terminal - this is increasingly frowned upon by the card schemes and is being stamped out - so its not the best way to start.

The correct way to process transactions online is by opening a separate internet acquiring account, either via your normal acquirer if they provide this, not all do, or by going to an intermediary called a PSP (Payment Service Provider).

For people who cannot obtain a merchant account with a bank, PSP's often offer a handy alternative for obtaining money from credit or debit card transactions & they can act as both the acquirer and internet gateway at the same time. Worldpay, the market leader, in processing online transactions can provide both of these services seamlessly.

These companies make administration extremely easy compared to running a merchant account and you don't need to set up your own secure payment system. They are often easy to obtain, and refrain from performing the usual complex background checks that you would be required to go through with a bank. On the downside PSP's can cost more and may hang onto your money for longer, and in some cases are not as robust as a bank service.

Paypal operates in a similar fashion and is therefore best considered as an international PSP.

 

How it works online

When you sell something on your website, the customer's credit/debit card must undergo a series of checks through different services before it can be approved for transaction. To help explain this we should imagine that our online payment processing service is WorldPay and our business account is with HSBC, and the supplier is using a Barclaycard.

When the customer is about to checkout from your website and starts the transaction they will be directed to Worldpay via your site. They will submit their card details and once confirmed, the information will be sent via a credit card interchange to HSBC who will check with Barclaycard if sufficient funds are available. This authorization will then be sent back to Worldpay via HSBC. Worldpay eventually receive the money and hold this on your behalf. Eventually, they route the transaction to your bank current account, after taking a small proportion themselves as a handling fee. Some acquirer/PSP's also make charges for handling refunds.

 

Security

All merchants should be aware of fraud, especially when trading on the Internet. In the UK online and mail-order fraud cost £183m in 2005 (around 40% of total card fraud) compared to the total level of card transactions of £292,100m. This is of course a very small % (only 6 pence for every £100 transacted), but if it hits your business (and sometimes this can be months after shipping the goods) you'll feel the pain as your chance of recovering the money or goods is close to zero!

What can you do to make sure you business is not the victim of fraud? Using a reliable and robust payment provider such as Worldpay is the first thing you should consider alongside using reliable fulfilment companies and getting signatures on delivery of goods. Also think about purchasing insurance or extra fraud screening because often it will be you who pays out when fraud has been committed, not the card holder!

Verified by Visa is the latest attempt to combat fraud, making sure that only the customer can use their card online and not somebody else! This works by activating the card online and creating a password that is known only by the card holder. With supporting processing systems this PIN number is input via the Visa website, not the store website. MasterCard also have a similar system, called SecureCode, which requires you to enter your password each time you try to make a transaction via the web.

Other security schemes that are planned to be introduced to battle fraud include SEPA (Single Euro Payments Area) and PCIDSS. SEPA is being introduced in Europe to standardize online retail payments. It is designed to make cross border payments as easy and reliable as within national borders since the euro currency has been established.

The Payment Card Data Security Standard (PCIDSS) has been designed to create a industry wide standard of regulations for the safekeeping of sensitive cardholder information. Co-written by Visa and MasterCard this system is now the global leader for credit card security and has been endorsed by other major credit card schemes. 

With a wide knowledge of processing payments online and relationships with most the key suppliers/banks, the something4 team are a good next step if you need help in this vitally important area.