AboutJim Novo Expertise Questions about using customer data to inmprove online profitability, particularly in retailing. Topics include profiling customers using weblogs, figuring out which ads generate the highest value customers, how to reduce the numnber of 1x buyers, how to generate higher sales from current customers, customer analysis, ROI calculation, reducing discounts while increasing resaponse rates. Do you collect customer data (purchases, page views, surveys) and not really use it for anything? Want to find out how? Just ask.
Experience
Past/Present clients Cellular One, MBNA, SteelTorch Software, Retek Direct, CBS Sportsline, Kobie Marketing, Aerial, Tupperware, Barnes and Noble, Comcast Corporation, Home Shopping Network
Question I have a small web design business and I'm going to start creating some e-commerce sites for local businesses soon. I was wondering if you could go over some of the tradeoffs between services like Paypal and paymentech or suggest any alternatives.
Thanks,
Pat
Answer Hi Pat,
There are a tremendous number of variables underlying a question like this, I'm sorry to say, and there is not one answer. This whole payment thing is a nightmare if you're not familiar with how it works, so perhaps I'll try to clarify that first for everybody and then make some suggestions.
Generally, there are 4 players in the transaction. Following the money from the shopping cart to the business owner's bank account:
1. The shopping cart. There are literally hundreds of them, and it is difficult to figure out which features you need and which are worth paying for. Only an in-depth analysis of your clients needs will lead you to the right decision here.
2. The payment processor, or "gateway" as it is more commonly known. This player takes the information from the shopping cart and communicates to the credit card company, "authorizing" the sale (does the customer have enough credit left on the card?) and then "capturing" the sale (charging it to the card). The gateway is pretty much the weakest link in the chain, you run into the most problems (downtime, failed transactions) at the gateway.
3. A clearing network, which links the banking system to the online processing and security provided by the gateway. Once the card has been authorized and captured, the money has to make it into the banking system somehow, and it goes through the clearing network.
4. A bank, which supplies you the merchant account to accept the funds from the credit card through the clearing network. The merchant account is not terribly different from offline; you apply and are accepted or not. The business owner may already have a merchant account for offline business that can be used. Some banks won't deal with web-based merchant accounts. Best idea might be to check with the business owner's bank first to see if they offer this service. If not, Wells Fargo bank is a national player that seems to have a good deal of expertise and you can apply for a merchant account on their web site.
Now, here's the thing: each of these four pieces of the puzzle have to communicate with each other; that means that you have to pick and choose each depending on what relationships they have, and make sure they can work with all the others in the chain.
For example:
If you are set on a certain shopping cart, you have to choose a gateway that works with that cart. Out of the gateway choices, you have to choose a gateway that works with a clearing network that the merchant account at the bank can communicate with.
Or, if you know the merchant account / bank you want to use:
Find out what clearing network(s) the bank can use, then choose a gateway that can work with one of those networks, and then choose a cart that can work with that gateway.
Got it?
Now, you have hybrid situations, where a single player is doing all or most of it, selling you a "package" which includes all four pieces or 3 of the 4 - they provide a cart, gateway, clearing, and try to get you a merchant account. And there are various charges for all this stuff. Some web site hosts bundle in some or all of these services as part of a monthly fee; and services like Yahoo Store are completely pre-packaged with all this stuff in the background all set up for you.
There are also several types of services that “mock” the process above. These so called “third party providers” actually have the merchant account – not you – and so they take care of the entire back end. They of course charge higher fees for this, and in many cases, this practice borders on being illegal.
With Paypal, you have a separate system that stands on its own, which you can tie any credit card to. Paypal has its own backend process and they handle all that for you, but only on transactions where the customer is set up for it. Offering Paypal as a payment system really depends on the client and who the customers are; I certainly **would not** offer it as the only way to pay, but as an additional option.
A good site to review all the issues and see some comparisons of services and prices is:
Start a client with Yahoo store, or if you find the Yahoo store layout thing to constricting relative to your role as a designer, go with your own site and the bCentral Commerce Manager, which packages all the credit card stuff into the background and provides a simple, somewhat flexible cart for the biz owner to use. At $25 a month plus card processing fees (usually around 2.5% of the sale), bCentral is a very low risk, trusted, no sweating the details way to get a client into commerce without a lot of money.
If you are going it on your own with the credit card set up because you need a more flexible cart solution or a specific bank etc. one of the more reliable, flexible, trusted gateways is CardService International, which last time I knew, actually is doing all the credit card stuff for bCentral:
CardService works with most of the major shopping carts and they can also get you a merchant account. They are owned by First Data Corp, which also owns a clearing network and issues credit cards, so everything they offer in a package will work together on that network. They are relatively inexpensive but don't expect a high level of customer service. Just check out the list of shopping carts they can interface to and make sure yours in on the list. It probably is:
You can also become a “partner” of theirs and resell these services to your clients. If you use a merchant account other than the one CardService provides, make sure the bank can clear on the First Data Corp network.
If the client's business takes off, at some point you / they will outgrow the simple shopping cart system and need to move on to a more robust set-up.
At about 20 – 25 shipments per day for a one man operation, the admin of using a “copy and paste” HTML-based cart set-up is going to take so much time they won't have time left to pack and ship boxes. In most of the carts, including bCentral, you click on orders to get the customer info, print out a packing slip (which you can't customize), then copy and paste the customer address into shipping interface (like UPS Online), pick and weigh the box, enter weight into UPS, print shipping label, etc. All this takes time.
A gold standard set-up, which can handle all the volume and customization any small biz client would ever need up to and over about $2 million a year in sales as a two-three person biz, consists of the following:
The Miva Merchant shopping cart: $500 or included with hosting for about $40 a month. Outstanding flexibility, fabulous user group. Make sure you use a host that has experience with Miva, you will find them mentioned in the Miva users group frequently, there are about 3 or 4 real good ones.
The Verisign Payflow Pro gateway – most reliable, best service, best interface. A bit more expensive than others but since this is what usually breaks in our “gang of four” needed to process cards, you want the best, $60 a month:
You will of course have to use a clearing network they support, and they support most of them; choose a bank on one of the networks they support based on the merchant account “discount”, or amount they are going to charge per transaction, usually around 2.5%.
Finally, fulfillment. For about $600, the Stone Edge Order Manger combined with Verisign and the Miva cart will cut order processing time in half:
The Order Manager has direct interfaces to most of the online shipping systems – UPS, FedEx, USPS and most of the major shopping carts. You get very fast download and processing of orders, printing of customized packing and shipping labels, a customer database, and all the things you don't know you need now but you will – inventory tracking, processing of returns, backorders, etc. And no copy and paste – customer enters the data, and that same data moves through all systems right into shipping labels.
