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Alternative Online Payment Systems
By: Godfrey Heron, Tue Aug 29th, 2006
One of the most frequently asked questions I get as a webmaster
is "can you setup an ecommerce system for our company?"
For most businesses venturing into ecommerce, e-payment means
accepting credit cards. This involves setting up a complex
system including a SECURE order page/shopping cart software, a
merchant account (basically a bank account that receives the
credit card proceeds), and a credit card processing service.
Care has to be taken to ensure that the shopping cart is
compatible with the authorization service. All the various
elements need to be compatible and interface with each other.
While the bulk of Internet ecommerce is still transacted using
credit cards, there has been steady inroads being made by
alternative methods of settling e-transactions. These Web
Payment Services (WPS) have ingeniously utilized the most
popular application on the internet "e-mail", to appeal to
By using an existing platform to launch their services, WPS
providers have enjoyed wide appeal with customers worldwide. The
largest of these, PAYPAL, has approximately 11 million users,
processes 150,000 payments per day, and attracts over 20,000 new
users each day.
But are there any advantages of using these alternative payment
systems over credit card merchant systems? To help you decide
the following criteria will be evaluated:
(a) SetUp (b) Maintenance Costs (c) Ease of Use/Convenience (d)
Cash Flow Effect (e) Customer Perception
SETUP As mentioned above the setup of a credit card merchant
system is complex. The setup of a merchant account may take up
to two weeks or more for final approval to be granted from the
financial institition involved and verification of the
integration of various components completed.
WPS services on the other side of the scale, are incredibly easy
to setup, almost laughably so. For example, Paypal, which is the
largest WPS just requires a merchant to go to the Paypal site to
register their account. This whole process may take 5 -10
minutes. There is no transaction processing software to install,
and importantly, no shopping cart to rent or buy. Paypal simply
generates a HTML code which you can place in your site next to
your inventory items.
A click on these buttons takes the customer straight to Paypal's
secure server. When customers want to make a payment they send a
message to Paypal, and then Paypal, the middleman, does the rest.
Establishing your own merchant account for credit card
processing and installing a shopping cart can easily run into
hundreds of dollars. In addition there are the ubiquitous
monthly minimum fees and address verification fees (a proven
WPS providers don't levy application setup or monthly charges,
and the costs are competitive with Credit Card transaction
processing charges. These average at $0.35 and 2.5% per
EASE OF USE / CONVENIENCE
Although WPS providers intimate that their services are very
user- friendly, the fact of the matter is that WPS services are
not as easy to use as credit card systems. WPS services require
the user/ customer to register with them, if they have not
already done so. Now this is a major disadvantage as it
interrupts the flow of "impulse" purchases. Potential customers
have been known to abandon shopping carts for even less
interuptive purchasing hiccups.
On the merchant side, payments received in WPS accounts are not
automatically lodged to your bank account. The merchant will
have to manually claim and then transfer payments into their
bank account. With credit card merchant accounts your account is
CASH FLOW EFFECT
Having your own merchant account will certainly increase the
flow of funds to your bank book. While a merchant account
provider will hold your funds to prevent charge backs losses,
the period of time is usually relatively brief, about 48 hours.
Expect to wait for at least a week before money appears in the
account of WPS providers.
At this point in time credit cards are the medium of choice and
a business that uses only WPS providers as the means of
receiving payments may appear to be amateurish and "small-fry".
In the online world, where site visors don't have a face to
relate to, perception is critical, and the ability to accept
credit cards has been held as a mark of an established, feet on
the ground firm.
There are definite advantages to using WPS providers. They
should however be used as backup payment services or in
conjunction with merchant accounts. Its always to your advantage
to present the customer with as much payment options as
The following is a list of WPS providers:
About the author:
Godfrey Heron is the Web site Manager of Irieisle Online a
leading web hosting and design company. Hosting solutions
Starting from US$9.95. http://www.irieisle-online.com