Alternative Online Payment Systems
By Godfrey Heron
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 customers.
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.
Maintenance Costs
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 anti-fraud strategy).
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 transaction.
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 automatically updated.
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