The Truth About Internet Merchant Accounts and Real Time Credit Card Processing

All over the Internet, businesses are flocking to sign up for real time credit card processing. The idea is so appealing; give an immediate approval of a credit card online. Your customer gets the same sort of immediate feedback they would in the "real world", and you get the sale.

"It may sound great in theory, but real time credit card processing has many dangers that are not really necessary," says Joe Kamenar, a merchant account provider who sets up these systems for companies online. His site, http://webmall.net, is full of information about credit card processing, CyberCash, and the ins and outs of setting up your online business.

Kamenar sees the allure of a high tech ordering system, where you don't have to do anything, as the main appeal of real time credit card processing. He has set up many businesses online using these systems. Yet any business should look at its real needs and the reality of what is involved in simply processing an order. Often, the expense does not add convenience for you or your customer.

Kamenar suggests that you look before you add this expense: "It's simply a case of numbers. If you are shipping real goods like a book, why bother? You still have to take the order, send it to your warehouse, and in most cases, post-authorize the order off-line. In fact, many real time order processing systems are difficult to configure with your own system off-line, so you may actually have to key in the orders by hand.

"CyberCash is an exception to this rule. But you pay $40 month or so for CyberCash's real time order processing service. You pay $40 a month as an access fee, or they charge a 25 cent per transaction surcharge, with a $40 monthly minimum. Unless you are generating enough volume of orders, it doesn't make sense. The problem is, most people set up the system without thinking about whether it will really save them time and money. If it does, then it is definitely worth it."

Right now, getting an order from the Internet to your bank requires a middle person. If you do real time processing online, the middle person is an entity like CyberCash, who processes the order safely. In this case, you have to pay the middle person. If you do the order processing off-line, there is no added cost except your time.

The question you face is, do your customers really need to get their order approved online quickly, or do you just like the idea that you can do it? Most often, the need is not that important, since shipping is still involved and is hardly done as quickly if you ship real goods.

Credit card processors have a pre-authorization and post-authorization requirements; you submit the order, it gets approved, then you batch process your orders at the end of the day. Many real time order services just do the pre-authorization online, which forces you to really process the orders offline anyway. CyberCash does offer post-authorization, so your orders are automatically transferred to your bank. Yet you still have to keep a careful eye on what your customers are doing.

For instance, what if a customer fills in an order and has to wait? Sometimes these online orders can take over a minute to process. Your average surfer might get nervous and hit the stop button on the browser, then resend the order. Sometimes the order is sent, even after they do this; then they send it again. They may get billed twice by you, and you will likely not notice it until the order has already been processed. Or until your customer complains.

Cost is not the only problem involved in real time credit card processing. Services can be slow and setting them up can take weeks. Even then, the system is imperfect. For example, one merchant reports processing three declined orders in a day from his Web Site, doing it all off-line. He called the customers, who corrected the errors.

He would have been out $300 if the real time processing had been in effect, because they would have turned all his clients down. And he would never have known what happened. His customers would have left disappointed, because when a computer tells you it doesn't work, you tend to trust it. Besides, there is no one to talk to, so your customer may get alienated.

Transactions outside of your geographic area and customer error are also important problems that should be considered. Non U.S. transactions cannot be approved easily online. Most credit card order processing does not conceive of the global access the Internet provides. That zip code (if there is one) from the Ukraine may not translate and if it does, there is no guarantee that the order is good.

Customer error can also be a threat. Kamenar relates the story of one client who offers a $97 product and allows the customer to fill in the dollar amount to be ordered. If the customer types in $970 and sends it in, the order may be processed even though it exceeds the limit the credit card provider allows you to charge per order. Real time processing has no way of tracking this and you could run into problems simply because someone had a typo.

You should protect yourself if you do online, real time credit card processing by:

1. Giving order forms that have checkboxes to indicate approval of product or services. Make sure that the button that actually submits the order has wording like, "I accept" or "Please send my order in" to indicate approval. Believe it or not, some newcomers do not understand that they are actually ordering if they simply hit an order button that says "OK".

2. Making sure to check all your orders by hand no matter what you do. It is just common sense; errors can happen, and the person entering the order is a customer who does not understand anything except ordering.

3. See if you can get declined order information as well; it helps to follow up.

4. Making sure your order system works online. Online ordering systems are intolerant of errors; if people type in the wrong name or miss a single digit in a long credit card number, they may be declined.

5. Measuring the cost per order versus the effectiveness. If you are shipping real goods, you can often take orders online, process them, and get in touch with customers the next day if anything is wrong. Don't feel pressured into immediate service and approval when it is not necessarily needed.

6. Making sure you work with a reputable company that you can trust. One merchant set up an account and lost $2,000 because the company was so disorganized, they could never find his orders. They also charged some customers 2 or 3 times until the bugs were worked out of the system.

7. Being careful; if your merchant account has many "Internet" glitches, it may affect your credit rating. If you process orders over your limit, or have many problems because of Internet processing, you can ultimately end up with your account shut down. If that happens, it is very hard to open it again. Many credit card account providers are wary of the Internet, so don't add to the problems if you can avoid it.

8. If you have affiliates, real time order processing should not affect their payments either, since you still wait a certain time period - often once a month - to pay them.

Online order processing is a big benefit of the Internet, but often the human touch is needed to make sure that everything goes right. If your customer has troubles, it is unlikely they will return to you. Also remember that in most businesses, error and fraud are a minor part of the entire transaction process. You will always run into some problems; just make sure that online order processing is not a bigger problem than a benefit.

If you would like to learn more about online order processing, or setting up you own merchant account, visit Joe Kamenar at http://webmall.net. He has a wealth of information on running your merchant account both online and off-line, including in-depth articles that will explain the challenges your merchant account may face.