by Real Business - Thursday, 30th August 2007

To take credit card payments online you’ll need two things: a merchant account to put the money into, and a payments processing service (also known as a gateway) to liaise between your site and the account .

Merchant accounts
Picking a merchant account will require a bit of legwork. When Phil Williams, founder of webhost Openmindedsolutions.co.uk, wanted to open a merchant account he went to HSBC. “They wanted a £25,000 deposit, which meant I just walked out of the door.”

Next stop was Lloyds TSB. “They didn’t want any deposit,” says Williams. “But their commission rate per transaction was 3.8 per cent. This was understandably high, as I was a new customer and I was entering a high-tech marketplace without tangible products.

“The manager I spoke to took time to understand my business model, and after six weeks of strong trading we haggled them down to 2.5 per cent, which is a terrific rate.”

You don’t have to go to a highstreet bank for a merchant account. Some payment processing companies will offer an all-in-one service. The largest provider of this type is WorldPay. They’ll provide both the gateway and the merchant account, though beware! If you need to reimburse a customer who’s been a victim of credit card fraud you need to have enough cash in your account. Therefore WorldPay will hang on to the proceeds of each transaction for four to six weeks – causing cashflow problems. Other merchant accounts, such as those with highstreet banks, will give you the cash within five days.

The other disadvantage with a non-bank merchant account is that you may have to send customers to a third-party website to process payments, which looks unprofessional. Whether you choose a high-street merchant or one from an alternative provider, expect to pay around £300 in set-up fees.

Gateways
To process credit card payments with a high-street merchant account you’ll need a gateway. There are four big ones, and about a dozen minnows. The biggies are Protx, SECpay (pronounced sek-pay), SecureTrading and Velocity Pay.

Which should you use? On terms of functionality and cost there is little to separate the big four.

The hugely popular Protx will process up to 1,000 transactions for a measly £20 a month, with no setup fees or transaction charges. For more than 1,000, you pay 10p per transaction – a flat fee irrespective of whether you sell CDs or cars.

SecureTrading charges an annual fee of £195 plus VAT and 1.5 per cent of transactions, and is used by household names such as Firebox and Bulldog Broadband.

But there are lots more options. For seriously advanced websites, try Commidea’s processing system, as used by giants like Tesco. Gadget site Iwantoneofthose.com founder Angus Clacher says Commidea offers two advantages. “Transaction costs are far lower. We paid nothing after the set-up fees, so we only had merchant fees. There’s also a distinction between authorising payment and debiting the customer’s account. You won’t debit their account until you’ve sent the goods, which is important for building customer trust.”

Just as with the banks, you’ll be able to demand better terms from your gateway provider as you grow. Williams advocates renegotiating every six months.

A fancy (but useful) add-on
One last payment system you might want to consider adding is Google Checkout. This is a new one-click purchasing concept. You sign up and get a Google icon to put on your website. Customers, meanwhile, register their address and credit card details with Google. Then whenever they want to buy something from an affiliated website (such as yours), they simply click on the Google Checkout icon. On the downside: sellers pay two per cent plus $0.20 per transaction.

If you advertise on Adwords, you can obtain $10 of credit at Google Checkout for every $1 in Adword fees. But, if you don’t, the cost of letting customers pay via Google Checkout will be astronomical!

By Charles Orton-Jones

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