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The Low Down on E-Commerce

article by: Matthew Fair and Korey Graham

The world of e-commerce, merchant accounts and payment gateways is often a difficult and confusing space. It can become overwhelming trying to find a suitable and scalable solution to allow you to both enter and grow in the e-commerce world. For many businesses, e-commerce or some form of e-commerce is the stepping stone to reducing costs while increasing revenues. So, what does your business need to do to get on with building an e-commerce enabled website?

The answer is simple, a little of this, and a little of that. There are several flavors of e-commerce from simple (order forms with over the phone based follow up), to complex (custom built shopping carts leading to full 'real time payment processing').

Before we talk about each type of solution lets get up to speed on some e-commerce basics:

First, there are three stages to checking out an e-commerce customer:

  1. THE ORDER
  2. THE PAYMENT ACCEPTANCE
  3. THE PROCESSING OF PAYMENT

And second, there are several main ingredients that make up an e-commerce site, but depending on the type of solution you require, you may only need a few of these ingredients:

Shopping Cart $200 - $12,000
Security Certificate and Secure Web Hosting $800 / year
Payment Gateway
which is usually part of your internet transaction account
N/A
Internet Transaction Account
which may or may not be part of your merchant account
$35 - $100 per month + per transaction fixed cost $0.15-$0.50
Merchant Account with Point of Sale system (phone, swipe card terminal, web based) - price varies depending on your bank, often banks will impose additional rules and costs for merchant accounts that are being for card not present transactions. Merchant account fees are usually based on transactions %

Now that we have a handle on process and ingredients lets look at a few likely configurations and the benefits and drawbacks of each:

  1. Manual Payment - Manual Processing
    ~$300 + merchant account % if accepting manual credit card payment.
    Minimum Requirements: Shopping cart (basic)
    The least expensive solution, customers select what they want to order and then fill out their information but do not provide a credit card number. Once they submit their order the business must contact them via a secure method like phone or fax to confirm payment details. If you want your customers to pay by cheque or cash only you do not need a merchant account. If you want to collect credit card number via the phone or fax you will need a merchant account to process those transactions manually. It is important that you do not collect credit cards by email because it is not a secure method to send that type of information unless it is encrypted. Usually you will process these types of transactions using the merchant account providers phone based authorization and deposit system or one of the other POS systems provided by your merchant account like a swipe card terminal or web based POS. The method is very inexpensive because there is no need for Security Certificate, Secure Hosting, or Payment Gateway Fees or internet transaction Fees. It also provides a much more personal feel and more intimate contact with the customer. On the other hand, processing payments this way can be time consuming and difficult because you need to make contact with the purchaser for every order and then process each payment manually. Some people may also get the impression that this type of ordering is less professional if they were expecting to be paying online directly.
  2. Offsite Payment Third Party Branded (PayPal) - Automated Processing
    ~$900 + PayPal transaction + PayPal %
    Minimum Requirements: Shopping Cart (Basic - Medium)
    As one of the most popular and reliable forms of payment processing merchants, an integrated PayPal solution can be the best dollar-value option for any small business looking to try out e-commerce. From the shopping cart, the customer fills out customer information, and then proceeds to a PayPal check-out page to authorize payment by credit card. The information the customer filled out will be auto-populated into the PayPal form and the payment information can be filled out and processed over a secure connection (PayPal site). PayPal start-up costs are lower and fees are only based on transactions and percent so there are no monthly fees to worry about. This method is inexpensive because there is no need for secure certificates, secure hosting, merchant account, or payment gateway and internet transactions. This solution looks somewhat less professional because the user actually leaves your site and lands on a PayPal branded page to make their payment. This option is also less customizable and can be expensive as you on-line sales grow.
  3. Offsite Payment with your brand - Automated Processing
    ~$1300 + transaction fees + merchant account %
    Minimum Requirement: Shopping Cart (Medium-Advanced), Merchant Account, Internet Transaction Account
    Almost exactly the same as the previous option but because the payment page is designed for your brand consumers do not always notice that they have actually left your site to make their payment. This option usually comes with monthly service fees but no security certificate, or secure hosting is required.
  4. Onsite Payment - Manual Processing
    ~$1800 + merchant account %
    Minimum Requirements: Shopping Cart (Advanced), Merchant Account, Security Certificate, Secure Hosting
    This option allows the customer to stay on your website to make their payment so you have total control over what they see and how it works. In this option the user enters their credit card information on your website and completes the order but the card is only validated for the right number of digits and some other calculations. The card is not authorized automatically and no transaction is complete until the business manually completes the transaction using a POS system (phone, terminal, web). This method can make your company look very professional but yet still save some costs because you do not need the payment gateway and do not pay for internet transactions.
  5. Onsite Payment - Automated Processing (Full e-commerce)
    ~$ 2200 + transaction fees + merchant account %
    Minimum Requirements: Shopping Cart (advanced-ultra advanced), Merchant Account with Payment Gateway, Security Certificate, and Secure Hosting.
    This option is normally reserved (but not restricted) to websites with a large inventory of items to sell and a steady stream of traffic. All aspects of the application; shopping cart system, order form, inventory admin, database, and payment processing are automated and can be tailored to your business. This provides for the most professional payment options for your clients and also reduces administrative burden on you and your company. Full e-commerce websites can even be integrated into your accounting software like QuickBooks to provide a completely seamless end to end solution. The only negative - the cost can be prohibitive unless your sales volumes will be high enough to support the high monthly payment gateway fees. If you have very high sales volumes this option becomes the most cost effective solution because the high monthly fees are usually offset by lower per transaction fees and lower percentages.

All costs are approximates. And do not reflect costs of design, basic hosting, domain names, and web site development. They should be viewed as additional costs to the basic development of a website.

If you're looking for additional information on building an e-commerce enabled website, be sure to checkout the Beanstream and Moneris websites. You can also email info@interkingston.com

Matthew is the owner and lead developer of Inter Kingston Web Design. Korey is a designer, developer and web marketing strategist with Inter Kingston.