Alternative Online Payment Systems

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.

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.

CUSTOMER PERCEPTION

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.

CONCLUSION

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 possible.

The following is a list of WPS providers:

http://www.paypal.com
http://www.c2it.com
http://www.westernunion.com
http://www.billpoint.com