Transaction Processing

Payment solutions for online processing of credit cards have become big business. Credit card processing has a variety of “off the shelf solutions” and many are worthwhile. But without at least a basic understanding of how card transaction processing works, an entrepreneur on the net is asking for trouble.

Just to illustrate this, a recent complaint on a forum had an Internet merchant who couldn’t get her money. She was using Paypal to handle credit cards, and the money sat, marked as “unclaimed” in the Paypal system. Her customers were getting an auto-generated email stating: “Thanks for your purchase; products will be delivered when the funds clear.” Naturally, she was upset because she couldn’t get her money, and her customers were upset because they didn’t know if they had paid or not.

The problem turned out to be a conflict between her native currency (British pounds) and the prices and currency on her website (US dollars). Resolving the problem was a headache that might have been avoided with a little front-end knowledge.

Understanding transaction processing concepts isn’t difficult, but it does require some attention.

What is Transaction Processing?

A transaction in the credit-card world is the act of communicating with a card issuing bank. Normally, it means sending customer information from sites through transaction processing services. This is because retailers don’t deal directly with banks, data flows through a middleman. Although we usually want to generate a sale, any communication is a transaction. It will cost you whether or not a charge is approved.

A transaction without a charge can happen when customer information is incomplete, in error, or they do not have enough credit available to make the purchase. The type of sale for online transactions is called, “card not present.” This has a higher security risk than face-to-face, offline charges. To fight fraud, the billing address, phone number, the CSC (card security code on the back) or other information will have to match bank records. A mistake and re-entry will create an additional transaction fee.

Transaction processing systems take information from the card holder and submit it in the proper format, usually doing some pre-checking for obvious errors before submission. Any missing information should interrupt the process before a fee is generated to the merchant. Good transaction processing software will have error checking, charge tracking, accounting functions and still be user friendly.

What is Payment Gateway?

A payment gateway is one type of online transaction processing. It is usually integrated as part of a check-out page or shopping cart. The software allows customers to fill in information with a secure, encrypted web page and then sends the data off for verification and payment. The gateway may or may not be hosted on the website itself. Paypal uses a link that takes customers to their site for payment and then returns them where they came from (when it works).

Another type is called a virtual credit card processing. This is software hosted on a merchant’s server that accepts logins from trusted users. The purpose here is for multiple point of sale locations to be able to run credit cards for the same business.

One difference between a payment gateway and a virtual terminal is who uses it more than the actual software. The website is used by customers directly while the virtual terminal is used by sales personnel to process credit card payments.

The other main difference is what information you might keep. In a virtual terminal setup, no customer information is retained after authorization is complete. A payment gateway (in the form of a shopping cart) may keep all the essential information for customer convenience and repeat visits to the online store.

A transaction processing application may act as either or both types – it depends on how you expect to handle cards and what services you want to pay for. In any case, you should think hard about whether you want to get involved in secure transaction processing or use a third party to deal with security issues. The liability of holding customer financial information shouldn’t be underestimated. This is one of the main advantages of a third party payment gateway – if it is well integrated into your site, it will be largely transparent to your customers, but you won’t have to worry about security issues.

Tip – Ask about transaction software options when you first get a merchant account. Quite often transaction processor software will be included for free (or free trial) as an incentive to sign with one company over another.

Warning – Not all transaction processing software is made equal. If you have a website designer or programmer, it might be worth a bit extra to go with what they are most familiar with – if it fits your needs. Custom can be costly, but not getting a professional opinion about how to blend third party software into your site can mean trouble later on.

Tip – Some site designers recommend a modular back up. If your primary payment gateway is having problems, a few keystrokes can redirect sales to another method. The secondary is usually more expensive, but also more robust. For instance, if problems arise, you could transfer to Paypal’s system instead of directly to your merchant account.

What Should I Look For?

Here’s the rundown of what you should keep in mind when shopping:

• Shopping cart software and a payment gateway that works. Two tips – research the company offering your package; business people love to give reviews or post complaints. Also see if you can “try before you buy” at an existing customer’s website. Better yet, email that client and ask directly what they think.

• What does the customer see when they check out? How professional does it look and how easy to use is it? How are mistakes handled?

• Digital certificates and SSL servers should be included (this is the standard security for credit card processing online).

• 24/7 help desk should be included. The Internet works around the clock, they should too.

• Web based management tools for your account. These you will have to learn and if you can, try before you buy. The best tools won’t help you if you can’t use them easily.

• You should get marketing and usage reports easily and conveniently – in whatever format is most useful to your business. One of the wonders of the Internet is accurate tracking and this will guide your marketing efforts. Pay special attention to those customers who make it to your payment page, start the process and then abort it – that’s a red flag.

Only by looking at these critical areas will you know what you are comparing when you look at prices. One final tip: After you’ve developed a track record with one service, see if you can negotiate a better rate. The industry is competitive enough that a valuable customer is, well… valuable. Sometimes you can leverage this into lower fees.