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Online Payments: Understanding the Options

The choice of an online payments solution often proves to be a difficult and time consuming decision in the setup of an e-commerce website. The area of online payments can be confusing, particularly for those who are just getting started. There is new jargon, many different options, configurations and various pricing plans.

These, combined with the fear of exposing yourself or your customers to fraud means the setup of online payments can be a stumbling block for small businesses.

In this article we discuss the basic jargon you will likely encounter, the popular options for structuring your web payments solution and strategies for evolving that solution in accordance with the success of the venture.

Online Payments

A payment provider allows you accept online payments from your customers. They provide the secure payment processing and act as a gateway between your website and the bank. In online payments terminology the website is typically referred to as the merchant, the acquiring bank is the merchants bank and the issuing bank refers to the bank who has issued the customers credit or debit card.

When a website prompts a customer for payments details, it may be collecting and transmitting that data to a payment provider. This method is known as an API Integration. However more often the secure payment page is hosted by a payment provider, this method is known as a Hosted Payments Page Integration. The payment provider allows the merchant to redirect the customer to a merchant-branded page on their secure servers where the data is securely entered. These pages then return the customer back to the merchant website to the ‘Thank you for your business’ page or to complete any additional requirements. For a more detailed explanation of this process, see Online Payments Visual Guide

Merchant Account

A Merchant Service Agreement refers to the agreement with the acquiring bank that defines how the merchant can accept credit and debit card payments. The Merchant Service Agreement will outline the card types that can be accepted, the currencies that can be accepted and the payment channels over which they can be accepted. The common payment channels are retail, mail/telephone order and e-commerce. A merchant account is required for each of these payment channels. In the case of ecommerce transactions i.e. online payments, an Internet Merchant Account (IMA) is required.

The two common services available for collecting online payments are through a Payment Bureau or a Payment Service Provider (PSP).

Payment Bureau

A Payment Bureau solution can be implemented quickly. They do not require an Internet Merchant Account and tend to have less stringent criteria for application. However, they manage this risk by holding onto funds for a longer period than PSP’s. This time is known as the settlement period. In the early days of a business’s relationship with a Payments Bureau the settlement period could be between 30 – 60 days reducing over time to around 14 days. Payment Bureau’s also tend not to accept Laser cards, which can be quite important to business in Ireland. The customer is always redirected to the Payment Bureau’s servers which are often generic save for the ability to add your logo or similar basic branding.

Payment Bureau solutions typically do not have monthly fee’s instead they charge you per transaction. This is very advantageous to startup businesses as they will only incur a cost when they process a payment. As a result of this pricing model the cost per transaction will be higher than the PSP and IMA route so when you start regularly processing payments it may make more financial sense to switch to a PSP.

Payments Service Provider

A Payments Service Provider (PSP) solution can take a little longer to implement mainly due to the Merchant Service Agreement but there are attractive advantages to PSP’s. Though they do require an Internet Merchant Account (part of the Merchant Service Agreement), the settlement period is considerably less in most cases 24-48 hours. The settlement period will depend on the details of your Merchant Service Agreement, as will the card types and currencies that you can accept. As a general rule the PSP can support anything that your Merchant Service Agreement supports.

The customer experience with a PSP solution is cleaner and more streamlined that the typical Payment Bureau solution. PSP’s normally provide two methods of integration, hosted payments page and API integration.

With the hosted payments page the customer is redirected to a branded page to enter their card details. This branded page resides on the PSP’s secure server. With API Integration the customer enters their card details on the merchants website and never leaves this site. In the background the merchant will use the API to communicate with the PSP’s payment gateway.

All of the major PSPs in Ireland have specific pricing plans targeted at SME’s and startup businesses. These pricing plans do not have any setup fees and include a number of inclusive transactions for a monthly fee. Any additional transactions outside of the inclusive bundle are charged for individually.

The PSP fee only covers their role in the processing of the transaction but there is also monthly charge from the acquiring bank. This charge is agreed as part of the Merchant Service Agreement. Typically, a small percentage of each credit card transaction and a flat rate fee per debit card transaction is payable. In almost all cases, these will be subject to a monthly minimum fee which is generally around €30. The percentage of each transaction is typically between 2-3% but again this is dependent on a number of factors such as the terms of your Merchant Service Agreement, the risk associated with the business and the volume of transactions to be processed.

As Your Venture Grows

Strategically, keep in mind that as the venture grows, the solutions employed should evolve in sophistication also. A common suggestion we make is for SME’s or start-ups to begin with a Payment Bureau solution and later add a PSP solution. In this way it can be rolled out relatively quickly and with fewer difficulties, a short term solution to prove the business logic. It also boasts the advantage of having more than one payment method available to the customer. If the ecommerce offerings are core to the success of the venture, we recommend implementing a PSP solution from the beginning. In this way, though there is more work up front, the customer experience can be fully tailored and smoother cash flows can be maintained with shorter settlement periods.

For more information of these and other issues relating to online payments, please visit – your independent resource for payment solutions in Ireland.