Introduction to e-Payment
Physical Credit Card Transactions
In the "bricks and mortar" world, when a customer purchases something, they are required to enter their credit card information into a "terminal". This can be done by the clerk swiping the card through the terminal or by entering the data manually. The terminal then submits the transaction information to a financial institution or acquirer. The financial institution then forwards this information onto a credit card clearing house - such as VISA or MasterCard to check validity and standing of the card. This all takes place within seconds. The customer is then presented with a receipt, for review and to sign - thereby acknowledging that they are the cardholder. Sometime shortly after, the transaction is settled, the retailer is paid and the cardholder is charged.
Online transactions are performed through the use of a "payment gateway". A payment gateway is integrated into the merchant's website and is used to relay transaction information for authorization and settlement purposes. The payment gateway is similar to the physical terminal.
Internet Merchant Account
You will need an Internet merchant account to enable your storefront to accept credit card payments online. An Internet merchant account - gives you permission to take online payments. You may already have an existing merchant account that is enabled for Internet transactions or you may need to apply for one. Internet Merchant accounts can be obtained through an acquirer or financial institution.
It is not always easy to obtain an Internet merchant account. Even though some merchants have an existing merchant account, their financial institution will not issue them an Internet merchant account. Fraud, fulfillment and concerns over business viability are the common issues. If you don't qualify for an Internet Merchant Account through regular channels you may apply for a "third party" account. You would apply through a company that has authorization to issue Internet merchant accounts. A third party is a master merchant that will process your credit card transactions through their merchant account, deduct a fee and withhold a percentage of your funds for a period of time (can be several months) before releasing. The application process can be quite detailed and take a minimum of two weeks to obtain your account. Obtaining an Internet merchant account can be likened to opening a business line of credit.
Available Credit Cards
The PayPaq e-payment service currently allows the use of VISA, MasterCard, AMEX, Enroute/Diners Club, Discover and JCB. You will typically be able to obtain both VISA and MasterCard at one financial institution. As for accepting the other cards you will require separate contracts from the institutions that issue these cards to be able to accept these cards online. You will require at least one merchant account in order to enable your storefront for online payment.
Your choice of currency at this time is restricted to US and/or Canadian Dollars. This means you must price and sell your products in US Dollars if you have a US Dollar Internet merchant account or in Canadian Dollars if you have a Canadian Dollar Internet merchant account. Transacting in either USD or Canadian Dollars allows you to accept payments anywhere in the world as long as you have the corresponding merchant account for that credit card.
Existing Merchant Account
If you have an existing merchant account please call the issuer to ensure that it is enabled for Internet commerce (or Card Not Present) transactions. Be aware of your issuing institutions' rules and regulations regarding Internet transactions including merchant "safe practices". Note: please check your financial institutions merchant account fees and online payment fees.
New Internet Merchant Account
You can apply for an Internet merchant account at any financial institution in North America.
Internet Merchant Account Terms
Card Not Present or Mail Order Telephone Order environment - credit card transactions taken over the Internet or telephone do not guarantee the user is the owner of the card and as a result transactions may result in a "chargeback" to the merchant. Chargeback - is a debit to a merchant's account from a previous sale. Typically this is the result of a cardholder dispute (cardholder didn't purchase goods, didn't receive goods). Your financial institution will request a "Sales Draft Copy". It is then your responsibility to provide a copy of the email receipt and proof of delivery. Make sure to ask your financial institution for a copy of their "Best Practices" for merchants transacting on the Internet. VISA's new "Verified by VISA" program eliminates chargebacks by ensuring that the cardholder is authenticated before the sale.
Verified by VISA and MasterCard SecureCode
VBV (Verified by Visa) & MasterCard SecureCode architecture will validate a customer's credit card and verify the identity of the person using the card. It does this by requiring the purchaser to authenticate the transaction and themselves, as the cardholder, by identifying themselves through their bank or credit card issuer. This dramatically changes the nature of Internet based credit card transactions from being the equivalent of Mail Order/Telephone Order (MO/TO) unauthenticated transactions to being the equivalent of "Card Present" transactions, namely a customer physically presenting their card to the merchant and signing the transaction slip. This greatly reduces the possibility of online credit card fraud, which results in greater customer comfort in performing the transaction and thereby results in more online donations. For more information go to: Verified by Visa or MasterCard SecureCode
Note: In some circumstances you will need your financial institution or acquirer to enable your Internet Merchant Account for Verified by Visa and MasterCard Securecode.
Online debit card processing is now available from Interac. Please check with your financial institution or acquirer as to availability.
A customer selects the product and/or service they would like to purchase from an online storefront and proceeds to checkout. At this point the customer is advised as to the security of the information they are about to provide. Information regarding the payment system is posted along with instructions for the customer to check and make sure the site is secure. The customer is asked to check for the locked lock and the "https" in the website address. This means that SSL encryption and a digital certificate are being used to protect their personal information. Once at checkout they will confirm the purchase details and submit the required shipping and payment information.
Once the submit button is clicked (submit buttons must only be clicked once or multiple duplicate orders could possibly occur) the information is encrypted and sent through the PayPaq™ server to the bank gateway for the credit card to be processed. Processing occurs in a matter of seconds depending on bandwidth. Once the bank has processed the credit card - "approved" or "declined" that information is sent back through the PayPaq™ server. An onscreen virtual receipt is generated that appears on the customer's web browser. An email receipt is also sent to the customer indicating the payment amount and whether or not the transaction was approved. The merchant also receives an email receipt that contains all the order and approval information. The merchant may then fulfill the order and process the transaction. If the merchant is shipping hard goods, then Card Not Present regulations require that a credit card be "pre-authorized" for the amount of the purchase. A pre-authorization tells you that the card number that was entered is valid and that there is credit remaining on the card for the amount of the transaction it was authorized for.
Processing Online Transactions
If a card has been pre-authorized, to complete the purchase, the merchant must log into the PayPaq administrative function - "The Merchant Resource Center" and manually complete a "capture" or "post-authorization" to charge the credit card at the time the goods are shipped. If the merchant is selling goods that don't require shipment such as software or electronic book downloads, then the card is automatically charged the fee and no manual intervention is required. All transactions using PayPaq™ are automatically submitted to the bank for deposit via a batch close that occurs nightly (varies based on financial institution). Deposits to your bank account will occur next day or in two days depending on card type and financial institution. Additional administrative functions of the e-payment system allow the merchant to perform partial and complete credits, transaction voids and refunds as well as reconciliation and statistical analysis.