If you are setting up an e-commerce web site (shopping cart, online store, online shop), one of the decisions you will have to make is what system you are going to use for collecting payment. Payment can be handled off-line (by bank deposit, cheque, etc.) or automatically at the time of purchase by real-time credit card processing. In the case of off-line payment, the customer is provided with instructions for making a bank deposit or posting a cheque and the order is processed after payment is received. It is the simplest and least expensive system to set up but may present a barrier to some customers who are looking for the instant transaction that can be had using a credit card. When it comes to collecting credit card payments online in real time, there are two main types of systems:
These do not require you to set up a special merchant bank account. As a result they are quicker and less expensive to set up. For these type of systems the checkout takes place on the 3rd party web site and the name of the third party provider will appear on your customer’s credit card statement. The funds go into the third party’s account and afterwards are transferred to your own bank account. Paypal is the most widely used 3rd party payment processor. Other examples are Worldpay, Paymate and 2checkout. Google also provides one called Google Checkout but it is not yet available for New Zealand businesses (currently only available in USA and UK).
A merchant account is a special bank account that allows you to receive credit card payments. A regular shop that takes credit cards will have a merchant account. For internet payments, a special type of merchant account is required; it is called a ‘card not present’ merchant account. Usually the fees for this type of merchant account are higher since there is more risk of fraud. Most New Zealand banks can provide merchant accounts. In addition to having a merchant account you also need a payment gateway. The payment gateway acts as a ‘middle man’ between your merchant bank account and your web site to securely complete the transaction. With this type of system you usually pay fees to both the bank and the payment gateway and there are usually setup fees involved. You will also need to go through an application process and meet certain standards (e.g. business credit history) to qualify for a merchant account. For these types of systems the checkout can take place directly on your own web site (although the payment gateways typically also provide an option for doing the checkout on their web site). Examples of payment gateways that can be used with New Zealand merchant accounts include DPS, ANZ eGate, Paypro, Paystation and BNZ Buy-Line.
Having your own merchant account will provide a smoother customer experience at the checkout because the customer does not have to get taken to a 3rd party web site. However, if your sales volume is on the low side, your costs are going to be significantly higher and you will have fixed costs regardless of whether or not you make any sales. This is why many new online businesses choose to go with a third party processor. Of the third party processors, Paypal is the most popular because they tend to be the most competative with their charges and they are widely known and understood by online shoppers. If you expect low sales volumes or are uncertain of the volume of what sales volumes you might expect Paypal is good option to go with. If you are more confident of of what you expect to turnover, you can do some maths and do a comparison of costs based on your expected sales.
I have put together a document containing a matrix of the different options (both 3rd party and payment gateway/merchant acct.) available in New Zealand:
Payment Gateway Options [Word Document]
NOTE: This was last updated in Feb ’09, so please check websites for up-to-date information