The internet as a sales channel
What is e-commerce
Technically, e-commerce means conducting a commercial transaction by electronic means, so is quite wide in scope. For the purpose of this guide, however, we are focusing on the common usage of e-commerce, - i.e. an online shop. This is a website that allows customers to browse and search products, place them in a virtual basket, pay for them online and have them delivered to their door (or someone elses door in some cases such as buying gifts or flowers).
There are several different technologies and parties involved in this process:
- The world wide web.
i.e. internet website technology, which itself is a mish-mash of other technologies beyond the scope of this guide.
- Encryption.
Security and encryption is required to handle online payments in a safe manner.
- Merchants and other intermediaries.
Merchants are the banks that provide accounts for accepting online card payments. Other intermediaries such as payment gateways enable the secure processing of online payments.
If handled correctly, these technologies and parties interact to give the customer a seamless online shopping experience.
What is a shopping cart?
The term shopping cart refers to the software that enables a website to offer e-commerce functionality. i.e. enables users to browse products, place them in a basket and pay for them.
Some shopping carts contain everything required to create a complete website with an integrated online shop – this is ideal for new websites.
Others enable e-commerce to be integrated into an existing website.
The cost, quality, range of options and SEO features (see our
SEO guide) vary between different shopping carts.
Most businesses employ a web development company (like us) to build their online shop for them, and let them decide which shopping cart software is appropriate. The configuration of the shopping cart software is a detailed technical job, and there is usually additional programming required to meet the exact needs of a business.
How do I accept credit cards online?
Accepting online payments is a complex area. There are a bewildering number of ways to do this, and the industry is constantly inventing new techniques. We will concentrate on the most common options available.
Totally integrated online payment
For total integration, the customer is able to enter his or her card details without leaving your website, which means your website has to handle credit card information
directly.
This is generally regarded as the most professional approach – most big e-commerce websites do this. However, there are some major drawbacks:
1. Because your website is handling credit-card data it has to comply with the
PCI DSS (Payment Card Industry Data Security Standards). These are a set of rules on security standards and protocols which are designed to minimise online fraud.
For an e-commerce website, this generally means that your website needs to be SSL encrypted, and be hosted on a dedicated server that meets the PCI DSS compliance standards. (See our
hosting guide for information on website hosting.)
All of this means your hosting costs will likely be a
minimum of £100 - £200 per month.
2. You will need the ability to directly request credit card payments, and for this you need a
merchant account and a
payment gateway.
A merchant account is an account provided by a bank that enables you to accept payments via credit and debit card.
A payment gateway is a service that is used to process online payments into (or out of) your merchant account.
Most banks bundle the merchant account and payment gateway into a single offering, so the distinction between the two becomes somewhat blurred.
You may already have a merchant account for point-of-sale credit card payments, in which case it should be relatively inexpensive to extend this to handle online payments (i.e. to add a payment gateway service), though it is always worth shopping around as there is a huge difference in charges between the various providers.
3. For small transaction volumes, this can be a costly option, as merchant accounts usually charge a fixed monthly fee plus a commission on all sales (and an additional commission for the payment gateway service – but this is often bundled up into a single commission).
However, for high sales volumes this can work out cheaper than the alternatives.
Partially integrated online payment
This is a very popular option for smaller companies that don’t want or can’t afford a merchant account.
The customer browses your website and adds items to their shopping basket in the normal way, but when they checkout they are directed to a
different website to make the payment (e.g. the PayPal or Google-checkout website).
All the card processing is handled here which means you don’t have to worry about the
PCI-DSS (see above for an explanation of this), and you don’t need a merchant account or payment gateway.
All you need is an account with e.g. PayPal or Google checkout.
There are a number of things to bear in mind if considering this option:
1. It doesn’t look as professional as the totally integrated solution. Customers can get scared off by being directed to another website and abandon the purchase. However, this is not as much of a problem as it used to be, especially if you are using a well known and trusted company to handle the payment (such as PayPal or Google checkout).
Also, it is possible to customise the page that your customers will see within the payment website – for example, specifying the colour scheme, images and buttons, so that the transition appears smoother to the customer.
It is usually possible to redirect the customer
back to your website when the payment is complete.
If handled well, the customer may not be aware that they are being directed to a different website at all.
The level of customisation and redirection possible varies between providers.
2. These accounts usually operate on a low or zero monthly fee plus a commission on all sales. For a low volume of sales, this often works out cheaper than the merchant account option, but for higher volumes it can be more expensive.
Partially integrated online payment with a merchant account
This is something of a “half way house” between the above two options. Customers are redirected to another website for payment, but the payment is handled through your merchant account.
This gives you the benefits of a merchant account but avoids the PCI-DSS compliance issues. If you already have a merchant account for point-of-sale transactions this could be a good option.
Other options
There are other, less widely used methods of accepting payments on a website. These may be relevant to your business.
- Pay by cheque
The customer places their order online and is then instructed to post a cheque or postal order. When the cheque clears you post the order.
This is often offered in addition to online card payments, as some customers are more comfortable with this than with entering their card details online.
- PayPal
Customers can use their PayPal account to pay you.
- Cash on delivery
The customer places their order online, then comes to your premises, paying on collection. This can work well for businesses with a local market (e.g. a take-away) or bulky items that would be collected anyway (e.g. a builders merchant).
There are also options such as electronic cheques, micro-payments, pre-paid internet wallets and so on, but these are not (yet) widely accepted by consumers.
All Web of Ideas e-commerce websites can implement any of the features outlined above. >>
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contact us if you have any questions.