As people become more comfortable with using credit cards on the Internet,
credit cards become more popular for eBay payments. Plus, major credit
card payment services have insured eBay payments to registered users,
making credit cards safe for the buyer and easy for you. Credit card transactions
are instantaneous; you don’t have to wait for a piece of paper to travel
cross-country.
For all this instantaneous money transfer, however, you pay a price. Whether
you have your own merchant account (a credit card acceptance account in
the name of your business) or take credit cards through a payment service
(more on this in a minute), you pay a fee. Your fees can range from 2 to 7 percent,
depending on how you plan to accept cards and which ones you accept.
Unfortunately, many states have made it illegal to charge a credit card surcharge
to make up this difference. You have to write off the expense of
accepting credit cards as part of your business budget in the COGS.
The fees that brick-and-mortar stores pay for accepting credit cards are
much less than those paid by online, mail, or phone orders. In most promotional
material, the vendor usually quotes the “swiped card” rates. Because
you won’t have the buyer’s card in hand to swipe, be sure to inquire with
your provider for the proper rate before signing any papers.
I have to explain the downside of accepting credit cards for your online sales.
To protect yourself, please be sure to check the bidders’ feedback both
feedback they’ve received and feedback they’ve left before accepting any
form of credit card payment for a high-ticket item. Some buyers are chronic
complainers and are rarely pleased with their purchases. They may not be
satisfied with your item after it ships. In that case, they can simply call their
credit card company and get credit for the payment; you’ll be charged back
(your account will be debited) the amount of the sale. (See the “Forget the
buyer: Seller beware!” sidebar in this article.) PayPal protects sellers to an
extent and is a safer way to accept credit cards for your sales.
Credit card payment services
Person-to-person payment systems, such as eBay’s PayPal and BidPay, allow
buyers to authorize payments from their credit cards or checking accounts directly to the seller. These services make money by charging percentages
and fees for each transaction. It all happens electronically through an automated
clearinghouse no fuss, no muss. The payment service releases to the seller only the buyer’s shipping information; all personal credit card information
is kept private. This speeds up the time it takes the buyer to get merchandise
because sellers are free to ship as soon as the service lets them know
that the buyer has made payment and the payment has been processed.
From the seller’s point of view, person-to-person payment service transaction
fees are lower than the 2.5 to 3.5 percent (per transaction) that traditional
credit card companies charge for merchant accounts. (Get the details in the
“Your very own merchant account” section, coming up.) Even traditional
retailers may switch their online business to these services to save money. In
this section, I discuss the top payment services and how each works.
Forget the buyer: Seller beware!
When buyers dispute a sale, they can simply
call PayPal or their credit card company and
refuse to pay for the item. You lose the sale and
possibly won’t be able to retrieve your merchandise.
A payment service or merchant
account will then chargeback your account
without contacting you and without negotiating.
Technically, the buyer has made the purchase
from the payment service not from you
and the payment service won’t defend you. I’ve
heard of chargebacks occurring as long as six
months after the transaction, although eBay
says they can occur no later than two months
after they sent you the first bill on which the
transaction or error appeared. No one is forcing
the buyer to ship the merchandise back to
you. Just like eBay Fraud Protection, the credit card companies skew the
rules to defend the consumer. As the seller, you
have to fend for yourself. You usually have no
way to verify that the shipping address is the
one the credit card bills to. So, to add to your
problems, the card may actually be stolen.
PayPal confirms through AVS (Address
Verification Service) that the buyer’s credit card
billing address matches the shipping address
and gives you the option to not accept payments
from buyers whose addresses don’t match.
PayPal offers seller protection against spurious
chargebacks under the following circumstances:
- Fraudulent card use
- False claims of nondelivery
See the section on PayPal for more details on
how to be covered by seller protection.
If the issuing bank resolves a chargeback in the
buyer’s favor, PayPal charges you $10 if you’re
determined to be at fault, but will waive the fee
if you meet all the requirements of the PayPal
Seller Protection policy.
Here’s some good news: Major credit card companies
are trying to curb online fraud for their
merchant accounts. Visa has the new Verified
by Visa acceptance, which takes buyers to a
Visa screen (through software installed on the
merchant’s server) and verifies their identity
through a Visa-only password. MasterCard
uses SET (Secure Electronic Transactions), a
similar encrypted, transaction-verification
scheme. These systems are expected to substantially
reduce fraud and chargebacks.
Before you decide which credit card payment service to use, get out your calculator
and check their Web sites for current rates. Calculate your own estimates;
don’t rely on a site’s advertised samples. I’ve found that the charts on
the Web tend to leave out certain minor fees. I’ve also found that comparison
charts quoting the competition’s prices tend to include optional fees. Do your
own math.
When you pay the fee to your payment service, realize that the total amount
of your transaction including shipping fees, handling charges, and any
sales tax that you charge incurs a fee. The payment service charges a percentage
based on the total dollar amount that’s run through its system.
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