This quick and dirty research page compares two types of credit card processing companies (CCPC) for anyone keen enough to try selling products and services online and would need a means of processing customers own credit cards. Later we will complement this with a look at the range of online credit card processing companies available. The purpose of this section is to help people become aware of what is available and give you a choice for your preferred credit card processing company.
Credit card processing the old way
Remember the old days of processing credit cards. It was certainly not unheard of for businesses to pick up one of those clunky handheld manual credit card processing machines from the banks. The contraption is nothing more than a primitive portable photocopying machine for recording financial details of a customer on the credit card onto paper. Firstly, you would place a credit card on the surface of the machine. Secondly, you would insert a piece of paper over the top of the card. And thirdly, you would slide a mechanism across the card and paper by hand so that the credit card number and name gets imprinted on the paper. Then you would normally hand the paper to a bank to process the transaction for you after it was signed by the customer. And for all this, you normally have to pay hefty ongoing monthly fees and even be required to reach minimum monthly sales volume just for the privilege of having a manual credit card processing facility from the bank. Geez, some banks don't ask much!
Electronic credit card processing
As of 2001, things had changed significantly thanks to the advent of the Internet. It means the process can be done much quicker, cheaper and potentially more safely using electronic software. Yet despite the availability of this technology, the act of processing credit cards electronically was so relatively new in 2001 that it probably explains why some banks still charge the same hefty fees for the electronic version as if you had owned the original handheld manual machine for processing credit cards.
The electronic process is clearly a whole lot simpler, quicker and cheaper for everyone once the system is in place.
So what should you look for? And how much should you pay for this kind of CCPC service?
A quick comparison of the services provided by two CCPCs in 2003
Here is a quick look at two credit card processing companies that appeared in 2003 and the options they provided for online businesses wanting to set up an electronic credit card processing facility on their web sites.
Cardservice International, Inc.
This was more of a place where the company does a comparison of available CCPC (mostly banks in the U.S.) and making the results available to businesses Cardservice International, Inc. (CSI) has been in the business of finding suitable credit card processing companies for businesses since 1990. According to the company's web site, CSI had won an award from the prestigious Electronic Transactions Association (ETA) in the US on 11 September 2000 in Chicago for being the "Acquirer of the Decade". As Ken Bowman, Executive Director of the ETA said:
"ETA was established 10 years ago to bring credibility and an ethical mindset to the industry. Cardservice International has helped raise the standards for others to follow."
What does "Acquirer" mean? According to Mr Jack Kimball, Product Sales Manager for CSI, in an email received on 26 January 2003:
"By definition though, CSI Corporate is a 'Transaction Service Provider'. This means that as a company they 'acquire' businesses to help those businesses accept credit cards for a consortium of banks. CSI Corporate, for the most part, makes money on the discount rate and transaction fees that you pay for the privilege of accepting credit and debit cards. Remember though, a big part of this fee which you will see on your Merchant Statement is paid to the Issuer of the card that was used to pay you, not the Credit Card Processing company. This is called the Interchange Fee."
Kimball also describes the company as "the largest publicly-owned credit card processing company in the nation..." and "...you benefit from the economy of scale resulting in competitive rates, pricing, and most importantly impeccable service." (1)
Another interesting thing about CSI is that these people work with many agencies throughout the US. If you join CSI, you will be assigned an agency. And this agency will provide the opportunity for you to process credit cards over the Internet if you wish. But beware. Pricing for services and products will vary between agencies (just to make things more confusing for the customer). As Kimball states:
"If you call CSI Corporate you will be referred out to an Agency so it's important to know which Agency you are working with. Agencies vary widely on software and hardware pricing — and on standards of service."
The company definitely focuses on a complete range of online merchant facilities. Most services would appear to start around the US$500 and may include monthly and setup fees as well. To minimise costs, we suggest you check CSI's rates web page at http://www.expandyourbusiness.com/rates.htm as it may have special offers. For example, in January 2003, the following was published online:
"Web Site Promotion Special! All application and setup fees waived when you tell us you came from our Web site. (More than $100 in value). Separate enrolment fees apply to TeleCharge."
On the basis of this statement, it would suggest all setup and application fees are waived for any online merchant facility option at CSI (either for businesses in the US or outside of the US).
SUNRISE has sent an email to CSI on 10 January 2003 asking for a simple online credit card processing service with no monthly fees or setup costs. The email mentioned the need for a per transaction fee basis only.
The response from CSI is interesting. The first CSI email came 23 January 2003 from Kimball. This one was to let SUNRISE know that someone will get back soon to talk about their services. In the meantime, the email mentions the following:
"Should you be taking orders by any method other than by a 'swipe terminal' with the customer present, then your MasterCard/Visa rate will be : 2.42% of your credit card volume and 25 cents per transaction. (All card types can be set up). Swipe terminal rates are 1.71% and 25 cents per transaction. The lower rate is because the 'card is present'"
To learn more about "real time" internet acceptance of major Credit Cards, Kimball was kind enough to suggest that SUNRISE should visit http://www.linkpoint.com/. The site has a LPC Login Demo link. Click on it for a demonstration of credit card processing online. Kimball has also made available the help manual to learn more about LinkPoint Secure Payment Gateway at https://secure.linkpt.net/HLPHelp/Welcome.html.
And there was also a free e-book on autoresponders as an effective marketing tool for your business at http://track.ezinetactics.com/?id=jkimball-4599 as a gift for considering CSI as a potential Merchant Account Provider.
If you don't reply straight away to CSI, another email from a Mr Ken Resnick may arrive on the same day (i.e. in our case on 24 January 2003). Resnick will present a range of electronic credit card processing options for you to consider. But you could be up for significant monthly and yearly fees through these options before you even get to the transaction fee rate! So look carefully at what you are getting!
At any rate, SUNRISE has found the service from CSI to be very good and they have provided lots of useful information. Just remember to be clear about exactly what you want and let them know. You don't want to be paying for extra services you don't need. The economies of scale talked about by Kimball may help to reduce the costs, but be aware that the extra services provided by CSI for things like customer support may cost more.
For example, according to Resnick, if you want CSI to process credit cards from customers online with sales less than US$10,000 with amounts processed in USD only, CSI will offer the LinkPoint Secure Payment Gateway / LinkPoint Basic or API (more secure) for easy setup to your Web Site / back-end reporting of account activity / technical support and 24/7 multilingual merchant. The cost will include a US$10 Customer Support monthly service fee, a US$20 Secure Gateway monthly fee, a US$25 minimum processing monthly fee, and a once-off setup fee of US$495. If you don't have a US address, you pay an extra US$100 per year to set one up. And this is before the transaction fees are taken out of 3.32% MasterCard/Visa rate with $0.30 (US$0.05 more than Jack Kimball's email) per transaction.
This is known as Option 1.
Option 2 is more suitable for businesses outside the US and CSI will deposit into any bank account worldwide on a weekly basis. There is no limited monthly volume, back-end reporting of account activity, and 24/7 multilingual customer support provided by telephone and email. The costs are A$430 annual service fee plus a once-off $A140 setup fee which includes your choice of 3 currencies (an extra US$75 for each additional currency). Then you have the transaction fees of 4.50% and A$1.50 per transaction. Additional services can be added on at a cost.
Option 3 is a complete turn-key web site hosting solution. This one is expensive. You would be paying US$100 per month and US$200 per year service fee, and a once-off setup fee of US$399 for 20MB of space. Additional space is priced at US$25 per month per 10 megabytes. The only nice thing about this option is that you don't have to worry about choosing your currencies for CSI to process. At a rate of 5.25% and US$0.40 per transaction, CSI will process multiple currencies.
If you are looking for a simple credit card processing service, clearly there has to be a much cheaper and less complicated option elsewhere. In fact, CSI acknowledges this by saying:
"Many "Resellers" offer bargain basement pricing today for a trade off in service tomorrow. Watch out for this. (2)
If you want to consider CSI for any future online transaction processing service, make the most of CSI's 100% money-back guarantee. As Kimball has stated on 24 January 2003 in his email:
"...we offer a 100% money back, unconditional, iron clad guarantee."
It is also good to see that CSI does pay a fixed wage to sales representatives. So you won't find commission-based sales people at CSI forcing products down your throat and then asking you to pay excessively through your ears just to cover the costs at CSI. But the next question is "How many salaried sales representatives are there?" as this could also create a high price for their services.
Kimball reveals something of the numbers involved at CSI by saying in his email dated 26 January 2003:
"CSI has a corporate office in Moor Park, California with better than 800 employees."
This is a large company. CSI also spends big money on R&D to find the best technology in detecting credit card fraud and lifetime software upgrades. This will add to the price of the services being offered by CSI.
Generally, if you want a stable, reliable and well-established company to handle online transactions on your behalf and you are happy to have good service more than the lowest price, CSI is for you.
UPDATE
October 2015
As of 2015, CSI (it has changed its name to Ignite Payments) is able to provide a setup fee of zero dollars for an online credit card processing facility, the same as a physical type where you swipe a card. Ongoong costs are mainly in the minimum monthly fee of US$30 (in case profits are not high enough through adequate transactions, which is at a rate of US$0.25 per transaction) and a mandatory US$10 monthly support fee, although it is unlikely such support should be necessary once the online credit card processing facility is established. So think of it as the minimum $40 per month that you must pay. In essence, the cost of a merchant facility being offered by CSI is at a rate for online credit card processing that is no different from the physical variety (but has gone more sophisticated with the use of mobile phone technology as a means of swiping and sending the credit card details to the CCPC). The only difference is in the card rate, which apparently is cheaper when the person is swiping the card in the physical facility rather than typing it online and clicking a button. Perhaps the online processing requires more manual processing?
ClickBank
There were alternative credit card processing companies to CSI in 2003. ClickBank had been one such company. Although not as big and well-established as CSI, being a recent entrant in credit card processing had meant that the company did rapidly prove itself to be among the top US companies offering a better deal for electronic credit card processing services for online businesses.
ClickBank is a company designed more like an online distribution centre for over 10,000 digital products and services sold by vendors. This company specialised in:
- Electronic credit card processing on behalf of online businesses within and outside the US; and
- Distribution of products that can be delivered over the Internet (not the tangible variety where you must distribute the products on a ship or aircraft).
If you like, you had the option with ClickBank to allow online marketers (known as affiliates) to market and sell your digital products. In return they would receive an affiliate commission rate for each product they sold. You can specify this commission rate as you see fit. A 15% commission is usually the going rate. And you can accept or deny new affiliates for your products at any time. When ClickBank made this option available, it was believed the company had over 100,000 online marketers available to promote and sell your products. So it was unlikely you be disappointed by not having enough sales people to help you sell your products. And if your commission rate is attractive enough and your products are good, you should be able to sell a reasonable number of the products through ClickBank.
The process of joining ClickBank was quite simple:
- You provide your personal and bank account details to ClickBank.
- You mention all the intangible products you want to sell and distribute over the Internet
- You specify a commission rate for affiliates who may promote and sell your products.
- You specify the location where the products can be downloaded (i.e. the web address to your sales pages).
- You prepare the sales page and a thank you page for each product you want to sell on your web site. The sales page should give details about your product(s) and a link to a ClickBank sales location for people wanting to purchase the product via a credit card. The thank you page is what customers will see once the transaction has been completed and approved at ClickBank.
- You specify the web addresses for the sales and thank you pages for each product to ClickBank.
- Login to your ClickBank account and click on the "Modify your account" link. Type $0.00 for each product if you want to test all your sales and thank you page links with ClickBank. Leave all fields empty when doing this. Then click the button to complete the $0.00 order.
- Request a price limit for all your products via limits@clickbank.com. This is to let Clickbank know you are ready to sell.
- Someone at ClickBank will then check your products, sales pages and thank you pages and let you know within 3 business days if your ClickBank account is ready to be activated.
- Pay a once-off activation fee of US$49.95 by cheque, credit card or money order.
- Once your activation fee has been paid, your products are added to ClickBank's product catalog for access by affiliates and for sale to consumers with no further setup charges.
- You will need to enter the correct retail price for each product at this stage or customers will be making $0.00 orders for your products!
And that's it! ClickBank will then enable affiliates to promote your product. You can recruit new affiliates at any time. You and your affiliates will receive real-time sales reporting and a cheque paid twice each month.
It is as simple as that!
The cost for ClickBank's service is not the cheapest in the industry. Nevertheless, the cost is fixed and it is certainly not as expensive as the options suggested by CSI. The only thing that changes is the commission rate and, of course, you will be the one to decide what it should be at any time (bearing in mind a low rate may attract fewer online marketers and could result in fewer sales of your products).
Now suppose you want to sell a product for US$60 and you are happy to pay 15% commission to your affiliates. You will get:
US$60 - (US$60 x 15/100) - (US$1 + ($60 x 7.5/100))=US$46.50 (or roughly A$93)
Hence the US$1 + (US$60 x 7.5%) is the fee charged by ClickBank to you for the privilege of using the company's credit card processing service; whereas the (US$60 x 15%) is what you pay to your affiliates for promoting and selling your products to customers.
When a cheque is sent to you on a bimonthly basis, a further US$2.50 accounting fee is charged. For security reasons, payment is by cheque only and sent by mail anywhere in the world (what's wrong with electronic transfer to a non-US bank accounts?). To minimise the accounting fee, you can specify a payment preference. This means if your sales reach a certain minimum amount, ClickBank will issue a cheque to you. The default payment preference setting is US$100, but you can select $10, $25, $50, $100, $250, $500, $1000, $2500, $5000 or $10,000.
Approximately 10% of total sales is withheld by ClickBank and paid back in 90 days to cover future refunds, chargebacks etc.
There is also a dormant accounts fee where no sales after 3 months (US$0.50), 6 months (US$1.00) and 12 months (US$5.00) will have to be paid. This is charged only if there is a positive balance.
You may close your ClickBank account at any time. If you have less than US$10 in your account, it will be forfeited.
There is only one other charge you will have to pay and that's a once-off activation fee of US$49.95 (roughly A$100). But you only pay this if you're accepted by ClickBank and you are happy to go ahead with activating the credit card processing account with the company.
And best of all there are no monthly fees, no minimum monthly sales to reach for etc. There are also no yearly service fees like CSI does which can knock about a newly-established small business.
As far as simplicity in the cost structure is concerned, ClickBank certainly beats CSI hands down, plus you get the option to get people to sell your products! Not such a bad deal after all.
UPDATE
October 2015
As of 2015, ClickBank has refined its business model and given a new pricing structure to keep things simple and keep online marketers even happier. The process is that you pay US$49.95 per product that you wish to sell, a sales/stocking fee of $1.00 with no hidden fees or surprises, and the average affiliate commission is now around 50 per cent. The later cost may seem high, but that's the price nowadays of getting others to do your work of selling the products to customers worldwide.
The electronic credit card processing company to look for...
Ideally, what most online businesses should be looking for in a CCPC is the ability to provide a "set-and-forget" electronic credit card processing system for businesses selling products or services on web sites and with all costs from the CCPC absorbed into a single per transaction fee, preferably without all the "bells and whistles" (such as ongoing support when technically no support would be needed if the processing is automatic and done electronically — then again some companies consider the software and hardware side of things to achieve this automated task as "support" through what are called maintenance and dealing with unexpected hardware failures that simply needs a replacement).
For example, most online businesses won't need the technical support once the system is set up. Perhaps a little customer support service in the early stages might be nice (if not an optional extra). However if the system is as easy as inserting a bit of HTML code into your web pages, then most Internet businesses probably won't need the customer support service at all.
Finally, the transaction fee rate provided by your preferred CCPC should be very low and fixed for as long as possible, and there should be no exit fees if you want to close your CCPC account at any time.
This is the kind of simplicity most online businesses would prefer to see from a CCPC.
The latest in CCPCs
SUNRISE conducted another look at CCPCs as of January 2004. The requirements we were looking for at the time by way of online merchant tools for processing credit cards were as follows:
- No monthly fees
- No startup or application fees
- Not setup costs for online credit card processing if done by the merchant.
- No monthly minimum selling volume
- All major credit cards accepted (Visa, MasterCard, American Express etc.)
- Allow merchants to live in another country outside the US (e.g. Australia, England etc.)
- Free plug-n-play code for your web site
- Start selling in just a few minutes
- Payments earned can be delivered electronically to non-US bank accounts.
The following web sites were reviewed:
http://www.1stamericancardservice.com/
Claims they will beat the best competitors by 10% if you can find a better deal to the following: No setup, application or inspection fees. Appears to advertise a flat rate of 1.49% per transaction but this might be for certain services. For the Internet variety, credit card processing fees are probably US$20 per month followed by 2.19% plus US$0.25 per transaction.
US$49 one-time setup fee. No monthly fees. Plug-n-play code.
Payment afterwards is 5.5% commission (or discount rate) on each transaction plus US$0.45 charge per sale.
US$29.95 one-time setup fee
Payment afterwards is 3.9% commission on each transaction plus US$1.00 charge per sale.
http://www.credit-card-processing.com/
Special offers pop-up every now and then for credit card processing services. The best from this location is around 1.48% discount rate per transaction plus US$0.17 charge per transaction. This is for retail businesses. For mail order, the discount rate goes up to 1.93% plus US$0.22 per transaction. No monthly minimum sales volume and no setup fee. It also appears to have no monthly fees as well.
http://www.creditcardcommerce.com/
If your monthly sales does not exceed US$20, you pay the minimum monthly fee of US$20. Setup and application fee is zero. You pay for 2.30% plus US$0.30 per transaction. Monthly statement fees are US$9.00.
http://www.eaglemerchantservices.com/
Email to get the best online credit card processing deals with the simplicity of plug-n-play HTML code insertion for activating the facility.
http://www.electronictransfer.com/
This one offers virtually everything free except the standard per transaction fee for US-based businesses. For foreign businesses, try http://www.worldwidebilling.com/
There appears to be no monthly fees, setup fees, application fees etc.
Payment is via an upfront fixed cost US$704 for 3,000 transactions. So if you make 1,000 transactions, you don't pay anymore (i.e. no hidden fees). However, if you know the number of transactions will exceed 3,000, you might be better off with a fixed cost of US$1,100 for 6,000 transactions. Only one problem with this approach: you must use up the number of transactions within a 12 months period. So if you make only a handful of transactions in 12 months, you are up for another US$704 for the next 12 months. Only use this system if you are certain of making thousands of transactions in your business for Internet users.
http://www.freecreditcardprocessing.com/
Setup and applications fees are zilch!
Payments afterwards is 2.49% on each transaction plus US$0.35 per transaction. There is, however, a minimum monthly sales of US$25 and a monthly gateway fee of US$20. For this, you will get a company that will process customer payments on the Internet, mail and telephone on your behalf.
A flat 10% per transaction.
As of January 2004, the company may be defunct.
No setup and monthly fees. You pay for 1.99% plus US$0.29 per transaction for merchants within the USA, Canada and the UK. Add 1% extra for merchants residing outside these countries.
Been around for a long time. Useful for shareware developers with software already uploaded to Kagi.com. Let Kagi.com deal with the financial issues and customers to decide whether or not to buy your product. All you have to do is concentrate on developing a quality software product and you will receive money for your efforts if it is a good product.
http://www.lowratebancards.com/specials.htm
Provides the "Authorize.Net" real-time online credit card processing with a setup fee of US$139 followed by 2.34% plus US$0.25 per transaction. There is a monthly fee of US$25 to blow your budget if you like!
No monthly fees. Setup fees might be US$49. Mainly for US-based businesses.
No monthly fees. No setup or application fees
Payments afterwards is from 2.2% to 2.9% (depending on credit card type and location of user) of transaction amount plus US$0.30 per transaction.
"Pay for Play" option provides no monthly or setup fees. However there is a US$49 annual membership fee.
Payment afterwards is 3.79% of transaction amount plus US$0.50 per transaction.
Similar structure to 2checkout.com but more versatile. Hard to find pricing structure for all services on the website.
Originally designed for third-party shareware software developers, this company has expanded to allow credit card processing for any product or service. Based in Germany and USA, processing fees are the simple transaction type consisting of US$2.95 plus 4% per transaction. So if you sell a US$100 product to a customer, the maximum fee will be US$6.95.
US$20 per month gateway fee
Payment afterwards is from 2.35% to 4.1% (depending on credit card type) of transaction amount plus US$0.25 per transaction.
Quick and secure. Check prices. You should have a business capable of making thousands of transactions to get on this program. Otherwise, the "Payflow Link" plan asks you to pay for US$179 setup fee and a US$19.95 monthly fee which restricts you to 500 monthly transactions. Additional transactions will be charged at US$0.10 per transaction.
http://www.worldwidebilling.com/
No monthly fees, No cancellation fees, no statement fees, no annual fees. You have free online recurring billing, online reporting and password management features. There are also no minimum monthly sales volume. Too good to be true? Well, dream no more. This one is based on a per transaction fee basis — the exact percentage of which can be negotiated depending on business type. There is a holding rate of 5% to 10% for a period of 180 days. This is for dealing with refunds, chargebacks etc. However, there appears to be a setup fee.
In summary, there is some variation in the way different CCPCs charged for an online merchant facility. Since this brief research was conducted, a number of these CCPCs have other changed numbers, gone out-of-business, or merged with other CCPCs. Plus there are new CCPCs offering more attractive solutions. The best of these, as of 2015, are PayPal and Flagship Merchant Services.
PayPal is perhaps the most popular and well-known of all CCPCs at the present time. It offers the simplest means of establishing credit card processing on any web site while providing one of the most secure services ion the business. By paying extra, you do have the option to seamlessly integrate PayPal credit card processing to the point where the customer will never know PayPal is the CCPC. This is ideal when businesses like to create the perception that they are a big business with money to afford what appears to be their own credit card facility when in reality the company spends a minimal amount per month to PayPal to provide this privilege (and not give the PayPal any more advertising space to customers of who is doing the processing so long as you are able to sell enough products and/or services in your business to cover the PayPal costs).
For a cheaper option of seamless credit card processing integration, we recommend Flagship Merchant Services. For the quality of the service and support, Flagship offers remarkably low pricing and fees compared to the rest of the market. The only disadvantage one can see with this company is that only debit card transactions qualify for the lowest swiped fee. Everything else you pay at the Flagship rate, but not as bad as it sounds considering what is being asked is extremely competitive.
Further information about CCPCs
There is a large range of CCPCs now vying for your business dollar. To learn more, do a search on Google for terms such as "online merchant account review", "online credit card processing review", "shopping carts" and so on. And keep an eye out for merchant accounts with no monthly fees (which is possible with PayPal and other similar companies).