Credit card options for your website payments
Many of your customers will want to use their credit cards to pay for their online purchases, and as a new online merchant, you will have to decide which credit card payment method makes the most sense.
In my opinion, you have to make one of two choices, between using a higher cost option like PayPal, or getting your own credit card merchant account.
You can accept online credit card payments via PayPal, and you’ll pay between 3% and 5%, plus 30 cents per transaction. If all your payments are in US dollars within the US, then you’ll pay 2.9% + 30 cents per transaction. If your payments are in a currency other than US dollars and the payments cross borders or are outside the US, PayPal will charge you 5% plus 30 cents per transactions.
The other option is to get your own merchant account. One of the biggest credit card processors in the US is Authorize.net and you’ll need a payment gateway account with them, as well as credit card processing services. You’ll pay a $99 setup fee, a monthly gateway fee of $17.95, a monthly internet merchant account fee of $9.95, and a 3.64% fee applied to each payment (called the Discount Rate), plus a per transaction fee of 10 cents, plus a batch fee of 25 cents. You can have multiple transaction on each batch.
The Authorize.net fees add up to approximately $27.90 per month in fixed costs, plus 3.64% + 10 cents per transaction, plus a batch fee of 25 cents. Additional monthly costs will be incurred if your website is not 100% PCI compliant, which means it has to meet strict security guidelines imposed by the credit card industry.
Costco members in Canada can get an internet merchant account for a heck of a lot less. For online credit card transactions processed in Canadian funds the fee is only 2.23% (Discount Rate), and US funds transactions cost 3.27% + 20 cents. There are no batch fees, and no PIC non-compliance fees. Costco Canada Executive members don’t have to pay the $25 one-time application fee or the $5 monthly statement fee.
Costco members in the US can also get a fairly good a deal for a US internet merchant account. As a merchant you’ll only pay 1.99% plus 25 cents for online credit card transactions with qualified cards, with no sign up fee, no monthly statement fees, and no annual fees or batch fees. “Qualified transactions” are online payments made with credit cards that belong to private individuals issued in the US. Also, the US zip code of the US card holder must be included in the transaction. “Non-qualified” transactions are when the credit card is issued outside the US, or the zip code is not included in the transaction, which cost 3.35% plus 29 cents per transaction. Websites that are PCI non-compliant will incur additional fees, that could be in the $25-$50 per month range.
Irrespective of whether you go with PayPal or your own merchant account, unless you are technically proficient you’ll need to have your programmer instal the payment system into your website payment cart or payment system (using the selected processor’s API or IPN).
What you’ll need to decide is what makes sense for you financially based on your anticipated annual processing volume. Let’s look at the annual fees for three credit card processing volume levels:
$25,000 (250 X $100 transactions):
PayPal: $1,000 to $1,250
Authorize.net: $1,245 ($910 + $336).
Costco Canada: $556 CAD / $867 USD
Costco USA: $560 if all qualified card / $910.00 if all non-qualified cards.
$50,000 (500 X $100 transactions):
PayPal: $2,000 to $2,500
Authorize.net: $2,206 ($1,870 + $336).
Costco Canada: $1,115 CAD / $1,735 USD
Costco USA: $1,120 if all qualified card / $1,820 if all non-qualified cards.
$100,000 (1000 X $100 transactions):
PayPal: $4,000 to $5,000
Authorize.net: $4,076 ($3,740 + $336).
Costco Canada: $2,230 CAD / $3,470 USD
Costco USA: $2,240 if all qualified card / $3,640 if all non-qualified cards.
The results of our comparison above present a very clear conclusion. Across the spectrum PayPal and Authorize.net are very close in terms of costs. The difference being that with PayPal you do not have to worry about your website being PCI compliant (although it is not a bad idea.)
Canadian and US residents who operate with merchant accounts via Costco will pay half the annual credit card processing fees that would be incurred using Authorize.net and PayPal. Canadian merchants get the best deal as they do not incur PCI non-compliant fees, and they do not incur additional charges for processing non-qualified credit cards.
So there you have it. As a business owner you can make a very decisive decision with the information presented above, as to which credit card processing platform makes the most sense for your specific situation.
But do not forget, all credit card transactions are subject to fraud and chargeback expenses, irrespective of the processor. PayPal charges $15 per chargeback and most credit card processors charge in the $20 range.
As an additional payment option, you should also offer your online customers the ability to make cash equivalent payments (which are processed by systems that are completely removed from the credit card networks). These payment options are safer and with much lower fees, so you can offer a per transaction discount to reward your customers for not paying with credit cards.
The concept is simple. You’re simply re-directing the credit card fee you would normally pay the credit card processor back to your customer as a purchase discount or incentive. You might want to consider my company CashSender.com as such a payment option.
