ACCEPTING CREDIT CARDS over the Internet requires putting a number of separate pieces together. What I've tried to do here is explain in simple terms what those pieces are and describe how you can do this.
These are the pieces:
- A bank that issues to you a merchant credit card account
- A transaction clearinghouse designated by your bank
- Hardware or software gateway to the clearinghouse
- A merchant credit card broker (optional)
- (Security is vital, but beyond the scope of this article)
Let me describe how each of these pieces plays a part. You probably know much of this, but bear with me as I explain each of these pieces in turn.
Bank
A bank or other financial institution is required to set up a Visa or MasterCard merchant credit card account for you.[Note 1] Ideally, this is your own bank, where you already have a checking account. Banks don't let you forget that they are taking a risk with you. If, for example, you failed to deliver the product or service paid for with a credit card, they would be responsible for making it good. Of course, they are getting paid enough to cover this risk, the processing charges, but they check you out pretty carefully before issuing you an account. Assuming that you have decent credit, they will help you set up an account.
I was fortunate. My bank was already conducting online banking and is comfortable with the Internet. But exercising due diligence, I asked my credit union if they offered merchant accounts, and was given the phone number of a company that performed that service for them. "Yes, we can help you with a merchant credit card account," the lady answered cheerfully. But when I mentioned the Internet the climate changed. "Oh, we don't allow credit cards taken over the Internet," she muttered, somewhat taken aback. Then she recovered somewhat: "Maybe we should, and maybe we will in the future, but for now we don't offer that."
So what do you do if your bank or financial institution won't set up an account that allows you to take credit card information over the Internet? You go to a broker.
Merchant Credit Card Broker
You don't have to look long on Yahoo to find that there are many, many people who want to help you set up an account -- for a fee. Some of these people are very reputable, some are shysters. In industry parlance these are called Independent Sales Organizations (ISOs). Make sure you check them out before you plunk down your money. Brokers aren't an essential part of your online transactions, they only set you up with a bank and then step out of the picture. They make their money in one or more ways: a finder's fee from a bank (which you might see in the form of an application fee, a percentage of the hefty fees you'll pay for a card-swipe machine or PC software, and perhaps an up-front fee). They will place you with a bank that is able to take someone with your credit history, and that is comfortable with Internet transactions.
Transaction Processing Clearinghouse
When you finally get set up with a bank you'll find that they probably contract out processing the credit card transactions to a transaction clearinghouse. When you get ready to process the purchase made on your online (or physical) store, they're the people at the end of the modem who tell you the credit card number is valid and doesn't have its credit limit maxed out. We'll explain more a bit later. You don't usually pay the transaction clearinghouse directly (though they may deduct bank fees and make net deposits), but you'll have a lot of interaction with them. Examples: First Data Corp. and First USA.
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