E-COMMERCE CLINIC: e-commerce is more than just pie in the sky

E-COMMERCE CLINIC: e-commerce is more than just pie in the sky

It's a crazy notion that an online bookstore could have a market cap of $16.3 billion and an online auction house could be worth $17.5 billion. Well I'm sure that and eBay are not so surprised. These companies are testimony that if it's done right, there is a lot of money to be made on the Internet.

The recent tech stock shakeout has left many people wary of e-commerce.

However, the latest figures from Forrester Research, although somewhat more conservative, show there is still a lot to get excited about. Forrester research estimates that by 2004 e-commerce revenues in the Asia-Pacific region will reach $1.6 trillion, which is second only to the US.

Small slice is just enough

Sure, not everyone can be an Amazon, but there is a huge pie out there and if your business gets just a small slice, it will be more than a mouthful. The key ingredient to any e-commerce site is the ability to accept payment from your customer. Choosing the right payment processor for your needs is quite like shopping around for a new car. There are many different models, in different price ranges, providing different functionality and optional extras. If you don't do the research first you may end up dissatisfied with a hefty bill to pay.

To choose a payment processor that integrates with your business model to enhance your competitive advantage, it helps to focus on the following elements:1) Determine whether to process internally or externally. Processing payments internally means that you will develop your own payment gateway that links directly with the banking network. Developing a system internally allows you to build a system that specifically addresses your needs. Internal development however, requires investment in hardware such as servers, direct connection to the banking network, and the staff to support the gateway on a technical and customer support level. It also requires a minimum investment of approximately $150, 000 and is generally used by larger enterprises.

Processing payments externally means that you connect your Web site to a payment gateway. The payment gateway links directly to the banking network.

This is the most popular method of processing payments, because most companies don't have the resources or the expertise to develop an internal payment gateway. This also allows you to focus on your core competencies, like running and marketing your business.

2) Look at your revenue model. Your revenue model will seriously impact upon the payment processor you choose. It is important to look at how you cost out your goods and services and match this with the pricing structure of the payment gateway. There are many different fee structures but the most common are flat fee per transaction, percentage of the transaction, and monthly fees with no transaction costs. If you are selling lots of products at a very small price, such as $1.50, there is no point going with a payment gateway that charges a flat fee of $1 per transaction. Similarly, if your goods and services cost a moderate amount, such as $500, it does not make sense to use a payment processor that charges a percentage per transaction. It is important to realise that different payment gateways have different pricing models. One of these should suit your revenue model.

3) Determine where your customers are located. Although the Internet is a global medium, most payment processors in Australia only process in Australian dollars. This is great if most your customers are located in Australia.

If you want to tap into a global market then you need to consider using a multi-currency gateway. A multi-currency gateway allows you to accept payment in your customer's home currency without currency conversion. If your customers are located around the globe and you are processing in Australian dollars your customers will be billed different prices depending on the exchange rate at the time of purchase. Using a multi-currency gateway allows you to charge in a financial language your customer understands.

4) What level of support is required. The beauty of online shopping is that your customer can purchase at any hour of the day or night. As a business owner you can't predict when a customer is going to shop at your site, particularly if you are dealing with clients from around the globe. If your payment gateway goes down you need to know when you can access technical support. A good external payment processor should offer 24 x 7 technical support.

5) Reporting and auditing. If you are outsourcing your payment processing, you need to ascertain the level of reporting offered so you can keep your accounting up-to-date. Some payment processors can provide a Web interface that gives you access to reports when you want. This allows you to check your earnings when you want, rather than waiting for a statement to be issued.

6) Getting merchant status. In order to accept credit card payments online you need to obtain electronic merchant status. This gives you a merchant ID which identifies the company the transaction originated from and a terminal ID which identifies the location the transaction originated from. Many companies already have merchant status to process through their eftpos facility, but in most cases you will need to get a different merchant ID and terminal ID to process over the Net.

In the past, merchant status could only be obtained from a bank. Today, some gateways have integrated this function into their service offering. If you decide to process externally you need to examine whether the payment gateway can issue you with merchant status, which will save a lot of hassle, or whether you need to go to a bank to receive merchant status.

7) What credit cards do you need to accept. Whether you process internally or externally you will need to look at the types of credit cards you can offer.

The more payment options you give a customer the more likely you are to make the sale. Any major external processor should offer Visa, Master Card, American Express, Diners and JCB.

8) What other services could benefit your business. Depending on the products and services you sell, you may need to consider other services to add value to your e-commerce environment. Some of these include:l Shopping cart software lets your customers add products to a virtual shopping trolleyl Internet fraud detection to reduce your fraud ratel Internet fraud insurance to protect against losses due to fraudl Address verification to confirm the delivery address of your client.

Some payment gateways offer these services in addition to just processing payments. Proper planning up-front can save you costly mistakes. Shop around to determine which payment processing option is best suited to your business. If you have questions about e-commerce that you would like answered please send me an e-mail and I will try and include them in my column.

Amanda Mason is the PR & Marketing manager for Pure Commerce. Contact her at

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