BeginerguidetoEcommerce

© Nightcats Multimedia Productions 2001
What you Need To Know to
Accept Payments from Your Web Site!
© Nightcats Multimedia Productions 2001 Page
2
Beginners' Guide to Ecommerce
By June Campbell
Nightcats Multimedia Productions
http://www.nightcats.com
campbelj@nightcats.com
Hello! Thank you for using
Beginners' Guide to
Ecommerce
. You'll find the essential information that you
need so you can join the rest of us who are selling goods and
services on the Internet.
Perhaps you are wondering if I am qualified to give you this
information. The answer is "yes." As the owner of my own
writing business, Nightcats Multimedia Productions, I have
been selling information products on the Internet since April,
1998. I process credit card transactions from Visa, Mastercard,
Discovery and American Express. Through experience, I have
learned several lessons about operating an online store.
However, not all of the knowledge in this ebook is my own I
have incorporated recommendations and suggestions from
other merchants who have found a way to sell their goods over
the Net.
Please feel free to distribute this ebook to friends, colleagues or
others. If you wish, give it away as a free gift to visitors to your
site or subscribers to your ezine. I ask only that my copyright
information be observed and that the ebook not be sold for
profit.
Please visit me visit me on the web for articles, guidebooks,
how-to's and a FREE gift when you subscribe to my bi-weekly
ezine: The Roundup for people interested in doing business!

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Table of Contents
Table of Contents 3
Introduction 4
Accepting Credit Card Transactions 5
Merchant Accounts 5
About Chargebacks 6
High Risk Processors 6
Internet Merchant Account 7
Credit Card Processing Services 7
Setting Up: The Technology 9
Shopping Carts 10
Ecommerce: The Dark Side 11
Credit Card Fraud: 11
Internet Shoplifting 11
Piracy 12
Tips for Protecting Yourself Against Online Credit Card Fraud 12
Alternative Ecommerce Methods 13
Telephone Billing Services 13
Electronic Payment Systems 14
Person to Person Technologies (P2P) 14
One Stop Shops 15
International Merchants 15
Definitions 17
Beyond Ecommerce 18
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Introduction
You have something you want to sell on the Internet. Maybe it's a book, or a CD or
a piece of software you wrote. You are in luck. The time has never been better.
Internet shopping has become a mainstream activity. Increasing numbers of people
are willing to open the wallet to purchase items or services over the Net.
"But," you say, "How do I collect the money from the customer?"
Good question. There are several methods of collecting monies from online sales.
Many online merchants offer 2-3 choices of payment methods so customers will
have options.
1. First, you can ask online customers to send you a check. When the check
arrives and clears the bank, you deliver the product. If this is your only method of
transacting a sale, you will lose many, many customers. The Internet is based on
impulse buying. Very few people will go to effort of writing and mailing a check,
and then wait several weeks for delivery. Most merchants offer this option to
accommodate people who do not have credit cards.
2. Persons who are already accepting credit card transactions for products or
services they sell offline can ask web customers to phone or fax you with their
credit card information. Then, you can process the transaction manually. Please
avoid asking people to email you their credit card information. Almost everyone
knows that email is insecure and this request will damage your credibility in the
eyes of potential customers. If you opt for the phone method, be prepared to handle
calls 24/7. The Internet is a global community and people expect to shop at their
convenience.
You will attract more sales if you provide an 800 number. However, be aware that
800 numbers are not globally accessible. You risk losing international sales if this is
your only method of transacting payments.
Asking customers to phone in their credit information will generate more sales than
asking for checks. However, your sales will be increase considerably if you provide
a means for customers to make their payments online.
3. You can accept credit card transactions online over secure lines.
Internet merchants indicate that this method is the single most effective means of
conducting transactions. Without the ability to process credit cards, your online
sales will be a fraction of what they could be. More about this later.
4. You can use alternative methods of accepting online payment. There are
several alternative technologies available. Each comes with its own strengths and
weaknesses. Your choice will depend upon your individual situation. More later.

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Accepting Credit Card Transactions
It's worth mentioning again. Your sales will increase dramatically
when you offer your customers the ability to pay by credit card
transaction. Those of you who already accept credit cards in your
offline businesses can skip this section.
Credit card transaction is a big topic. For simplicity's sake, let's break it down into
three categories: Merchant Accounts, Internet Merchant Accounts and Credit Card
Processing Services.
Merchant Accounts
A Merchant Account is a relationship between a business (i.e. a merchant) and a
merchant bank that allows the merchant to accept credit card payments from
customers.
Acquiring a Merchant Account can be difficult. Many banks or financial institutions
have stiff requirements and regulations regarding the issuing of a merchant
account. The situation will differ depending on your bank, your country's banking
regulations and your individual situation. Many a merchant has approached their
bank to discuss a merchant account only to discover that the friendly banker
becomes less friendly. These accounts are often beyond the means of people who
are operating small or new businesses.
When you apply for a merchant account at your bank, you will be required to
demonstrate that your business has had an extended period of
financial stability. Expect to present your business plan, your
financial statements and various other documents. Factors
considered include cash reserves, the length of time you have
been in business, your tax returns, your credit history, debt
load, refund policies, volume of business, cost of item being
sold and other sources of income. Those who pass the stringent
requirements might be asked to put up a substantial sum of money (several
thousand dollars) as a safeguard against chargebacks or credit card fraud. They
could also be asked to pay for the software or terminals that they will be using.
More about chargebacks later.
Those who are eligible for a Merchant Account will need the necessary hardware or
software. In some cases, depending on the bank and depending on the type of
business that you are operating, you will need to purchase or rent a processing
terminal the equipment that merchants run your credit card across when you
charge a transaction. You might also need to acquire special software.
Before getting your merchant account, be sure to find out the full charges that you
will incur for using the service. In addition to the aforementioned chargeback
deposit, investigate hidden equipment costs, setup fees, line charges, bank

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transaction fees and credit card discount rates. These costs eat away from your
profits, and you will need to price accordingly
Also, be aware that most banks allow you to process one credit card only.
About Chargebacks
All major credit card companies offer their cardholders the right to contest charges
on their statements that may be the result of theft, fraud or error.
A customer contacts his/her credit card company and complains that the
merchandise was unsatisfactory, did not arrive as promised, or that the sale resulted
as a result of a lost or stolen card. These contested charges are called chargebacks.
When a chargeback occurs, the merchant will end up reimbursing the issuing bank
the amount of the purchase price, in addition to a chargeback fee that can be as
high as $50 or more. For example, if you sell a book for $20 through a credit card
transaction and the cardholder later contests the sale, you will end up paying your
bank the $20 PLUS a chargeback fee of $10 to $50 dollars. When you add to this
the amount that the book cost you and the cost of mailing, if applicable, you can see
that your losses can be add up quickly.
Banks ask for a sizable deposit to protect themselves in the event that the merchant
is unable to cover the chargeback costs at the time they occur. Merchants who incur
too many chargebacks are at risk of losing their merchant account. Somewhere
between 1-3% of total transactions is usually acceptable.
Chargeback issues are of foremost concern to a merchant hoping to acquire a
merchant account. They can result in serious financial loss.
Note that chargebacks are not the same as the fee you pay for a merchant-issued
refund. The latter might cost you only a few dollars to process.
High Risk Processors
Since so many small businesses are unable to arrange Merchant Accounts, an
industry has arisen to meet the need. High-risk processors are financial institutions
or companies that that issue merchant status accounts to high-risk businesses. In this
case, a high-risk business is one that cannot arrange a Merchant Account through
the bank. These companies offset their risks by charging higher transaction fees and
higher rates than the banking institutions. However, the initial outlay of cash that
you will be asked to put up is usually much less than the large deposits that the
banks require. Some high risk processors might offer other added features such as
shopping cart software, web site templates, forms or secure lines for ordering.
Many companies offer this service. Most are available only to US residents, and
terms of service vary. Read the fine print on the contract and be sure you know all
of the hidden charges that might apply.

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Card Service International (http://www.cardservice.com/)
and Electronic Transfer Inc (http://www.chargecentral.com/)
are arguably two of the best-known companies of this type in the US. However,
merchants who live outside the US may encounter difficulties. Refer to the section
on International Merchants.
Internet Merchant Account
An Internet Merchant Account is a special account that permits
the acceptance of credit cards over the Internet. Transactions
are processed online, in real time. While the customer waits, the
system checks the credit card to be sure that it has not been
reported stolen, has not expired, and is listed to the same
address that the customer has provided. If the card is approved, both customer and
merchant are notified that the sale has transpired. This type of account is a stricter
banking relationship than one involving face-to-face transactions. Web transactions
do not gather signatures from purchasers and therefore there is a higher risk of
fraud.
This method of accepting payment is the #1 most important ecommerce method you
can offer your customers. Without it, your sales will be much less than need be.
Many banking institutions are providing Internet Merchant Accounts to eligible
merchants. However, it is even more difficult to arrange this than it is to get a
regular Merchant Account.
If you are accepted for an Internet Merchant Account through your bank, you must
ensure that the online transactions occur over secure lines (often called Secure
Sockets Layer or SSL). In some cases, the bank will provide the secure lines as a
component of their package. In other cases, you will be responsible for making your
own arrangements.
Your web site host might offer secure lines for an additional price, or you can enlist
the services of one of the many companies that provide this service.
Note: If you are making a purchase online, you can tell whether you are on a secure line. In
Internet Explorer, a little gold padlock will appear at the bottom toolbar indicating that it is
secured. In Netscape Navigator, a similar symbol will appear.
Credit Card Processing Services
Similar to high-risk processors, these credit card processing services provide high-
risk merchants with the ability to accept credit card transactions online. Many have
arrangements in place to process all of the major credit cards.
Processing services handle the transactions on your behalf, then issue you payment
for sales according to a pre-arranged schedule. You do not need a secure line at
your own web site, since the actual transaction occurs on the processor's site, not on
yours.

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Arranging for these services is easier than getting a merchant account through the
bank. Although you will probably be asked to pay a lump sum at startup, it will be
much less than a bank would require.
Card processing companies have sprung up like mushrooms. Visiting an Internet
Search Engine like Google (http://www.google.com) and running a search for
"Accept Credit Cards" will give you so many listings that making a choice can be
difficult.
Remember caveat emptor (Buyer Beware!) Not all processing services are equal
and not all are reliable. Horror stories abound about processing services that don't
measure up. Before you sign on the dotted line, consider the following:
1. What happens if your processor goes broke or shuts down? In most cases,
you will lose the money you invested in their service, as well as any sales fees that
are owing to you. You will want a company with a stable record.
2. What is their track record for transferring sale funds to their merchants? Do
they transfer every couple of weeks or might you wait for months to be paid?
3. Do they collect any local taxes that may apply to sales coming from your
own country, state or province? If they don't, you are the one who will have to make
things right with the Taxation Department.
4. Do they provide timely and accurate sales reports? Without proper reports,
you won't have the income tax information that you require come tax day, nor will
you have the full information you need to analyze your sales figures.
5. Are they using the sophisticated technology that can intercept credit card
fraud before it happens?
6. Do they respond promptly to email or phone messages? How is their
customer service?
7. What are the terms for canceling the contract? Are you locked in for an
extended period? Is there a hefty penalty for cancellation?
So how do you find a service with a good track record?
First, avoid the "Accept Credit Card" spams that fill your email
mailbox. It's a good idea to subscribe to one of the mailing lists
that Internet Merchants use, then ask list members what services
they are using and what their experience has been. Be cautious of effusive
testimonials. At least some of the glowing testimonials that you encounter are
written by marketing professionals and given to associate resellers to distribute as
their own opinions.
• I-Sales, published by John Audette from Adventive is an excellent mailing list
to read. Members are generous with their advice and willing to share their
experiences. Subscribe for free at http://www.adventive.com
• Canadians will benefit from subscribing to the Canada Talks Business mailing
list. Subscribe at http://www.canadaone.com

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• For other business- related discussion lists, check out the offerings at Yahoo
Groups. http://groups.yahoo.com/
Credit card processing companies charge an array of fees for their service. Since
the processor is essentially taking a risk on your behalf, expect higher transaction
fees than a bank will charge for a Merchant Account. Shop around and compare
rates, but realize that cheaper is not always better. A low-priced service may not be
building the necessary financial reserves and therefore may not have long-term
stability. Remember, if they go broke, you lose your startup fee and any other
monies tied up in their service.
Here are the fees that you might reasonably expect to be charged:
1. A set up fee.
2. A monthly service fee
3. Transaction fees per sale
4. Credit card discount fees (a percentage of the total sale)
5. Holdbacks. As a safeguard against chargeback losses, many resellers will
hold back a percentage of each month's transactions for a period of several months.
Since they do not require the sizable deposit that banks require, they protect
themselves through holdbacks.
6. Chargeback fees. (Can range as high as $50 or more per chargeback)
7. Fees to transact merchant-issued refunds.
One final thought on card processing services. Almost all of the services you
encounter on the Net are available only to residents of the US. Residents of other
countries check the section for International Merchants.
ClickBank Company's card processing service has been highly recommended for
persons selling digital products (files, software, ebooks, digital music, etc.). The
setup fees are modest and the service is said to be available to merchants anywhere.
Use this link for more information about ClickBank.
Setting Up: The Technology
Wondering about what you need to do to get the whole thing set up? Since every
card processing company will have a somewhat different system, it's not possible to
give a specific answer. The following steps are "generally" what will transpire.
1. You apply for the service. The company asks you to sign and return contracts
and provide various information.
2. If monies are going to be transferred into your bank account, the company will
make necessary arrangements with your bank. You will supply the card
processing company with banking information.

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3. Once approved with you bank, you can begin setting up your web pages. The
card processing company will supply you with coding that must be incorporated
into a form.
4. You design a form in HTML for each product you are selling, incorporating the
company's coding that you were given. The form will also contain information
such as the name of the product, the quantity being purchased and the selling
price. Some card processing companies supply software that generates forms
for you. If not, you will have to make your own. If you know some HTML,
simple forms are not difficult to create.
5. You upload the web page containing the form to your web site. When a
customer fills in the form and submits it for a purchase, the request is sent to
your card processor's secure web site. There, the customer will provide
confidential credit card information. When he or she clicks the final "send"
button, the technology processes the sale in real time while the customer waits.
The transaction will be either approved or disapproved. Both customer and
merchant will receive a message indicating the details of the sale.
6. If the sale is approved, you will then fulfil the order.
7. The card processor will likely provide you with a secure web page where you
can go to edit your product list, check on sales figures, generate fund reports or
process refunds.
8. According to the schedule stipulated in your sales contract, the card processor
will transfer funds from sales into your bank account or otherwise pay you the
money owing, minus fees and expenses.
Want to know how to create a form? Try the tutorial at this site.
Shopping Carts
Do you need shopping cart software? Strictly speaking, no. You can
process your ecommerce transactions with nothing more than the HTML
form described above. And if you have only a few products to sell and if the budget
is tight, you might want to go that route and bypass the shopping cart until later.
However, if you have many products and complex shipping requirements, then
shopping cart software is invaluable. Good shopping cart software will collect
complex information regarding shipping methods, taxation, quantities and other
concerns. Moreover, most online shoppers are accustomed to using this software.
So where do you get shopping cart software?
• If you are using a "one stop shop" service, the shopping cart software is likely
to be included. More about one stops shops later.
• Your web host might offer shopping cart software as part of your ecom
package, or for an additional fee.
• You can find free or low priced shopping cart scripts on the Web. Many of
these free or budget scripts are difficult to install. Unless you are technically
astute, or know someone who is, they might not be your best choice.

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• You can purchase shopping cart software from one of the many developers
that sell carts online. Prices vary considerably. You can pay anything from $100
one time fee to several hundred dollars a month rental. Shop around. You don't
want to pay for features that you don't need.
Note: The shopping cart software you use must be compatible with the server
that stores your web site and with the card processor's technology. To find this
information you will quite possibly have to consult with the software developer,
your web site administrator and the credit card processor's tech support people.
Ecommerce: The Dark Side
Credit Card Fraud:
When a valid credit card falls into the hands of fraud artists, the thieves typically
purchase as much as they can before the owner reports the theft. The most likely
items to be purchased are those that can quickly be converted to cash electronics,
computers or jewelry. Merchants selling those items online will be particularly
vulnerable to fraudulent attempts.
Credit card fraud artists also "test" cards in an effort to learn whether the card is
valid. If your web site becomes known as a good "test site," you will be in danger
of having your merchant status revoked. This is one of the reasons why you want to
ensure that you card processor is using top notch security technology.
Internet Shoplifting
Many Internet merchants are dismayed to learn that their biggest
challenge comes from dishonest customers and not credit card fraud.
It goes like this: In many countries (including Canada and the US),
Internet sales are governed by the same laws as Mail Order Sales. With both
Internet and Mail order sales, the customer is not present at the point of purchase
(POP). Therefore, there is no signature given to indicate that delivery occurred.
Customers can contest a sale within 30 days of purchase, stating that the item was
not delivered as promised, that the item did not meet expectations or that the
transaction was the result of a lost or stolen credit card. In all cases, the merchant is
offered an opportunity to contest the chargeback. However, without a signature to
indicate delivery, there is often little that the merchant can do.
While these policies are intended to protect consumers from dishonest and unethical
merchants, unfortunately they do not protect honest merchants from unethical
consumers.

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All too many consumers are aware of this and use it to their advantage. The strategy
is simply to order an item on the Internet then contest the charge or ask the
merchant to issue a refund. The merchant has little option but to comply.
Merchant issued refunds are preferable, since the fee for this transaction is usually
only a few dollars instead of the many dollars that a chargeback will cost. However,
if the item sold was hard goods (i.e. a physical item like a book or a computer), the
merchant will lose the cost of the item plus the cost of shipping. If proof of delivery
is available, a merchant might succeed in getting the consumer to return the item
but will it be in good enough condition to resell? If the consumer lives in a
different country than the merchant, it can be next to impossible to get an item
returned.
If the item sold is soft goods (i.e. electronic files, software, and ebooks), the
merchant cannot request the return of the item, since digital goods can be replicated.
At least with soft goods shoplifting, you are not out the cost of mailing or the price
of the product.
Piracy
If you are selling soft goods, piracy is a problem. Since digital files can be
replicated readily, there is little to stop a consumer from purchasing your
product with a credit card, asking for a refund or chargeback, then
distributing the file to other people. Some sell it to others claiming the
product to be their own.
Technologies are coming available that will prevent or at least make piracy more
difficult. However, at this time, many of these technologies are beyond the budget
of the small or home business.
Interested persons can check out Adobe's PDF Merchant®
(http://www.adobe.com/store/products/pdfmerchant.html)
Or Pace Anti-Piracy
http://www.paceap.com/default.html
Or Internet Marketing Center's eBook Pro
Tips for Protecting Yourself Against Online Credit Card Fraud
Please don't be deterred by the hazards mentioned above. Take proper precautions
and you will find that the majority of your transactions are successful.
1. If you are doing real-time processing, ensure that your technology is up to
date and equipped to recognize fraudulent attempts. If you are using a card

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processing company, ask about their record of fraud deterrence and the security
technology they are using.
2. Insist on the buyer's mailing address, zip code and phone number. Check
this out before processing orders of hard goods or orders of significant cost. If you
cannot locate a customer with the information given, delay processing the order
until you can.
3. Say "no" to requests to process transactions for another entrepreneur who
does not have a merchant account. You will be responsible for chargebacks
stemming from sales generated by the other person. Similarly, avoid customers
with letters giving "permission" to use someone else's credit card.
4. Decide whether you want to ship orders overseas or to countries other than
your own. Many merchants find that it is difficult to pursue claims for items sent to
other countries. Eastern Europe is regarded as being a particularly high risk area.
5. Be wary of orders from free email domains like Hotmail and others. Look
for proof before shipping to consumers with these addresses.
6. Never ship to a Mail Box Address. Insist on a street address.
7. Be cautious of consumers who want pricey products delivered using high-
cost and fast delivery methods. If the credit card is stolen, the thief won't care about
the price but wants the merchandise as fast as possible.
Alternative Ecommerce Methods
Various technologies have been developed that provide alternative methods of
ecommerce. At this time, credit card transaction is by far the method preferred by
online shoppers. However, offering one or more of these alternative methods gives
consumers a choice. Not everyone has a valid credit card, and some people are still
leery of online transactions.
Telephone Billing Services
Telephone billing services allow the customer to purchase an
item or service and have the amount billed to his or her
telephone bill. To date, this is being used for the sale of soft
items such as downloads, time measured services (i.e. time
spent at a Web site) or for making charitable donations online.
eCharge Corporation is a pioneer in the use of this technology.
Pros
• Eliminates worries about credit cards (for both consumer and merchant)
• Available to customers without credit cards
Cons

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• Customer is required to download and install a plugin. Many customers will
balk at this, lacking the skill or interest to install additional software on their
computer.
• Primarily available only for soft goods that can be downloaded.
• Use may be limited to consumers with certain operating systems and browsers.
AOL subscribers may encounter problems.
• Available only to customers accessing the Internet through telephone lines (i.e.
dial-up). Will not work for transactions over cable modems, ADSL, T1 and ISDN
lines.
• Available only to consumers living in certain countries where agreements are in
place with local telephone companies.
• Consumers who have blocked 900 number calling on their phones will not be
able to use the service.
Electronic Payment Systems
These systems allow merchants and consumers to set up accounts and engage in
cashless trading on the Internet. The consumer must set up a free account, then
transfer funds into the account. When shopping at a web site offering this service,
the consumer will initiate a transaction that will transfer funds from his/her account
to the merchant.
Pros:
• Available to merchants and consumers anywhere in the world.
• Merchant does not need a merchant account.
• Goods can be sold for as little as onc cent US.
Cons:
• Consumer must download a plug in, which many do not like to do.
• Consumer must transfer money into the account.
• Consumer can use this service only with participating merchants.
Cybank is an example of this type of service. (http://www.us.cybank.net/)
Person to Person Technologies (P2P)
P2P technologies allow bill payment through email. The merchant
opens an account with one of the P2P companies providing this
service. The accounts, often free to open, require your contact
information, credit or debit card information and your bank account
information. When a customer initiates a transaction from your web
site, he or she will be required to open an account. According to the
customer's instructions, the money for the purchase will then be
charged to their credit card and the merchant will receive an email saying that the
money is ready to be picked up. Depending on the service's options, he could opt to

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