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Online Merchant Services

An online merchant services provider can help move e-commerce along.

Setting up and online merchant account makes it easier for customers to shop. [© Jupiter Images, 2009]
© Jupiter Images, 2009
Setting up and online merchant account makes it easier for customers to shop.

Online merchant services are useful tools that businesses use to make transactions over the Internet. Primarily, online merchant services are available to act as electronic liaisons between businesses and their customers by processing orders from credit cards on behalf of the businesses. Both the client and the customer have an interface that allows them to transfer funds for purchase or payment. Some online merchant services, such as Paypal, use their own site for both businesses and customers, other service providers create site-specific interfaces for businesses. Most online merchant services take a small percentage of the sales and send monthly checks to the businesses they work with.

Available Online Merchant Providers

The most common online merchant services are providers who process payments either through their own servers or through a server that they create for a business. Arguably the most popular online merchant service is Paypal. Originally a payment server for Ebay.com, the site is now one of the best-known third-party payment sites. Many online retailers accept Paypal along with major credit cards, and some businesses even use the service to pay their employees. The Web site provides multiple fiscal tools -- such as invoicing and inventory -- and fraud protection that makes it a popular merchant tool. Paypal is also popular because, as a third-party application, there is little setup involved for small business owners. Web sites such as Charge.com provide similar services but give their users software, whereas Paypal simply uses its Web site.

Established banks and lenders are also becoming involved with online merchant services. Wells Fargo offers an affordable credit card processing option for small businesses and has multiple options for businesses such as software, virtual terminals, gateways and fraud protection.

Cost of Online Merchant Services

Businesses can use two forms of merchant services to accept Internet payments. They can use a third-party payment Web site or obtain a merchant license and process payments themselves. If a business uses a third-party service, it should make sure the cost is appropriate. An online merchant service may have some or all of these fees:

  • Application fee - This is a fee the merchant will charge a business to process its application. Most reputable merchants waive this fee.
  • Monthly fee - Most merchant accounts require businesses to pay a fixed, monthly fee.
  • Discount rate - The percentage of the sale kept by the merchant. This should be between 2 - 4 percent
  • Termination fee - The fee the merchant charges if you terminate your service before a specific time, usually one year.
  • Other fees - Merchants might charge additional fees for services, for exampe when a customer requests a refund, so it's important to carefully read the contract.

Avoiding Fraud

Businesses should also ensure that using a third-party service won't result in any fraudulent activity -- either for the business or its customers. Businesses should conduct thorough research before signing on with a service. They should inquire with the Better Business Bureau to ensure that the merchant they are interested in using does not have any complaints of fraud against it. They should also ask the merchant for references from other businesses who use the service. Most services include fraud protection, but businesses should be aware of the liability the service is willing to be responsible for -- as well as how liable the business will be if something goes wrong with the online merchant service.

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