Financial Middleman for Small Business

FINANCIAL MIDDLEMAN FOR SMALL BUSINESS

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copyright (c) Pavel Lenshin
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Small online businesses are mostly represented by home-based
entrepreneurs. In this regard any payment scheme or system
should meet at least two criterions:

First. It should be relatively cheap. Individuals are
usually not enjoying huge investment potential in contrast
with legal entities.
Second. It should lead to complete automation of financial
transactions as a result of lack of time or inability for
the majority of entrepreneurs to hire support stuff to serve
these transactions.

In short, it all comes down to the shortage of money and
time. For these simple reasons, sophisticated e-commerce
systems based on merchant accounts are expensive, hard to
establish and support for an average entrepreneur. That is
why third party payment processors that will handle all
online orders on your behalf became widely popular among
small businesses. They require very little effort to
establish and even less effort to support. In most cases
they will provide you with completely automated as well as
quick and reliable for your customer way of payment.

This will allow you to accept payments 24/7 focusing your
business to work on other tasks and activity.

In practice once set up, the whole customer paying and
product delivering process becomes fully automated and
consists of the following steps:

1. Customer fills out the order form and clicks on the
submit button to pass the order to the payment gateway;
2. Automatic payment gateway routes credit card (e-check
etc.) data and purchase amount to the payment processor of
the merchant (seller) acquiring bank;
3. Acquiring bank sends authorization request to the payment
processor of the customer's issuing bank;
4. Issuing bank validates customer's account, credit limit
and authorize the transaction, freezing the specified amount
on the customer's account;
5. Issuing bank routes authorization code (or "transaction
declined" message) to the acquiring bank's payment
processor;
6. Acquiring bank routes payment approval (declined) message
to the payment gateway;
7. Payment gateway notifies the merchant (seller) about
approved (denied) transaction;
8. Provides customer with the product s/he ordered, the
details of shipping etc. or notifies about payment problems;
9. Banks' clearing settle the mutual transfer of funds,
crediting the respective merchant (seller) account with the
specified amount of purchase.

All these steps due to complete automation process, if we
don't speak about phone or mail orders etc., will take
somewhat between several seconds to several minutes, still
usually faster than when you are billed at the store's pay
desk and much faster considering the speed of going for
online shopping instead of the "offline".

This publication intended to analyze existent picture of
third party processing companies and represent you the
comparative facts that would help you to determine your
preferences based on business needs and capacities.

The table below will provide you with basic features of the
most "visible" today's online payment processing players.
Please note, that the online financial market evolves
extremely fast, so the table data is accurate as on the
February 2003 what I cannot guarantee in a month, all the
more in a year, so my advice here is to choose 3-5 most
acceptable and affordable financial intermediaries (even if
some important for you feature is missing) and recheck their
services and fees once more at their web-sites before making
any final decision.

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Company Name in alphabetical order:
1) Setup fees 2) Monthly fees 3) Commission structure*

2CheckOut:
1) $49 2) no 3) $0.45 + 5.5%;

CCNow:
1) no ($11.95 for Int.) 2) $9.95 3) $0-$100 - 0%, $100+- 9%
(11% for Int.);

ClickBank:
1) $49.95 2) no 3) $1 + 7.5%;

IBill:
1) no 2) no 3) $0-$9,999 - 15%, $10,000-$24,999 - 14% etc.;

MultiCards:
1) $15 or $150 2) no 3) 11.9% or 9.9%;

PayPal:
1) no 2) no 3) $.30 + 2.9%;

PaySystems:
1) $49.00 2) no 3) $1.00 + 3.95% or $0.45 + 5.5%;

ProBilling:
1) no 2) no 3) $0-4,999 - 13.5%, $5,000-12,499 - 12% etc.;

ProPay :
1) $35.00 (yearly) 2) no 3) $.30 + 2.9%;

Regsoft:
1) no 2) no 3)$0-$30 - $3.00, $30+ - 10%;

Verotel:
1) no 2) no 3) $3.75-$75.00 - 13.5%;

V-Share:
1) no 2) no 3) $0-$15 - 20%, $15-$100 - $3+4%, $100-$200 -
$2+5% etc.

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Company Name in alphabetical order: 1) Credit Cards
acceptance 2) Online Check acceptance 3) Phone(Fax) orders
acceptance 4) Recurring Billing feature

2CheckOut: 1) yes 2) yes 3) no 4) yes
CCNow: 1) yes 2) no 3) no 4) no
ClickBank: 1) yes 2) yes 3) no 4) no
IBill: 1) yes 2) yes 3) yes 4) yes
MultiCards: 1) yes 2) yes 3) no 4) yes
PayPal: 1) yes 2) yes 3) no 4) yes
PaySystems: 1) yes 2) yes 3) no 4) yes
ProBilling: 1) yes 2) yes 3) no 4) yes
ProPay: 1) yes 2) yes 3) no 4) no
Regsoft: 1) yes 2) yes 3) yes 4) no
Verotel: 1) yes 2) yes 3) yes 4) yes
V-Share: 1) yes 2) yes 3) yes 4) yes

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* Commissions are charged in two most popular ways:
* depending on the sales volume, for instance, 10% for
$0-$1000 in gross sales and 5% for $1000+ or;
* flat fees plus percent of the transaction amount: $2 + 5%,
so if you sell your item for $50 the commission is $2+$2.5
(5% out of $50)=$4.5
Note, that commissions shown for credit card billing may be
the same or may differ from company to company for online
checks and, especially, for phone order processing.

As you see, the table compares the most common features of
services, while some secondary options like affiliate
program, online auctions support or inability of such
companies like PayPal to process all worldwide customers
including yours truly, were left behind.

IBill and Verotel, for instance, have retail price maximum
limits. The dominating majority of payment processors charge
additional fees for chargebacks and refunds, while Regsoft,
Verotel or V-share offers a completely risk-free start up,
charging commission from actual sales only.

The middleman you will commit to should offer easy ways to
administrate your account, view statistics, add/delete
products on sale, setup price, tune and customize with your
web-site image the order page etc.

Depending on the nature of your main product: tangible or
intangible, some companies may or may not meet your needs.
Check Verza.com payment processing company for tangible and
shippable goods. They are the Mother company of Verotel -
division specially designed for intangible products or
"bits" sellers.

Carefully read terms & conditions agreement, other
regulations as well as charge back policy before signing up
for any service.

Find out the offered ordering security options.
While some companies provide sophisticated fraudulent
control system and supply you with both server secured order
form and non-secured order form for your customer
convenience, other payment processors had problems even with
the coding of their order web-pages, what allowed anyone to
literally steal your intangible products by downloading them
without payment. That happened because the URL of the
so-called "Thank you" page (where sellers arrange their info
materials to download) was clearly visible in the source
code of the order form. This is unacceptable.

You may also want to test their support system and uptime
the same way you do before selecting a web-hosting provider.
Because your order page(s) is(are) hosted at the 3rd party
payment provider server(s), if they are down for any reason,
it may be very sad for your customer to choose a product,
click on the order link and get error or "The page cannot be
displayed" massage.

As you see there are a lot of points to check and analyze.
On the other hand, remember a rule of not complicating
things. The key for easy decision-making process is not to
avoid research as some people do going for the first offer
they see, rather than knowing your needs and capabilities
including financial beforehand.

Determine them at the very beginning and search companies
accordingly, making the whole research smooth and easy.
Besides, on the contrary to, say, domain name choosing,
payment processor service is temporal to help you build your
online business in a quick, cheap or zero cost way. At some
stage due to economy of scale it will be cheaper and more
effective for your business to establish personal merchant
account with respective e-commerce gateway system.