Accepting Credit Cards for Online Backup Services
This section is not intended to be a FULL explanation of exactly how credit cards work. What it does instead is give you an overview of how they work from the merchant’s (your) perspective.
The Online Backup Guide for Service Providers is a complete 196-page guide on starting and operating an Online Backup Service – the latest revision of Rob Cosgrove’s industry defining RBS Book originally published in 1987. The entire book is being published here, chapter by chapter.
If you want to automate your service and link it with your website, you will want to accept credit cards. The bank holding your business checking account is the best place to start. Tell them you want to accept credit cards for an online business and they will take it from there.
Expect to pay a discount fee in the range of 1% to 3% (and sometimes higher) of your gross receipts depending on your credit history, the type of each transaction, your use of the credit card’s CVC/CVV number, the type of credit card, your use of AVS, and many other factors.
You might also pay a monthly account fee, a per-transaction fee, and a number of other fees.
You will need a merchant account, a payment gateway, a shopping cart, and a virtual terminal.
Merchant Account – Usually provided by your own bank, a merchant account holds the money you receive from charging your customers’ credit cards, and an amount of money to be used to draw against in case a customer disputes one of your charges.
Money from your merchant account is automatically swept into your company’s checking account nightly. It can take from 24 hours to 36 hours between the time a credit card is charged until the cash is available for your use in your checking account.
Merchant accounts are a little difficult to get these days. They usually require near-perfect credit for the individual and/or company applying for the account. Your merchant account provider will either want to know you personally, or will want you to provide several years of tax returns, bank statements, and financial statements.
Payment Gateway – The payment gateway is a different service with its own fees. It is required. The payment gateway communicates between your shopping cart and the various credit card companies at the time a credit card is charged.
It sends the charge request from your shopping cart to VISA, Master Card, Discover, American Express, and other credit card companies. It then listens for the response, which can be one of several, including the Big Two – Accepted and Declined.
“Accepted” means that the credit card was successfully charged, and the money scheduled to be withdrawn from the customer’s credit card account and deposited into your merchant account. (The actual transfer takes place later, within 24 to 36 hours.)
“Declined” means that the credit card company declined the transaction for one reason or another, which is usually reported along with the Declined message.
Some well-known payment gateways are authorize.net (www.authorize.net), PayPal’s Payflow Pro (www.paypal.com), and the Quickbooks Merchant Service.
Shopping Cart – Your shopping cart presents your customers a web page at which they can order your product or service. Shopping cart programs can be built into web sites and they can be outsourced. If you outsource your shopping cart service, expect to pay between $39 and $199 per month, depending on the services you want.
For the American market, I prefer the service provided by 1shoppingcart.com (www.1shoppingcart.com). It is rich in features including coupons, multi-gateway support, autoresponders, mass mailing, affiliate programs, and much more.
There are also open source shopping cart programs that you can run on your own web server at little or no expense. They include Zen Cart (www.zen-cart.com), Open Cart (www.opencart.com), and Commersus (www.comersus.com).
If you use my RBackup Online Backup Software, you can take advantage of a built-in shopping cart designed specifically for use with my software. See the Web Manager PlugIn and the E-Commerce PlugIn.
Virtual Terminal – The virtual terminal is usually provided for you as a part of your payment gateway service. It takes the place of a manual credit card swipe machine and operates on the Web.
You will use the virtual terminal to manually process credit card transactions that are phoned in by your customers, or that are declined for some non-fatal reason, or for when you want to issue a refund. Your shopping cart may also be capable of some or all of these functions.
If your bank will not (or cannot) handle your Internet merchant account, plenty of other companies will. Just search the web for “internet merchant account” and start applying. Fees vary widely with liability.
Chargebacks
Fraud aside, chargebacks are a necessary evil, especially if you want to accept American Express. A customer can request a chargeback with a simple telephone call to his credit card company up to a year after a charge was made, without returning the product.
Without consulting you, the credit card company will immediately reach into your company checking account and withdraw funds. You will find out about it only after you notice a balance discrepancy in your bank account or when you get a chargeback letter by mail, sometimes up to ten days after the chargeback occurred.
You will have a very limited amount of time to respond. You can dispute the chargeback or allow it. Disputing a chargeback is difficult and time-consuming. You may be required to provide card swipe data (which you can’t because it was an online transaction), a contract or receipt signed by the customer (ditto), a printed sales receipt or invoice, proof of delivery, and an essay on why the chargeback is bogus.
The paperwork for disputing a chargeback can require an hour or two of executive time. For small charges it is more cost-effective to simply allow the chargeback and cancel the customer’s Online Backup account. For larger purchases I recommend requiring the customer to electronically sign a Sales Agreement, which you can use to help challenge a chargeback if you decide to do so.
American Express
Like chargebacks, American Express may be a necessary evil.
Just about anyone can get an American Express merchant account. The application is online, and approval is automatic and instantaneous. There’s a reason for that – they have trouble getting merchants to accept their card.
You’ve seen all those American Express commercials where they spend sixty seconds telling you how easy it is to take advantage of a merchant by purchasing something and then requesting a chargeback for “whatever reason?”
American Express merchant fees are the highest in the industry. Who do you think pays for all those Reward Points? It’s you – the merchant, through high fees.
Rob Cosgrove, CEO Remote Backup Systems
Rob Cosgrove is the President of Remote Backup Systems, founder of the Online Backup Industry, and a vocal advocate for maintaining the highest standards in Online Backup software. His latest book, the Online Backup Guide for Service Providers: How to Start and Operate an Online Backup Service, is available online now, on Amazon.com, and at bookstores.
Remote Backup Systems provides brandable, scalable software and solutions to MSPs and VARs enabling them to offer Online Backup Services.
