Payment Processing on the Internet

Payment processing on the internet has become a lot simpler in recent years. Before the existence of companies like Paypal, Xoom and 2Checkout, it was virtually impossible to do business over the internet because there was no way for the money to exchange hands. In fact, most people who sold goods or services on the internet had to wait for a check or money order to arrive by snail mail. And while some money was better than nothing, it was a difficult and time-consuming way to earn a living.

To briefly define payment processing, it is a system whereby buyers can send money to sellers, and then, users of the system can withdraw their funds either through an ATM, by receiving a check in the mail, or by directly depositing to an approved bank account. Prior to 2002, one of the few ways for global buyers and sellers to send and receive monies was by belonging to online communities that owned proprietary systems. For example, buying on Amazon or using eBay. Sending wire transfers through online Western Union was another option.

Further, the biggest problem for the payment processing industry was that only a select few corporations were approved to do so. Since the banks determined what companies were approved for the merchantonline payment processing accounts required to process credit cards, the banks more or less controlled the market. Originally, they did not allow any online processing for fear of fraud, and then, little by little, they became more flexible for large corporations. As time progressed, a few more sellers were allowed into the fold, but for the most part, average work-at-home sellers were not permitted merchant accounts. Thus, for the online business world to grow, new types of payment processing solutions would have to be created.

As a result, several companies came onto the scene. Many have since died, but the main ones are hugely active, while even more have been established. And the best part about all this competition is that it enables webmasters and business owners to easily participate in online sales. They are given a lot more credence with buyers because they are able to accept credit cards. Another advantage is they do not have the associated costs of security, equipment, and maintaining databases. Their function is rather simple in relation to the whole process. We ourselves (as a company) have used quite a few of these in setting up online drop-shipping sites like HeadRest.net, RebuildingCredit.net or OnlineGolfEquipment.com.

But, because there are so many options and choices available, online entrepreneurs need to spend time reviewing which service or payment processing company best meets their needs. For example, some have hefty setup fees that are paid upfront, then a percentage of the processed dollar total is paid. Others have no admin fees, but costs per transaction levels. In other words, the higher the volume, the lower the costs.

In addition, the processors offer different services. Some permit sellers to accept echecks, credit cards, and even gift certificates. Various programs have rewards points, their own Visa or MasterCards, and debit or ATM cards. And they have different forms of withdrawal. 2Checkout generally sends out payment checks once per week, whereas bank merchant accounts usually settle up on a daily basis.

Moreover, each payment processing company has its own terms of service. Some are more strict than others withholding significant balances, and making the seller adhere to specific criteria and verifications. In fact, if a seller's percentage for fraudulent cards is above the industry average, or complaints are abnormally high, then the seller will be terminated from using the payment processor, and it remains to be seen how much of the total funds will be released. Another consideration is in regards to allowable products. For example, Paypal cannot be used to purchase adult related goods and services. ePassport, on the other hand, is the company that many companies use to pay affiliates in their adult entertainment programs.

Presently, there are many companies worldwide that offer some form of payment processing solution to the average, everyday marketer. Here are a few examples:

  • Paypal
  • ePassport
  • Xoom
  • 2Checkout
  • Moneybookers
  • Google Checkout
  • Yahoo! Merchant Solutions
  • hyperWALLET
  • Neteller
  • WorldPay

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