The ABC's of e-Commerce (cont.)
by R. Wilson

Hardware/Software Gateway to the Clearinghouse

The final piece is a gateway that connects you to this transaction clearinghouse. Nearly gone are the days of paper processing, nearly everything is electronic now. There are three common gateways:

Cardswipe machines. Next to nearly every cash register in the country reclines one of those gray flat boxes that the clerk swipes your card through (and sometimes wipes it off and swipes it through again). Then she enters the amount of the transaction and waits. Thumbs twiddle. A few seconds later her terminal lights up with an authorization code which is printed on your credit card transaction slip. That authorization comes from the credit card clearinghouse that the store's bank contracts with, and it effectively assures payment to the merchant when the customer signs on the dotted line and the purchase is made. Examples: VeriFone Tranz, etc. But these machines aren't too helpful for Internet businesses, where you don't have the customer's card to swipe; you'd have to get pretty good with the keypad. Fortunately, there are some other options.

Desktop Software. Many businesses don't ever see the customer's credit card. They get the credit card number over the phone, via mail, or over the Internet. Every day or two, the merchant enters the credit card numbers and transaction amounts in special software, and transmits that list over a modem to the clearinghouse designated by the bank. In a short time, the clearinghouse responds with a list of "good" cards, and a list of "bad" ones. The merchant then sends a message back to accept the transactions for good cards, and frets about merchandise that went out the door with a "bad" card. Of course, if you're wise you just don't ship until you've run the credit card transactions. Examples: ICVerify, PCAuthorize, MacAuthorize. This solution works all right unless you have a large volume of orders. It also requires you to rekey data from each order into your computer, which can get time-consuming, and introduce errors.

Real-time Website Gateways. Finally, there are several sources of gateways to the processing clearinghouse which can check the customer's credit card while he's still online. In some cases the gateway requires a special set-up by your Internet Service Provider (CyberCash); others employ Internet connections to a service bureau gateway. These various gateways provide a bridge from your website to a completely different modem channel to check the credit card in real-time, a rather complex procedure if you were to try to do this yourself from scratch. However, several of these gateways are pretty easy to get set up. Beware: while standard HTML forms can accommodate such a gateway, not all shopping cart programs can do so. Therefore, if you wish to use a real-time gateway, make sure all the pieces fit before you purchase. Examples: Anacom Merchant Services SecurePay, Online Analysis SocketLinks, CyberCash, VeriFone vPOS, and others.

Costs

How much does all this cost? That all depends. You can save a good bit of money by careful shopping. A couple of rules of thumb: assuming you have decent credit yourself, your bank can probably give you the best deal. When you go through a broker, you've just introduced another person who needs to be compensated, and you might end up paying a higher rate to a bank that doesn't know you well already. However, a good reliable broker may just save you a lot of time shopping and putting some of the pieces together, especially if your own bank isn't Internet-savvy.

In the table below we outline some ballpark costs that you may encounter. In any given situation you may not have to pay all of these charges. Sometimes, for example, parties will be making their money selling you hardware or software, in others they may just charge some set-up fees. In any case, look at the whole picture before you sign a contract.

Fee	Paid To	Explanation	Amount
Discount rate	Bank	Over time, this is the most expensive aspect of taking credit cards. Try for the lowest rate possible. Rates depend upon your annual sales volume and your average transaction amount. The higher these are, the lower the rate. For example, with an annual sales volume over $30,000, my bank charges 2.78% for average tickets in the range of $40 to $50 taken over the Internet	2.5% to 5%
Minimum monthly processing fee	Bank	If the bank's 1.5% to 5% slice of purchases doesn't add up to the minimum each month, they charge you the minimum anyway.	$15 to $30
Transaction Fee	Bank and/or Gateway	The moral of this story is, try not to accept credit cards for tiny purchases. Visa and MasterCard are least expensive. Sometimes American Express, Discover, Diners, etc. require a higher transaction fee.	15 to 30 cents per transaction
Application Fee	Bank or broker	Sometimes this can be pretty high. Sometimes there is no charge.	None to $500
Set-Up Fees	Bank or broker	Vary greatly	$30 to $300
Gateway Hardware or software	Bank, broker, or gateway	Banks and brokers make money reselling or leasing cardswipe terminals, PC verification software, or real-time Internet verification systems. You may sometimes purchase these from the source or third parties. Shop around.	$350 to $995
Supplies	Bank or gateway	These are sometimes included in the cardswipe terminal rentals.	Free or fee
Internet Gateway set-up	Webstore designer or webmaster	To get real-time credit card authorization on your Web site, expect to pay your webstore designer to compensate for the extra time it will take to install the gateway.	Varies
Monthly processing fee	Internet gateway	The gateway company may charge you a flat monthly fee to process your credit cards, in addition to a per transaction fee.	$50 per month and Up

<BACK- PAGE 2 of 2

Articles

The ABC's of e-Commerce
by R. Wilson

Complete e-Commerce Guide
by N. King

e-Commerce 101: What it is, where it's going
by L. Rush