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If you plan to sell something on your website, you have to figure out how the money is going to change hands. Unlike a brick-and-mortar store where your customer can pull out his wallet and peel out the cash, you’re dealing with customers virtually. So you have to arrange to be able to accept payments via a major credit card, online money transfer service like PayPal, or another means convenient to your online customer.

Figuring out how best to accept payment can be migraine-inducing for many web-based business owners. You’re dealing with banks, online payment services, transactions fees, settlements, reserves, and more. Yikes! Don’t despair. This chapter will walk you through the payment alternatives available to you, and the process of setting things up and getting everything working smoothly.

Someone clicks the Buy Now button on your website. (A smile-inducing event for any web-based business owner!) An order is placed. And a couple of days later, the money gets deposited into your bank account—or, at least, most of the money, after the credit card company and other payment processing services have taken out their fees.

How did all that happen?

You don’t have to understand the nitty-gritty technological details of how online payments are processed electronically. However, it is a good idea to know the basics.

Let’s start with that Buy Now button. When your customer clicks on that, she is typically taken to a website checkout page of some kind. That page confirms all the details of her order and asks for her contact information and payment details. Once that’s typed in, the customer clicks a final Place Order button and the transaction is processed. Usually, another screen comes up confirming that the transaction has gone through.

Chances are, you’ve placed many orders yourself online and are familiar with this process—at least from the perspective of the customer. But what happens behind the scenes?

Here’s an inside look at the process:

That’s a lot of stuff happening, considering it all happens in just a few seconds!

The process can be a bit more involved than I described. There may be other steps in the transaction approval highway, such as a bank’s payment processing service provider, but unless you’re a financial transaction engineer, you don’t need to know all those details. (Thank goodness!) Understanding the basics is more than enough to get you started.

And the basics are these: to accept credit cards and other forms of online payments, you need to either have your own merchant account, payment gateway, and shopping cart—or, as we’ll talk about in the next section, piggyback on someone else’s.

If you are new to accepting online payments, consider sticking your toe in the water by signing up as a merchant with PayPal or Google Checkout. You don’t have to apply for a merchant account or sign up with a payment gateway. And you can get started selling stuff on your website in minutes.

Let’s take a look at PayPal since that is by far the most popular online payment service used by website owners, the most familiar to online shoppers, and the easiest to set up and use. However, I do encourage you to review what Google Checkout has to offer, too, as their features are similar and their rates are competitive.

To get started as a PayPal merchant, you need to sign up for a PayPal business account, which is different from the basic personal account. The process involves filling out an online application, verifying your business address and other contact information, and selecting and setting up your website payment solutions.

Once your PayPal business account is open, you’re ready to go. PayPal walks you through the process of setting up your shopping cart, getting your customizable Buy Now buttons, and getting everything working correctly on your website. You can even add your company name and logo to the shopping cart checkout screens. (But, not surprisingly, you can’t remove PayPal’s logo!)

Here is what your customer experiences when he or she makes a purchase from your site:

Where’s your money? It gets deposited into your PayPal account right away, which is a little like a traditional bank account. You can keep your funds there or, with just a click or two, get it transferred to your own bank.

PayPal, as well as Google Checkout, offers your website customers a wide variety of convenient payment options, including every major credit card imaginable, bank transfers, debit cards, and even virtual checks. Of course, customers can also pay using their PayPal funds.

PayPal’s two main options for online businesses are PayPal Payments Standard and PayPal Payments Pro. The pro version, which is currently available to U.S., UK, and just recently Canadian merchants, offers a richer array of features such as the ability to accept credit cards by phone and even in person.

My advice? Read all the merchant options carefully on the PayPal and Google Checkout websites so that you can make an informed decision as to which online payment option is right for you.

PayPal and Google Checkout are the big players in the online payments field, but they’re not the only ones in the game. There are many other online services available that enable to you sell stuff on your website and accept payments.

None of these services work exactly the same way, so review the information on their websites carefully. For example, ClickBank handles only downloadable products such as e-books and special reports, while CCNow works primarily with websites that sell physical goods. There are important variations in how customizable the checkout screens are in each of these services, too.

And pay particular attention to how the money is handled. Unlike PayPal and Google Checkout, most of these services only deposit your funds into your account on a weekly, bi-weekly, or monthly basis. A few will even hold back a certain percentage of your money in reserve in case there are disputes or refund requests.

Compared to signing up with PayPal, Google Checkout, or some other online payment service, getting your own merchant account—which is basically permission from a financial institution to accept credit cards on your website—gives you a lot more control over how things look and work. You can select almost any shopping cart system you want and customize it to your exact requirements.

However, while signing up as a PayPal merchant takes only a few minutes, applying for a merchant account can be a considerably longer process. It involves a financial institution (and sometimes more than one) checking your credit score, reviewing your website, and scrutinizing the type of products and services you plan to sell.

For obvious reasons, banks and credit card companies only want to approve reputable web-based business owners who sell merchandise with a low risk of returns. They don’t want their customers complaining about improper charges or product guarantees that were not honored. As a result, it can take two to four weeks to get approved.

Here is a list of websites where you can apply for your merchant account. Some of these companies are also payment gateways, while others use a third-party gateway like Authorize.net.

When I applied for my merchant account, I double-checked to make sure my website was the picture of reputability: a clearly stated refund policy, a privacy policy, a working customer service phone number and e-mail address, a postal address, and products that were clearly priced with no misleading information. I recommend that you do the same. Trust me. Someone at the bank or credit card company will be checking.

Fees for merchant account services vary from one financial institution to another, and one credit card to another. Typically, you can expect to pay an initial account set-up fee to the financial institution and then an ongoing transaction fee (often called the discount rate) to the credit card companies. There may be other fees, too. So read the fine print carefully!

As I said in the previous section, merchant accounts and payment gateways work closely together. So I recommend that you get them both from the same place.

For example, when I opened my first merchant account, I did so through PSiGate, which is primarily a payment gateway. They took care of the entire application process for me, like a one-stop shop, which made things a lot easier.

Merchant accounts, payment gateways, ugh! I know it’s a little overwhelming. However, most payment gateway service providers do a good job of explaining how things work and walking you through the process. After all, they want you to be able to accept credit cards and start selling stuff on your website. That’s how they make money! And many payment gateways are accustomed to working with small business owners.

Here is a list of payment gateway services that cater to the needs of small business owners. Some merchant account providers (listed in the previous section) also offer payment gateway services.

In addition to being a portal between your website and the banks and credit card companies, a payment gateway service provider may provide other valuable services as well, such as the ability to accept phone orders, virtual checks, and debit card payments. Review the features of each payment gateway carefully before making your decision.

Gateways typically charge an initial set-up fee, a monthly fee, and a per-transaction fee. (If you haven’t noticed already, there are a lot of suppliers that want to nibble on your sales. Welcome to the world of online business!)

Once you have been approved for the various merchant accounts you may need (Visa, MasterCard, American Express, Discover, et al) and you have signed up for a payment gateway, your next step is to arrange for your website shopping cart. This is the fun part because you get to choose among a wide range of styles, features, and functionality. It’s a little like decorating a room!

There are basically two types of shopping cart systems.

The first type comes in the form of software that you purchase. It’s then installed on the web server that hosts your website. (More on web hosts and servers in Chapter 11.) If you’re comfortable working with software in this way, then you’ll find this isn’t a complicated process. You can probably get your shopping cart installed and running correctly in about an hour. However, if you’re not tech-savvy, then you’re going to need an IT professional to do the job for you. And that, of course, will cost you a few bucks.

Another option, and one the majority of web-based business owners choose, is to sign up with an online shopping cart service. This is similar to using a PayPal or Google Checkout shopping cart. There is no software to install, so you can get your shopping cart up and running in just a few minutes. The only downside is that you must pay the monthly, quarterly, or annual subscription fee, which is a continuous business expense; purchasing the software is only a one-time hit to your pocketbook.

When I started my web-based business, I carefully considered both options and eventually went with an online shopping cart service: 1ShoppingCart. I didn’t want to get involved in having to install and maintain software, nor could I afford at the time to purchase an expensive software package.

No two shopping cart software packages or services are the same. You need to review your options carefully to ensure you get all the features you need. Here are some important things to consider.

How do the basic checkout screens look? Do you like the basic layout, fonts, colors, and other elements? Do they fit well with the look and feel of your website?

Can you customize the checkout screens? To what extent can you change the layout, color, fonts, and fields? Is there enough flexibility to add your company name, logo, a personal message from you, and other information?

Can you easily add an option to accept PayPal payments? Even though you can now take major credit cards with your merchant account, some of your customers will still prefer to pay by PayPal.

Does it have sales building features? For example, is there a field on the checkout screen for accepting coupons and the ability to display suggestions of other products a customer may be interested in purchasing?

Are the checkout screens simple to follow? Look at them from a customer’s perspective. Will he find the checkout screens easy to complete? Buying stuff online is still intimidating for many people. Just one confusing element on a checkout form and some customers decide not to go through with the transaction.

If you’re looking at a shopping cart service, you should also consider the other features they offer in addition to the checkout screens. My shopping cart service, 1ShoppingCart, generates sales reports and maintains my customer list. It also has e-mail broadcast and autoresponder capabilities and, as if all that wasn’t enough, also runs my affiliate program! So I’m getting a lot of bang for my shopping cart buck.

There are many very good shopping cart systems available. Here is a list of the most popular:

If you decide to go with shopping cart software rather than an online service, you pay just one price. That price can vary considerably, but the average for a good program ranges from $1,000 to $2,500.

In my opinion, going with an online shopping cart service is the best choice for the web-based business owner just starting out. Fees range from $35 to $100 per month. But you don’t have to install anything and never have to update the software.

Credit cards are by far the most popular way to pay for something on the Internet. (PayPal is a close second.) However, it’s not the only way to accept payments from your website customers, nor is it always the ideal option. There are many payment alternatives you can offer in place of, or in addition to, plastic.

Checks and money orders. I’m so used to buying online with my credit card or PayPal account that I’m surprised anyone would even consider going to the trouble to write and mail a check. Yet, I consistently get requests from customers asking if they can pay this way. Some people just aren’t comfortable using their credit cards online and prefer the perceived security of sending a check or money order in the mail. In fact, you can increase sales by offering your customers this payment option.

Virtual checks. In addition to paper checks, you can offer customers the convenience of a virtual check. This basically works like a bank transfer. Your customer types the information into an online form on your website; a form that often looks like a real check. Then that information is transmitted electronically to the bank where it is approved (hopefully) and deposited into your account. PayPal and some payment gateways offer virtual check services. Also take a look at www.vchecksolutions.com, www.paybycheck.com, and www.ilovechecks.com.

Online wallets. You can’t pay with cash on the Internet. But you can come pretty close by using an online wallet (also known as eCash). Never heard of this payment method? If you live in North America, that’s not surprising. Wallets have only really taken off in Europe and Asia. A wallet is an online service that securely holds your contact information, shipping details, and a quantity of cash that you deposit. Then you can simply use that wallet to buy stuff from websites that accept this form of payment. You might want to consider wallet payments if you sell overseas. Popular wallets include Yahoo! Wallet (http://wallet.yahoo.com), Wallet 365 (www.wallet365.com), and PayNova (www.paynova.com). Paypal is also a type of online wallet.

Purchase orders. If your website sells products to other businesses or other organizations, then you may want to consider accepting purchase orders. A purchase order is simply a signed authorization provided to you by a company to ship the product and send your invoice. A segment of my customers work for corporate marketing departments, so I often accept orders in this manner. However, I only do so when the company is well-established.

Offering alternatives to credit cards can significantly increase your online sales. But they can also add more administrative complexity to the payment process. So weigh the advantages and disadvantages carefully. Keep in mind that many website businesses only accept credit cards and PayPal—and still do very well.

The Least You Need to Know