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Guide To Accepting Credit Cards On Your Web Site

Giving your customers the option to pay for purchases from your web site with a credit card is crucial to your success at selling on the web. Simply put, credit card transactions are used to complete the vast majority of web sales. This article explains the options available to you when choosing a method of accepting credit cards. You'll also learn the differences between bank merchant accounts and online payment services.

Merchant accounts

Bank merchant accounts provide credit card processing for the majority of web sites today. These are business accounts (usually) set up through regular banks. Here is how a typical  transaction takes place when using a merchant account:
  1. The customer initiates a purchase from a web site, usually by "checking out" with a shopping cart.

  2. The bank that supplies the merchant account "authorizes" the purchaser's credit card, checking for fraud and verifying that the card has enough available credit to pay for the purchase. This process usually takes just a few seconds.

  3. After the purchase is authorized by the bank, the merchant ships the merchandise to the customer or supplies him with a download link in the case of a downloadable digital product (such as an eBook or software package).

  4. After a few days the bank transfers the funds (less transaction fees) for the purchase into the merchant's bank account.

Advantages of using a merchant account:
  • Fees are usually low when compared to online payment services.

  • Fast turn-around time for getting your money into your bank account.

  • Merchant accounts are generally more trusted by customers than on-line payment services. This enhanced trust encourages more sales.

  • Merchant accounts offer greater flexibility to the merchant when it comes to the types of transactions allowed (web site, phone, fax, etc). Most on-line payment services limit your transactions to your web site or online auction.

Disadvantages of merchant accounts: 
  • Merchant accounts can be difficult to qualify for. They have stringent personal and/or business credit requirements. They also tend to be picky about the types of businesses that they accept.

  • It takes a while to get your account approved and set up. This can easily take anywhere from a couple of weeks to a month or more.

  • There is usually a relatively high application fee and/or set up fee. Around $300 seems to be the norm.

Recommended merchant account provider:

If you're interested in a good merchant account at a great price, we highly recommend Merchant Warehouse. They have among the most liberal acceptance policies in the merchant account industry. And even better, they don't charge an application fee and their low rates start at just 1.45%.

Online payment services

Online payment services are a viable option for smaller web-based businesses and online auction sellers. Opening an account is fast and easy, but there are a few negatives. Here is the typical sales process when using an online payment service:
  1. The customer clicks on a sales link or "checks out" with your shopping cart. The payment service authorizes the credit card or deducts the proper amount from the customer's online payment account if there are enough available funds in the account.

  2. The online payment service credits the transaction amount (less any applicable transaction fees) into the seller's online account.

  3. Both the customer and the seller receive emails from the payment service verifying the transaction.

  4. The seller ships the merchandise or provides a download link (if applicable) to the customer.

  5. The seller requests a transfer of funds from his online account into his bank account. This can take anywhere from a few days to a couple of weeks, depending on the particular service used. Some services will send the seller a check instead of initiating a bank transfer.

Advantages of online payment services:
  • They're quick and easy to open. Most accounts can be applied for and opened in a matter of minutes. You can begin using them almost immediately.

  • They're usually easy to qualify for. Typically, there are no credit checks or business requirements.

  • You can send money to and receive payments from anyone with an email account.

Disadvantages of online payment services:
  • They're still relatively unknown to consumers when compared to traditional merchant accounts which tends to lower the number of sales that you'll make.

  • The transaction fees charged by online payment services are typically much higher than those available from regular merchant accounts.

  • Getting your money transferred from the online payment service into your bank account usually takes longer than with a merchant account. And if you have to accept a paper check it takes even longer.

  • Before a potential customer can purchase your item, he usually must first open an account with the online payment service. This is an extra (and intrusive) step that will keep some customers from buying from you.

Recommended online payment service:

If you're considering using an online payment service (or if circumstances make it your only option), we very highly recommend PayPal. You can literally open your account in minutes with practically no qualifying required at all. You can be using your new PayPal account within minutes. PayPal is also very affordable as their rates are as low (and often lower) than many merchant accounts.

A big plus is that PayPal is owned by Ebay, the online auction giant. When compared to most of the other online payment processors, PayPal has very good name recognition.


Your choice between a traditional merchant account and an online payment service needs to be considered carefully. Of course your own circumstances may help you make the decision one way or the other.

Whichever option you choose, be sure to consider all of the factors involved, including the fees. A smart choice made at the outset will prevent a lot of headaches down the line.

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