Getting Paid on the Web
by Michael Calore
You still find it hard to believe, but after that recent trip to the
mountains, something that you thought was dead has been reborn! The creative
spark! Yes, it's back, that tingly urge to craft, build, and endlessly
modify, that very special feeling you thought had vanished for good after you failed "Art
101: Drawing and Sketching." And now, after weeks locked in your studio
the light-deprived cube that your friends still refer to as your
bedroom you have created a small but appealing collection of objects
de art (maybe sculpture, maybe music, maybe both!). Next step? Find a way to
sell your fiery ingots of love.
With local galleries too narrow-minded (obviously!) to appreciate your
work, you turn the Internet, really the best and most far-reaching
distribution network out there. You take all the obvious steps: Build a
site, take some photos, write descriptions, ZIP your files, encode your
songs into MP3 and ready them for download. But what happens when somebody
visits your site, likes what they see and hear, and wants to purchase one of
your creations? Are you ready to dip your toe into the chilly waters of
Whether you're selling jewelry or you're just a programmer out to make
some spending money on the side, the transfer of funds from them to you is a
big step. And that's our topic for today getting paid.
Of course, there are several different ways to receive funds online. Of
course you can travel down the time-consuming-yet-intellectually-rewarding
path of building your own shopping cart. Use Perl, ColdFusion, or transactional databases in
MySQL, and you're quite literally in business. But if you don't have
programming muscles to flex, let alone the time to build something yourself,
why not set up shop with a Web
storefront service? When moving currency from one party to another is
involved, options are never hard to come by, and the time, money, and
craftiness you need to implement them varies.
But what if you're short on resources? Or you don't have actual tangible
items to sell? Maybe you want to accept donations for a free content
service, collect payments for downloaded MP3s, or set up a payment system
for a piece of software or Web-based application. Since no hard goods are
exchanged no shipping costs or taxes to calculate, no inventory being
moved simple cash payments may be the best answer.
If you do have actual trinkets to sell, hosting a third-party shopping cart
on your site is also an option. Third-party shopping cart solutions are easy
to put into action just by filling out a few forms and plugging in a credit
card number (yours). However, since your users actually have go log in to a
different and unfamiliar site when they want to purchase something,
third-party shopping carts don't provide your customers with a seamless
shopping experience. Also, many of these systems require you to set up a
merchant account. Merchant accounts, which we'll look at in depth later, are
tied to major financial institutions, so there are fees involved. The fees
you pay for these all-inclusive systems will dramatically increase your
overhead if you're strictly small-scale. So if you're still in mom-and-pop
land, cash payments are the most economical and the easiest.
Cash payments on the Internet involve the transfer of funds from one
person's bank or credit card account to another person's account. It's the
same basic idea as sending a check through the mail, except a Web payment is
faster, easily trackable, and more secure. These types of low-level
e-commerce, different from the more complex world of shopping carts and
inventory management, are sometimes called "e-cash payments." Several
companies have developed payment systems that you can use either on a
one-off basis, as a subscriber, or as a full-fledged credit merchant. Each
service has its advantages and hang-ups, which is just what we'll be looking
at as we examine a variety of services in the pages that follow.
In addition to cash payment services, we'll be cracking open
e-wallet systems, as well as the aforementioned third-party shopping cart
and merchant account services. I've rated all of these services based not
only on their usability and coolness factors, but also on whether their sites clearly offered
all the vital bits of info (security statements, fee schedules, and terms
of use statements) it's difficult to trust a company
that doesn't provide all the facts right up front. Note that the list of
services I chose to profile is by no means comprehensive. If you plan to use
cash payments, I encourage you to follow up what you learn today with some
research of your own before committing to a choice.
Let's start with simple cash payments. There's a company which I'm sure many
of you are familiar with that handles millions of dollars in transactions
per day. It's called PayPal.
For small businesses going for their very first joyride on the e-commerce
bandwagon, there are few payment processing services more convenient than PayPal.
It's pretty simple: As long as your users have email addresses and bank
accounts, they can send money to you from a PayPal account. To set up their
PayPal account, they electronically transfer money from their bank account
to their PayPal account. Otherwise, they can use a credit card or a personal
check to fill up their PayPal account. Then, when the transaction is
processed, PayPal transfers the amount of their purchase into your PayPal
account. You can then do whatever you like with the money. Either spend it
somewhere else on the Web via PayPal (in which case the resultant
transaction is still subject to the normal fees!), or dump it into your bank
For all of this behind-the-scenes wizardry, PayPal charges you, the online
e-tailer, a standard fee of 30 cents plus 2.9 percent of the transaction. So
if somebody spends US$100 on your site, PayPal automagically deducts $3.20
from the transaction, and the remaining $96.80 gets deposited into your
PayPal account. Other than additional fees for international purchases,
that's as bad as it gets in PayPal land. You can actually lower your fees by
enrolling in one of PayPal's preferred customer programs. If you do a fair
amount of business, like over $1000 per month in received funds through
PayPal, you can become a PayPal Merchant. This status entitles you to a
lower percentage rate on your transaction fees, and it gives your customers
a little more assurance that you're a trustworthy, goody-goody type. I mean,
we know that, but do they?
Aside from simplicity, another thing PayPal has going for it is its cost.
There's no setup fee, no monthly fee, no lengthy contract, and no hidden
charges (or at least none that I could find).
However, when pressed to find any real contact information, PayPal's
website turned up zilch. No phone number on their site, and both their FAQ
section and self-help systems are cryptic and sparse. Their feedback and
contact device is a Web form.
If something goes wrong with a transaction, it's the responsibility of the
e-tailer to offer a quick solution and sort out snags in a timely manner.
And when you're dealing with OPM (other people's money), you need to find
answers fast. That said, the lack of readily available contact information
should give you pause. Hey, guys? How about an email address or, better
yet, a phone number?
PayPal has been in the online payment business for four years. It is still
the easiest to use and the least expensive of any online payment system, but
it has come under fire recently. The hottest topic on the list
of complaints is Paypal's immunity against legal action, according to its
lengthy terms of service agreement. Consider this a warning always
read the user agreements and terms of service carefully before allowing
anyone to touch your money. Especially a large company with expensive
lawyers in fancy suits!
Do You Yahoo! PayDirect?
PayDirect is one of PayPal's main competitors, and it operates in very
much the same manner. Your customers can transfer funds between their
PayDirect accounts and yours by entering your email address or by following
a link from your site to the Yahoo! servers. The fees are similar to PayPal,
a flat rate of 2.5 percent of the transaction, plus 30 cents per
transaction. You can lower your percentage rate by becoming a preferred
customer, but to do so, your PayDirect payments need to exceed the US$2,000
per business quarter. So, if you're a selling a hot product and you can keep
your sales numbers up, then you can get the lower percentage rate.
Otherwise, you're paying the flat rate. Which is still lower than
PayDirect also has a two-level security system. There are two initial
security measures a Yahoo! ID and a Yahoo! security key both
of which are required to use PayDirect. To purchase something through your
store, users need to become Yahoo! members, which gives them each a Yahoo!
user ID and login password. The final step is to obtain a Yahoo! security
key, which involves physical verification of the mailing address the users
have on file at their banks. Here's the stinger. Before they can send any
money or make any transactions with PayDirect, the users must wait to
receive a physical letter that's mailed to their houses by Yahoo! and
contains the security code they must use to log in to their Yahoo accounts.
Only then are they in business.
This rather involved process can possibly drive away potential customers. It
does show, however, that Yahoo! is particularly concerned about security, a
benefit that could rub off on you by association. Those of your customers
who already have a Yahoo! security key or those who crave security at every
step of a Web purchase will, of course, be punch-pleased with your decision
to go with Yahoo! PayDirect.
Ecount, ProPay, More!
PayPal and Yahoo! are both big companies, but they aren't the
only players in this game. There are several smaller Web cash payment
services that do the job just as well, and offer some rather interesting
variations on the cash payment concept.
Ecount has a
wider variety of features than most online cash payment services. It's
different from services like PayPal and Yahoo! PayDirect because it's
actually a debit account that can be used both as a credit card and as an
email-based cash payment system. Users fill up the account by charging a
balance on a credit card, and then they spend the money anywhere on the Web
where MasterCard is accepted. Ecount also has a few other nifty options,
such as an ATM/Debit card that you can order (with your name on it and
everything!) and use just like a MasterCard when you want to take your
spending off the Web and onto the streets.
It doesn't cost anything to send money over email or to purchase stuff on
the Web. A US$2.00 fee is applied when money is transferred from a credit
card account into an Ecount Account, and that's it. Spending is free! There
are some limits, though, such as it can't be used at a site unless
MasterCard is accepted there. Also, transactions are limited to businesses
and individuals within the United States, so you won't be able to sell any
goods to folks overseas. This is particularly sticky for those wishing to
collect payments for software and MP3s, as such commodities tend to be more
global in nature. Consumers are limited to nine transactions per day, but as
an e-tailer, this shouldn't necessarily concern you.
In the areas of security and privacy, Ecount scores highly. It uses VeriSign's certificate
encryption to protect your credit card info. Also, contact information, a
customer liability statement, and a privacy statement are all readily
accessible on its website.
Like PayPal and Yahoo!, ProPay provides cash payment services using nothing more than
existing bank accounts and email addresses.
ProPay also puts a nice spin on "P2P" (that's person-to-person, not
peer-to-peer) cash payments
its system enables a customer to pay you, the merchant, without
ever having to sign up for a ProPay account.
Here's a quick tour of ProPay's setup. When you're ready to start
accepting payments, you go to the ProPay site and sign up as a user. Then,
when a customer wants to purchase something from your site, you log in at
ProPay and enter the customer's email address and the amount of the sale
into a simple form. The customer then receives a payment request email from
ProPay that contains a unique URL that leads to a secure page. The user
follows the link, fills in their credit card or check card information, and
the money is dumped into your ProPay account.
The fees involved are comparable to those of other services, and they're charged to your business only, so your customers don't have to give
ProPay one red cent. The one-time fee for setting up an account as a seller
is US$35.00, more than most competitors. However, the per-transaction charge
is 3.5 percent of the total sale plus 35 cents, which stands up well in
comparison to Yahoo! and PayPal. Whenever you make a sale, the money goes
into your ProPay account, and every time you want to move your funds over to
your credit card or checking account, ProPay charges you a 35-cent transfer
fee. Such fees are not too restrictive, and the fact that your users never
have to sign up for the ProPay service is an added bonus that many other
cash payment companies can't offer.
ProPay does have a few snags that you should consider. First of all, ProPay
does not offer a fully integrated customer experience like a shopping cart,
or even a PayPal merchant page. If your customers are interested in
purchasing something from you, they need to send you an email
outlining what they want to buy, what their address is, which shipping
customers to fill out that will notify you via email of a pending sale, but
that's just one more thing you have to do for yourself. Also, there's a
transaction limit of $250 per sale, or $1000 per month. So if you want to
sell life-sized Han Solo dolls for two grand a pop, no dice. Finally, any
funds paid to you need to be processed through ProPay's outsourced check
clearing house before you can access them, which can take up to four days. So,
grab a nice thick book!
Other Creative Services
The services mentioned so far are excellent places to start looking for an
easy entry into e-commerce. There are also a great deal of other Web payment
services out there that offer strange and interesting though not entirely
appealing ways to transfer money from one place to another. Web
payment service companies are trying everything from charging purchases to a
consumer's telephone bill as a faux 900 number to allowing users to pay for goods out of their
Paytrust and PayByWeb both have attractive features. If you like the idea of having a major financial institution behind you, Western Union's MoneyZap service has a
brand name you can trust.
Throughout my research, I came across a fair number of smaller online payment services that have fallen upon hard times over the past year. Some have even gone out of
business. Is this a warning to stick to the companies backed by large banks
or even larger Web conglomerates? Maybe. I'd still encourage you to put
customer service, security, and reliability at the top of your checklist
as you conduct your own research. If a smaller business looks like the perfect fit for your needs, support them and help them grow don't forget that
PayPal was once really small, too.
But if consumer confidence is your highest priority, it might be best to go with a payment
service with a brand name that both you and your customers will recognize on
first mention. However I also encourage you to explore as many services as
possible to find the best one for your specific business. Some great places to start are
Lycos or Google listings for electronic
You will also notice that a number of these payment services require you to set up
merchant accounts. But what are they? And why would you need one? Let's take a closer look at merchant accounts and what you can expect when you play with the big fishes.
Setting Sail with Merchant Accounts
Let's say you get into the e-commerce game and you do well. Your products,
Little Leo's Latkes, are selling like hot cakes and you're fast becoming a
too big for simple cash payments. There are advantages to moving on to
merchant status, but beware that you'll be playing in a whole new league
with different rules.
Unlike becoming a merchant member at PayPal or Yahoo!, setting up a merchant
account means entering into a relationship with an FDIC-insured merchant
bank, thus allowing you to accept and process customers' credit cards on
your own terms. All merchant banks require you to meet certain criteria
before you can open a merchant account. Usually this involves high revenue
and proof that you've been in business (and making customers happy) for a
While elaborate process of turning a small Web shop into the "real deal" can
be a real headache, merchant accounts are still the easiest and most
financially efficient way to get money off of people's credit cards and into
your bulging coffers.
The biggest reason to do it? Merchant accounts are secure, secure, secure
both physically, because your users and their precious information
are handled by you and you alone, and psychologically, because your
customers don't need to trust a mysterious third party with their
The downs? Merchant accounts are costly. Banks, surprise, want to turn a
profit, so they charge account setup fees, processing fees, and a handful of
miscellaneous fees as well. To make the fees worthwhile, you need to do at
least US$500-600 in business per month. Otherwise, you're better off letting
another company handle the high-finance shtick.
To mitigate the pain of setting up a merchant account, several companies
offer tiered services for those who want to ease into becoming a credit card
sells a complete solution that "outsources" customer billing and credit card
processing to iBill's pre-existing merchant account. In return, it takes a
flat percentage of the sale. You can use its storefront or add its pre-built
functionality to your existing site. Either way, all of the e-commerce takes
place on its secure servers. Using the optional store builder feature puts
your entire Web presence onto its servers for a $9.95-per-month subscription
fee. But don't fire your designer just yet the provided interface is
a little on the ugly side.
Another company, 2Checkout, will set you up with a merchant account for a
measly $49. After you start moving goods, they charge 45 cents per
transaction, plus 5.5 percent of transaction amount. That's more expensive
than PayPal, but you become a merchant, which gives your customers an added
sense of security. Most sites offering an "easy in" to becoming a merchant
require a commitment of a year or two, so it's quite a relief that
2Checkout.com doesn't make you sign a lease or pay monthly fees. You just
pay the set-up fee and the per-transaction costs. Also, it has some
plug-and-play code that you can use to integrate its site interface with
Again, these sites are only the tip of the iceberg. Also, a merchant account
is probably way more trouble than it's worth for 90 percent of you. So,
let's dig into the back pocket of our Levis and have a peek into electronic
Hey, nice driver's license picture ... Poindexter!
Collecting Cash from E-wallets
Security can be a terrible burden. These days, most Internet users maintain
multiple accounts with multiple passwords. And keeping track of all those
passwords can be mighty confusing.
It's precisely this confusion that Web shoppers hope to avoid when they sign
up for one of the many electronic wallet services. An electronic wallet,
also called an e-wallet or an e-pass (it never ends), logs a user's login
information, passwords, and credit card information for multiple sites in
one convenient virtual "wallet." Matt Margolin recently discussed the ups
and downs of electronic wallets, among other things, in his article on security.
Whenever a wallet-endowed user proceeds through the check-out process on a
site that uses an electronic wallet system, the familiar form-field screen
appears asking for user data name, address, and credit card number
is automatically populated with the user's info and the order is
processed. Security issues aside, the recent upward trend in the use of
electronic wallets is a good sign for online retailers.
So how can you collect cash from customers who use electronic wallets?
First, you need to become affiliated with one of the many e-wallet services,
most of which list between 3,000 and 5,000 Web-based businesses that accept
their wallet system. Companies like Gator, monCASH, and Microsoft, which traffic in the electronic wallet circuit, have
established criteria that you need to meet to be part of their network. Meet
the criteria, and your business is added to a directory that the company
keeps and distributes to users who are looking for their next shopping
If you have actual hard goods to sell and you're already doing
some brisk business, an e-wallet system might be a good fit for your online business. But if you are collecting money for software, for downloaded files,
or if you only sell small quantities every now and then, the simpler cash payments systems might be a less
complicated solution. However, no
business is too small to step into the e-wallet realm whether or not
it's worth the hassle is your decision.
Whichever path you decide to take as you enter the e-commerce world, there
are some important final points that you should consider before you get up and running.
Final Words of Advice
Before you e-cash in on the product of your latest
brainstorm, here are some final pieces of advice and further readings that might
make the journey less painful for you and your customers.
- Always read the user agreements aimed at both sellers and buyers. As
mentioned before, many consumers have been burned by PayPal's reportedly
dodgy terms of service. As a general rule, steer clear of services that take
rights away from your customers or from you. This doesn't mean you shouldn't
use PayPal, it just means that you should read everything carefully, and you
should encourage your customers to do the same. If your customers have a
positive experience at every step of their dealings with you and your
payment service, they are more likely to return.
- Be a stickler for security. While too much security steps can send
potential customers packing, it's wise to pick a payment system that's going
to clearly offer confidence to your customers. People who spend money on the
Web like to see features like SSL, password protection, P3P statements, and
privacy statements. Also, choosing a service with an established brand can
help ease the security jitters your users may feel.
- You didn't forget about taxes, did you?
- And how are you going to ship? FedEx? UPS? US
Mail? Carrier pigeon? Just some other costs that need
- Beware of hidden special rules attached to some services. Some payment
systems only allow one-time billing for security reasons. Some require
customers to input excessive personal info that may not have anything to do
with your product.
- Leave room to grow. If your product is generating gobs of press
or even hype
then do yourself a favor and pick a payment service that's going to allow
you to grow. Who knows, in a year, you may need to coordinate a
database-driven shopping cart system with a warehouse full of inventory!
Armed with this information, you're more than ready to go forth and get
what's yours. I'm talking about money here! Money for your hard work, your
hours spent away from loved ones, your time that could have been spent
chasing squirrels or learning how to play the drums. You've got to start
somewhere, so pick the right level of commitment and go for it. Don't leave
those customers waiting.