The
ease, convenience and universal acceptance of
on-line payment gateway has made it extremely
popular option for e-commerce websites. However,
prospective e-commerce merchants should examine
cost of accepting on-line payment through credit
card in detail and adjust their product price
accordingly.
There are mainly three cost factors
that all on-line merchants must keep in mind while
calculating selling price. These are:
-
Payment Gateway Charges
-
Transaction Discount Rate (TDR)
-
Invisible costs like augmenting
of website, shopping cart, factoring of risks
like frauds, chargeback etc.
Payment
Gateway Charges
Normally, service providers charge
a one-time fixed installation charge towards integration
of your website with payment gateway system. The
time may range from half an hour to few days,
depending on complexity.
Some service providers charge an
annual maintenance fee, normally 10% - 15% of
installation charge.
Transaction
Discount Rate (TDR)
A transaction is the process that
takes place when a cardholder makes purchase with
credit card. A fee is then charged on these authorized
transactions to cover necessary costs associated
with processing the transaction. Merchants always
pay this transaction fee and is typically a percentage
of transaction amount. This percentage of transaction
amount is called Transaction Discount Rate (TDR).
In off-line transactions - the
TDR is 2.5% to 3% However, in on-line environment,
the TDR could be anything between 3% to 7%.
For example - if merchant sells
a product at Rs. 100 thorough on-line credit card
payment gateway where TDR is 7% - bank will pay
the Merchant Rs. 93 for the transaction.
Invisible
Costs
In any business venture - one needs
to examine various visible and invisible expenses
and factor them in product pricing. While visible
cost factors are easy to identify and calculate
- invisible ones pose a challenge. Failure to
take into account invisible costs may seriously
dent profitability of a new venture.
In credit card payment gateway
- there are two invisible cost factors that all
on-line merchants must consider.
Your web-site needs augmentation
before accepting on-line credit card payment.
Please check earlier issue of FAIDA for details.
In addition - there is an invisible
cost element of chargeback dispute.
What
is Chargeback Dispute ?
A chargeback dispute is a forced
refund from a customer's credit card company.
It occurs when a cardholder decides to formally
dispute a charge on his/her credit card bill,
often because someone else fraudulently used that
card number before the abuse had been discovered
or reported.
In the event of chargeback - only
person who gets affected is the Merchant. Bank/payment
gateway not only recovers full transaction amount
from the Merchant - but also keeps TDR of the
transaction.
According to credit card association
rules, Internet merchants must accept credit card
fraud as part of the normal risk of doing business
on the Internet.
As you can see, chargebacks can
seriously affect any on-line business. Imagine
the plight of merchant whose losses are mounting
on account of:
There are many preventive ways where
the merchant may manage the risk - however it
can not be eliminated altogether.
The amount of credit card fraud
one experiences depends a great deal on type of
products/service one sells. Products that appeal
to children, teenagers, and unmarried men usually
experience higher degree of credit card fraud.
Products that are purchased primarily by professionals,
women, and families normally face lower amount
of fraud. |
