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.
