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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:
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Payment Gateway Charges
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Transaction Discount Rate (TDR)
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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.
Happy and Safe Surfing
Dr. Amit K Chatterjee
Related Links:
Source:
FAIDA
- Newsletter on Business Opportunties from India and Abroad
Vol: 5, Issue 1
; April 14' 2004
Author :
Dr. Amit K. Chatterjee
(Amit worked in blue-chip Indian and MNCs for 15 years in various
capacities like Research and Information Analysis, Market Development,
MIS, R&D Information Systems etc. before starting his e-commerce
venture in 1997. The views expressed in this columns are of
his own. He may be reached at amit@infobanc.com
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