Real-Time Credit Card Transactions

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by: AY Software Corporation

When customers press the ‘Purchase’ button on an order form, the information is transferred to the server. But, what happens after the server receives the information? The diversity of technical solutions is enormous. The solutions differ by price, security features, level of automation, and many other factors. This article discusses which solutions are better.

The major difference between solutions is real-time processing versus deferred processing. With real-time processing, credit cards are immediately approved and the customer sees the results immediately. With deferred processing, the order is forwarded to the merchant who then processes the order. Both methods have advantages and disadvantages.

Real-Time Processing

The most important advantage of real-time processing is that the customer sees the results immediately. If you sell software or information that you can deliver electronically, this feature is priceless because it lets you fill the order within minutes. This is a strong selling point,and you can conceivably sell more of your product if you can fill your orders immediately. If you have to ship your product through the regular mail, this feature probably won’t make any difference.

Real-time processing also makes your customers more confident because they know that their card has been approved. So, if there is a mistake, like a wrong expiration date, they can correct it immediately. Half of the Internet buyers are impulse buyers, and they may not re-order if they are told about the mistake the day after they place their order. However, the probability of this kind of mistake is small. The credit card number is checked by the software, so the customer cannot enter an incorrect number. However, the expiration date and the address can be entered incorrectly in 1-2% of the orders.

The possibility of seeing immediate results may also attract hackers. The hackers may have some incomplete credit card information. For example, they may pick up a discarded credit card slip, which contains almost all of the information they need. They can then use your order form to guess the rest of the information. If you do not give them an answer right away, this will not work. So, real-time processing may have a higher percentage of fraudulent transactions.

If you use real-time processing, you can leave the system unattended. All you need to do is to receive e-mails that will inform you about the orders made and the products sold.

There are two ways to do real-time processing. The most common way is to use processing providers (the largest is CyberCash) who specialize in Internet transactions. These companies usually provide you with a set of scripts to build your storefront so you can easily integrate their processing with your storefront software. However, their services are expensive. You usually have to pay a setup fee between $200 to $800 plus 10 to 30 cents per transaction and/or $20-$50 per month. All of these costs are in addition to your bank charges. This solution is easy to transfer if you change your ISP.

The other solution is to install your own credit card processing software on your server. Most processing software vendors have solutions that let you integrate their processing with your storefront software. If you prefer this solution, you will have to install a modem on your server and connect it to a dedicated phone line. You can expect to pay $50 for a modem (you do not need a fast one) and about $300 to your ISP to install this system. The credit card processing software will cost another $350-400. However, since you paid to have the system installed on your server and bought the processing software, your only recurring cost will be the phone line.

Some Internet Service Providers already have a credit processing software installed on their servers, so you will be able to easily plug in your store. But, you will have to pay about $200 for the setup and a per-transaction or per-month fee for using their system. With this solution, you won’t be able to transfer your system if you change your ISP.

If you use real-time processing, make sure that the software does not keep the transaction log on the server, because the log containing all the credit card numbers, may become a target for hackers. If your Internet Service Provider hosts several merchants, it may store thousands of credit card numbers. If hackers break into their system, the merchants will be responsible for card numbers’ loss.

Deferred Processing

If you defer credit card processing, you cannot fill the orders immediately. So, this processing method is more suitable for businesses that cannot deliver their goods over the Internet.

The advantage of using deferred processing is that you can inspect your orders manually, and correct them before you ship the order. For example, a customer called you and told you that he is from a non-profit organization, and arranged a 20% discount on his purchase. He can still use the order form, and then you can correct his order. You can do any discounts or surcharges for any orders, or otherwise edit the orders, before you process them. Real-time processing doesn’t provide this convenience.

When order cards are processed, the credit card issuer’s network may be down. This is especially true, if your customers are in China, Brazil, or other distant countries. In these cases, the credit card processor returns the ‘CALL CENTER’ answer, which means that you must call the center to authorize the transaction. If you do real-time processing, these transactions will be reported to the customer as declined. Not only do you loose a sale, but the customer may be confused by the answer.

Deferred processing is much cheaper than real-time processing because you do not have to pay anybody for any special processing. All you need is a credit card processing software, which you can buy for $350-400. You can use this software for both Internet and phone orders, which is a big advantage. You do not incur any additional costs for processing. The orders are delivered to you by your storefront software and then processed. However, deferred processing requires daily attention because you need to download your orders and process them every day. This may be just a single mouse click, but it needs your attention every day.

If you use deferred processing, the orders stored on the server must be securely encrypted. If the orders are just e-mailed to you, then anyone with administrative privileges on the server can read the orders and steal card numbers. So, before you use the system, ask your ISP or storefront software vendor how the orders are encrypted to secure the orders against hackers.

It is not easy to decide which method is the best for you because you have to choose a storefront software consider integration issues. at the same time, and We will talk about storefront software in one of our next issues.