With the convenience of online shopping appealing to more and more shoppers in Australia, it is important for businesses to consider how best to accept credit card payments from their customers.
In 2017 alone, online purchases rose 11.5%. This means that an increasing portion of income is being received through credit cards and other online payment methods.
So understanding how to accept credit card payments for your Australian business is an important consideration.
The tale of two categories of credit card payments
In industry talk, a business can accept credit card payment as either card present or card not present.
Card present simply means that at the time that the payment is made, the card is physically presented to the business. Payment is typically accepted through an EFTPOS machine. In Australia, the person that owns the card, also know as the cardholder, will either simply tap their card for purchases under a certain amount or enter their PIN number for purchases over this amount.
On the other hand, card not present means that the business does not physically sight the card at the time of purchase. Purchasers do not enter their unique PIN number that is linked to their card number. Rather they manually enter their card information to finalise the payment.
There are risks with both…
The reality is that no credit card payment method is risk free of accepting fraudulent credit card payments. You can of course put measures in place to reduce your risk. Stolen credit cards may be used before they are cancelled. When the bank is notified of these fraudulent transactions by a cardholder, they will ask your business about the transaction. Funds received from fraudulent transactions will need to be returned. This is called a chargeback.
This can happen weeks or even months after you have spent the money made on the sale.
The result – you are out of pocket for the cost of the product and in most cases additional charges from your bank.
To accept payment in person
You will need to speak with an Australian financial institution, like your regular bank, to apply for a merchant facility and EFTPOS machine.
Processing credit cards through your merchant facility will attract a fee, which is typically a percentage of each sale. E.g. 1.75% of each sale will be charged by the bank as their fees. In some cases there may also be a setup fee and monthly account charges. Fees are typically based on volume and negotiated with the bank when you setup your facility.
Once approved, they will send you the EFTPOS machine.
You will enter each credit card purchase through your EFTPOS machine.
Every evening, the bank will tally up your sales (less your refunds) and deposit the money into your nominated bank account. This can be overnight or agreed upon with your bank.
To accept payment without seeing the person
You will need either an internet merchant facility from an Australian financial institution, such as your regular bank, or an account with a payment provider such as PayPal or Stripe. Depending on your setup, you may also need a payment gateway.
Credit card payments made online or over the telephone, are classified as card not present transactions.
There are still fees and charges involved when accepting payments through these payment methods.
How payment providers work
When accepting payment through a payment provider, such as PayPal or Stripe, you do not need to apply for an internet merchant facility from the bank. This facility is all rolled into their offering when you set up an account with them.
You then integrate this payment method into the process for accepting credit card payments on your website.
The fees for these payment providers is usually a mixture of a percentage of each sale, as well as a fixed transaction fee. E.g. 2.5% plus 30 cents per transaction.
The rates provided are standard across the board dependant on the transaction dollar volume and crossing borders.
A user must manually send the settled funds to their bank account.
How internet merchant facilities work
The process for setting up an internet merchant facility is essentially the same as an EFTPOS merchant facility. You will need to contact an Australian Financial institution, like your regular bank.
The bank will want to know about your online presence (website) and have assurance that it is secure, as well as what is going to be sold.
Processing credit cards through your merchant facility will attract a fee, which is typically a percentage of each sale. E.g. 1.75% of each sale will be charged by the bank as their fees. In some cases there may also be a setup fee and monthly account charges. Fees are typically based on volume and negotiated with the bank when you setup your facility.
Many banks now provide their own plug-ins to accept payments on websites.
Or you can use your internet merchant facility in combination with a payment gateway to accept credit card payments online.
So where do payment gateways fit in?
Payment gateways are usually independent of any one bank and typically connect with many Australian banks. What this means for you as the customer is that you can setup your website to accept payments once with the payment gateway functionality but then feel free to pick and choose the bank which offers you the least fees, and not have to change the setup of your website.
Using a payment gateway is typically dependant on you having an approved merchant facility.
Without going into too much detail here, payment gateways also provide a whole host of advanced functionality and security for payment processing that is not out of the box.
Payment gateways typically charge merchants a fee per transaction processed. This is in addition to the fee that you pay your bank for your internet merchant account. There may also be a monthly or annual fee.
But despite the risks….
It is becoming more and more essential for Australian businesses to accept credit card payments. Not only to keep up with the way that Australians are preferring to buy their products online, but to offer a range of payment options for your customers to secure your cashflow.
It all comes down to making the right decision for your business, not only immediately but to support your long term vision and strategy.
Hopefully with this information you can find the right way for your business to accept credit card payments, both in person and not in person. Good luck.
