Ask CWS: How do Online Credit Card Payments Work?

As more and more business is being done online, we've seen an increase in the demand for applications that include real-time processing of credit cards. To make smart decisions when you're setting up a payment solution, it's helpful to have an understanding of how these transactions are handled. Although the whole process happens very quickly (usually just a couple of seconds), there are several different components involved that all have to work together.

Step 1: A customer submits payment information to your website. This connection must be encrypted with SSL, a sophisticated technology that prevents anyone from intercepting the contents of the request while it's being transmitted from the user's local computer to your server. As a website owner, you'll need to purchase (and renew annually) an SSL certificate for these connections.

Step 2: Your Web server takes the payment information and opens a second SSL-encrypted connection in the background to a payment gateway. A gateway is a secure server that acts as a bridge between Web applications and the payment processing network. There are many different gateway providers, though your bank may have a partnership with a particular vendor. Some popular gateways include Authorize.net, LinkPoint and Payflow Pro. Although they all perform the same essential funcion, each has its own set of features (and fees), and many factors may influence your decision. For example, if you're using an off-the-shelf shopping cart, it likely supports a particular set of gateways. Some gateways handle particular types of transactions that others do not.

Step 3: The payment gateway contacts the processing network to determine if funds are available for the transaction. The cardholder's issuing bank relays a response back to the gateway.

Step 4: What happens next depends on the type of transaction. An authorization simply gets approval for the purchase, with the actual charge to happen at a later time. For example, when shipping hard goods, the sale is not complete until the order has been fulfilled. A final sale, on the other hand, immediately charges the customer. Examples would be payment for a service or electronic download, where fulfillment occurs immediately. The payment gateway has details for the merchant account provided by your bank and will route the payment accordingly.

Step 5: The results of the transaction will be passed from the payment gateway back to your Web server. For approved payments, this typically includes a unique ID that can be used to reference the transaction later. If the transaction failed, a status code or other message will be given to help determine the cause (insufficient credit, incorrect expiration date, etc.). The Web server will then display an appropriate success or failure screen to the user.

The entire process happens very quickly under normal circumstances, and the customer never sees what's happening in steps 2-4. However, all this background infrastructure is critical and the pieces must work together. As a website owner, you must have the following to accept payments online:

1. An SSL certificate (see step 1 above)
2. A merchant account that supports Internet transactions. If you don't have one already, apply with your bank. One notable exception is a service offered by PayPal called Website Payments Pro, which bundles merchant and gateway services together and does not require a separate merchant account.
3. A payment gateway that supports your merchant account

Each of these services will have its own set of fees, so shop around and find the best set of features and value for your needs.

A helpful summary of the entire process can be found here. CWS specializes in developing Web applications that make businesses work better. If we can help you implement an online payment solution, contact us at support (at) cws (dot) net.

My Inbox: Abandoned Shopping Cart

Earlier this week, Jon wrote about E-commerce R.O.I. and mentioned that 60% of users will abandon a shopping cart before finishing the checkout process.

I was one of them yesterday.

Let me explain -- I received a catalog in the mail from a company called IDville.com, which sells employee identification tags and such. We've been contemplating enacting a security policy at our building where all visitors must sign in/out. So, I started the order process for a Visitor Log Book at IDville.

However, during the checkout process for this $17.95 item, I realized they wanted another $8.00 to ship the item to me. This made me change my mind and convinced me that I might be able to buy a similar item locally.

Now the important part of the story. IDville impressed me by sending the following email this morning:



As you can see, they noticed that I never completed the order yesterday. Since I had started the checkout process they had already captured my email. Instead of just forgetting about me and losing the sale, they then sent me an email with a link to "proceed to checkout now."

This is very smart.

Not only did it remind me about their company, but it gave me yet another option to complete the transaction I had already started. If they can get just 20% of the people to come back and complete an order by using this method, it could mean an increase in revenue of 50% or more. Great idea.

Does your website make you money?

How profitable is your website? When people visit the site, do they take action? Do you even know what you want them to do? Unfortunately, too many organizations fail to ask these questions, and thus fail to understand their website's ROI (return on investment). ROI is a fundamental business concept, but it's too often neglected in this specific area.

According to the book Web Design for ROI, there are 3 key figures to ponder when considering a new website project or redesign:

• 43% of retail sales will either be influenced by or complete on the Internet by 2012
• 83% of businesses now use the Internet to research potential vendors
• 75% of users admit to making judgments about a company's credibility based on the design of its website

The bottom line is that a large number of people will make business decisions based on the form and function of your website. How appealing is yours?

Even small details such as updated content and appealing visuals can make a crucial difference in keeping people on your site. Imagine a business owner who spent a lot of time, effort and money remodeling the interior of a store, but left the outside looking like an old, crumbling ruin. Customers would quickly assess the credibility of the business and pass it by.

The average home page abandonment rate (the rate at which visitors leave a site within a short period of time) is between 40% and 60% in general. Why? Because visitors decide almost immediately if they've found what they're looking for. What the site actually offers is secondary to what a customer thinks the site offers. What if a small change to the wording or placement of elements on your homepage reduced the abandonment rate by just 10%?

E-Commerce ROI

Nowhere is ROI more critical than on websites that directly sell a product or service. Unfortunately, some studies show that 60% of customers drop their purchase during the checkout process -- after they've made a buying decision! Imagine a restaurant where 6 out of every 10 customers ordered lunch and left before it was served. Any rational business owner would consider this unacceptable.

E-commerce site owners should constantly monitor the usability of their systems. Does the checkout process makes sense? Is it simple and free of distractions? Think about it... before you lose another customer.

Converting Traffic Into Sales

More traffic does not automatically mean more sales. If the website does not effectively convert customers into sales then the traffic is not useful. Keeping visitors on the site long enough to perform a critical task is what counts. The longer the visitor stays and learns what he/she needs, the more likely he/she is to convert.

How do you track conversion rates? Measure actions -- filling out a form, requesting a free sample, ordering a product, or contacting you. Track your conversion rate on a daily basis and see if you can improve the numbers. A simple formula would be the number of people who completed the desired action divided by the total number of visitors. You can even set up Google Analytics to do this automatically and email regular reports to you.

For a consultation on website ROI, please contact us a support (at) cws (dot) net.