Most goods bought on the Internet are paid for by credit or debit card. There are several methods for accepting card payments - each with different set up costs, pricing structures and technology requirements.

This brief article covers some of the basic aspects of electronic payment and explains the software needed to take credit card details and authorise payments online. Firstly, we’ll look at how a normal high street shop takes credit-card payments and then we’ll look at what needs to be in place to enable customers to place orders over the Internet. 

Merchant Services

Most of us have bought a product from a high street shop and paid for it using either a credit or debit-card. With new PIN and chip technology you will be asked to place your card into a PDQ machine which will collect your card number and card expiry date.

The card details are passed to an ACQUIRING BANK – this is the bank that provides the PDQ machine and the MERCHANT SERVICE for taking card payments. The shop has a unique ID to identify themselves to the ACQUIRING BANK and this is given to them as part of a MERCHANT SERVICE by the ACQUIRING BANK.

The shop will then be credited with the value of the transaction into their business account which is often not the same bank as the ACQUIRING BANK. The ACQUIRING BANK will normally charge for the rental of the PDQ machine and a percentage of each transaction normally on a monthly basis.

Online Payments

Taking card details over the Internet involves some slightly different features to those in a high-street shop but they still involve an ACQURING BANK.

Online trading uses a number of terms and acronyms so let’s introduce these first:

PSP: a ‘Payment Service Provider’, in the virtual world you do not have a PDQ machine so a PSP will provide the software to replicate the process of swiping a card and collecting the card details and will then pass them to your ACQUIRING BANK.
IMS: an ‘Internet Merchant Service’ is the online equivalent of the offline merchant service but this is a unique service with individual terms. This is sometimes known as Internet Merchant Account and is obtained from your ACQUIRING BANK.
IMA: an ‘Internet Merchant Agreement’ is the specific agreement with your IMS for accepting online payments.

This is how the online order process works:

1. Customer fills their online shopping cart with products and proceeds to a virtual checkout.
2. A PSP collects the card details and the total transaction value.
3. An ACQUIRING BANK then authorises the transaction.
4. The card limit is temporarily reduced by the value of the transaction.
5. Goods are dispatched and the transaction value is then captured from card.
6. Small transaction costs are also charged by the PSP and ACQUIRING BANK.

To accept credit or debit card payments directly online, you have to set up an IMA with an ACQUIRING BANK (as opposed to your normal bank with which you hold your current account - although these details will be required). There are nine ACQUIRING BANKs that currently provide an IMSs and issue IMAs:

• Alliance & Leicester 
• American Express Merchant Services 
• Bank of Scotland 
• Barclaycard Merchant Services 
• DinersClub 
• HSBCi 
• Lloyds TSB cardnet 
• Royal Bank of Scotland & NatWest Bank - service is known as Streamline 
  Ulster Bank

Your IMA account number is used by the PSP to ensure that money taken online is passed to you bank acquiring and then onto your bank account. Note: Often a separate IMS/IMA is required to take American Express payment.

Your ACQUIRING BANK (and normal current account bank) will often recommend their own PSP. You can however use any PSP that supports the ACQUIRING BANK. More often PSP who are independent of the ACQUIRING BANK offer more competitive terms. Some Payment Service Providers are harder to integrate with than others. We do not recommend using ePDQ or HSBC gateways.

PSP often work in one of two ways. Either they can be ‘transparent’ and the user of the website doesn’t know that a PSP is being used or the website user is physically transferred over to a branded PSP. We would recommend that the ‘transparent’ approach is adopted. PSP that provide a transparent service include Protx, PayPoint (formally SecPay) and Realex.

Getting started Checklist

1. Decide on the IMA you want as your ACQUIRING BANK – look at the setup costs and charge per transactions
2. Once decided on the IMA you can then select the PSP – again look at the setup costs and charge per transactions
3. Take advise from your web development agency to see what they recommend in terms of technology

For more details about owning an effective online shop take a look at our B2C eCommerce solutions.