Merchant Account Implementation Guide for Web Hosting Providers
As a Web Hosting Provider, your payment processing needs are quite different
than that of many other business models. To effectively implement a merchant
account & e-commerce solution, you will need to put together several key
components and each of these components must be able to "co-exist amicably" with
one another.
The three components to the solution are: (1) Merchant Account -- with a
qualified merchant processor who can adeptly handle your kind of transaction
business, (2) Payment Gateway -- with the technical capabilities & compatibility
that you need and (3) Billing Application -- either a custom order forms,
e-commerce script or 3rd party billing software package.
Step One -- Select a Merchant Account
With respect to your choice of an appropriate Merchant Account, it is
important to keep in mind a number of important attributes.
Risk Management
Risk Management is by far one of the single most important aspects of
merchant accounts for Web Hosting Providers. It is also one of the areas that
most merchant processors discuss the least when you speak with them. The way
that risk management is handled by a merchant processor can literally make the
difference between a Web host staying in business or not, at the most extreme
situations... and it can make a huge difference in cashflow in many other
circumstances.
You will want to make sure that your merchant account provider doesn't
unreasonably hold funds for an extended period of time and that they won't turn
you off if you have a chargeback or two. Unfortunately, these exact kinds of
situations happen every day with Web hosting providers and so it is very
important to make sure that this won't be the case with a merchant provider that
you get setup with. The best bet is to check their references and make use of
industry forums to see what other merchants’ experiences with the provider
have been like.
Foreign Transactions
Some merchant processors disable or disallow processing of credit cards to
certain foreign addresses. They do this because of the higher risk present on
those transactions but -- this also means that you will lose out on some
legitimate sales in foreign locations.
While the reasons behind some of these actions are understandable, you will
at least want to get a solid answer as to whether transactions will be screened
or disallowed by your merchant processor from certain areas... or whether they
will allow you to make the judgement call on your own as to whether or not to
process the sale.
Technical Integration Expertise
Many merchant processors are more familiar with "card present" merchants such
as bricks 'n' mortar retail stores, restaurants, hotels, etc. These processors
don’t always have a very good grasp on Internet payment processing and thus
are unable to provide a detailed level of assistance to any technical hurdles
that you might run into.
A good question to ask when interviewing a prospective merchant account
provider is: what percentage of your total merchant portfolio is Internet
merchants or Web hosting providers? That will give you a sense as to their
focus.
You will definitely want to select a merchant account provider that is
focused on serving the needs of Internet merchants and Web hosting providers, if
at all possible.
Choice of Payment Gateways
It is important to select a merchant account provider that is willing to
offer you a choice of multiple payment gateways. Make sure to avoid signing up
with a merchant account provider who only offers one gateway and doesn’t give
you the flexibility to change it at a later date.
In addition, make sure not to pay an unreasonable amount for your payment
gateway setup. Most payment gateways can be setup these days for $300 or less.
Rates & Fees
Even though merchant account pricing is an entire article's worth of content
to itself, as a Web Hosting Provider you will want to pay special attention to
fees like AVS fees, per transaction and non-qualified fees. These will all apply
on certain transactions and you will want to make sure that you understand the
true transactional costs that apply on each sale.
One of the best things that you can do is to put together an Excel
spreadsheet and write down all of the rates and fees and then run it under
various conditions of sales volume, # of individual transactions, and so forth.
This gives you a very clear picture of the costs involved in setting up and
running your merchant account.
Monthly Minimums & Annual Fees
Smaller Web Hosting Providers -- especially those just starting out or
processing under $1,000-1,500 per month in volume – will want to make sure to
select a merchant account provider that will completely waive their monthly
minimum requirement.
In addition, ask about any annual fees that may apply to your account. These
are sometimes hidden in the fine print but they are important to know about.
Remember -- if you divide out a $100 annual fee by 12 months, that equates to
paying an extra $8+/month in service fees.
Taking these steps will save the Web host approximately $300-400/year or more
in unnecessary fees and expense.
Termination/Cancellation Fees
The last item to be wary of are the termination & cancellation fees that may
apply to a given account. Some merchant processors assess a very hefty penalty
fee if you close your account prior to the end of the 12-36 month agreement
term... a few companies charge as high as $1,500 and it is not uncommon to see a
termination fee of $250 or more with many processors.
See if your provider is willing to reduce or waive this fee entirely… after
all, you don’t want to risk exposing yourself to a huge fee if you decide to
sell your company early on or if the merchant processor doesn’t work out well
for you and you want to switch your account elsewhere.
Step Two -- Select a Payment Gateway
There are quite a few Payment Gateways that a Web Hosting Provider can select
from. It is usually best for the host’s merchant account provider to also
setup the Payment Gateway to ensure a seamless setup and activation that is 100%
compatible with the merchant account’s designated processing network(s).
Authorize.Net
The most ubiquitous payment gateway is Authorize.Net (http://www.authorize.net).
Authorize.Net’s most significant advantage is that it is compatible with
virtually every 3rd party shopping cart and billing application ever written.
The downside is that Authorize.Net is not quite as cost effective as some other
gateway options -- especially with respect to their recurring billing system --
and they have some very stringent rules regarding content which affect a certain
portion of Web Hosting Providers.
However, there are many other gateway options available such as CDGGateway (http://www.cdgcommerce.com),
eProcessingNetwork (http://www.eprocessingnetwork.com),
Verisign PayFlow (http://www.verisign.com)
and Plug-N-Play (http://www.plugnplay.com
) Each of these other gateway options has their own distinct set of advantages
and disadvantages.
CDGGateway
The CDGGateway gateway has the benefit of providing 500 free gateway
transactions/month as well as a free built-in fully automated recurring billing
system. It is very easy to integrate and very cost effective. A Web Hosting
Provider selecting this gateway can typically implement a complete recurring
billing system end-to-end within an hour or two.
eProcessingNetwork
The eProcessingNetwork gateway supports many of the same features as
Authorize.Net and has an AuthNet "emulation mode" that can be a nice substitute.
It is also more cost effective than Authorize.Net and it is relatively easy to
integrate. This can be a nice fit for merchants that need the compatibility of
Authorize.Net but don't want to use AuthNet itself.
Verisign Payflow
Verisign's PayFlow gateway and Plug-N-Play are other options to look at.
PayFlow is used by a number of very high volume merchants and may be a good fit
for an extremely high volume merchant needing to process thousands of daily
transactions.
Plug-N-Play
Plug-N-Play has a few interesting features that are unique to it -- including
QuickBooks integration and can be a good choice for businesses that require that
kind of specialized functionality.
Step Three -- Select a Billing Application / Methodology
There are numerous ways to integrate into your selected Payment Gateway. The
best solution for you will be determined by your timetable, your budget and your
specific objectives.
Pre-existing Billing Packages
One way is to use a pre-existing 3rd party billing package. The nice thing
about using an "off the shelf" package is that you don’' have to spend very
much time to integrate it, you won't have to worry about supporting and
improving it over time and you can deploy it faster in many cases. The other
advantage is that some 3rd party packages can actually automate the setup of
your hosting accounts by integrating with your server admin GUI -- such as
CPanel.
A few of the most popular 3rd party billing software packages are listed
here:
My advice is to always check out user reviews, look carefully at the feature
sets and compatibility information and -- best of all -- make full use of the
free trials and online demos offered by most of these companies.
In addition, make sure you fully understand exactly HOW the billing software
runs recurrings. Does it store the data locally and transact it automatically?
Or does it send out an invoice and then you will be counting on customers to
"opt-in" and make payments each time?
Custom Order Form / Built-in Recurring
Your next option is to use a payment gateway with an easy-to-use built in
recurring billing system and simply create a properly formatted order form on
your Web site. For instance, CDGGateway offers a completely automated recurring
billing system built-in... all that a Web host has to do is create a few simple
forms and configure a "recurring recipe" online and then they can begin setting
up recurring subscriptions -- either through the virtual terminal or by a
customer order form on their Web site.
The cost to deploy this solution is very low and anyone with a little HTML
and/or limited CGI programming knowledge can readily implement this. The
advantage to this method is that you avoid the cost of having to purchase a
license & support from a 3rd party billing package, you can still get online
just as quickly -- sometimes even faster -- and your recurring billings are
securely handled for you without the requirement to store that data on your own
server.
The only disadvantage is that this method of implementation does not offer
all of the nice "bells and whistles"or the seamless account setups interaction
provided by the more expensive and extensive billing software packages.
Complete E-Commerce System
For Web hosting providers with very advanced or specialized integration
needs, it is naturally possible to build your own complete end-to-end system.
You could securely arrange to store your own billing data and merely use the
payment gateway as a transaction conduit.
The advantages to this method of implementation are that you have 100%
control over every aspect of the billing system. The drawback is that you also
have higher financial exposure and security issues to contend with as well as
having to incur the time & cost of building a completely customized billing
system.
Summary
Even though it may seem daunting at first, it is readily possible for a Web
Hosting Provider to setup a very cost effective and hassle-free Merchant
Account, Payment Gateway and Billing System for their customer subscriptions. By
following the steps outlined above and taking the time to properly interview
each prospective provider, the entire process can be accomplished in a
relatively short period of time and the end result can be a highly convenient
and cost effective solution that lets you focus on the most important thing –
growing your Web hosting business.
By Chris West
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