"The Desktop Global Marketer" (tm)

   A free on-line newsletter of Sidereal Designs, Inc.,
   for Internet Entrepreneurs, and those who are
   considering becoming one.
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                February 13th, 1999

"Everyone is talking about the fact that 1999 is the year
that web-based sales are taking off. Let's do something
about it."
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Everyone is talking about the fact that 1999 is the year
that web-based sales are taking off. Let's do something
about it.

Some time ago I wrote about ways to collect money on-line
without using on-line credit card verification. I did that
because setting up a site for real-time, automated, secure,
on-line credit card transactions was very expensive. It
still is, but for the right kind of business model - which
includes a lot of small businesses and professionals - there
are now some alternatives which are quite reasonable.

First, let's look at the real thing as a standard for
comparison. This is painful, but I want to put you through
it so you'll know what's really involved and why NOBODY is
going to do it for you for free and you should run the other
way when they offer.

First, you need a merchant account with a bank in order to
get charges credited to your account. Not just any merchant
account either; you have to be sure your bank accepts
on-line credit verification transactions, and that they (or
more likely a third-party clearing house to whom they farm
the work out) will accept transactions from the card
verification service that you intend to use.

Once you get that lined up and get past the third-party
clearing house's insistence that they want to build and
operate your web site for you (for a fee of course), you
need to line up a secure internet transmission service such
as Verisign (www.verisign.com.) They will make sure you are
whom you say, and issue you encoded certificates that will
be used to verify your authenticity to software on your
customer's browser. The browser will then encrypt credit
card information transmitted to your site which will decrypt
it on the other end. This service of course has to be one
acceptable to the card verification and transaction
processing service you're using.

Next you need a transaction processor who will authenticate
the card, confirm the available balance, and transmit
guaranteed transaction information to the card company, the
customer's bank, and your bank. A major example of such a
service is Cybercash (www.cybercash.com.)

The card verification and transaction processing service you
have contracted with will give you a raft of complicated
software to install on your site that will securely
communicate to them the credit information the customer has
sent to you, and communicate acceptance or rejection back to
you and to the bank's on-line clearing house agent, and keep
track of it all in a database. They will then engage with
you in a series of tests to make sure it's working properly
(they lose badly on fraud) and finally they will turn on the
switch on their end and you're in business.

Needless to say, all of these people are going to charge you
an up-front fee and take a cut of every transaction. Unless
you want to deal with it all yourself you're also going to
pay someone in one way or another to install and test it all
and interface with these people's technical staff, and
probably conduct the details of contracting with them for
services as well.

You're not yet home free, however; you still need all the
"shopping cart" software on your site that keeps track of
the customers' purchase, lets them change their mind, reads
your product database to offer products and pricing,
computes sales tax and shipping, and ultimately talks to the
card verification software. Then of course there's the
software to do automated order fulfillment.

There is a trend in the industry for consolidation of
services - transaction processors also providing digital
certificate validation for example. There seems to be money
to be made in keeping the merchant captive within a
dedicated on-site facility, and increasingly all of the
players are trying to offer one-stop solutions in which they
will set up a storefront web-site for you and take a cut of
the business that passes through it.

There are more expensive and less expensive options along
the way, and competition is beginning to drive down costs
and force providers to make the process simpler, but let me
assure you there is no way this is all going to happen
cheaply.

There are people (like me) who will set it all up for you
for a one-time fee, to have on your site and own yourself.
There are also people who have already set it up on their
own site and will host your pages on their site and let you
use their machinery (for a monthly charge.) Which is best?
It depends on how long you expect to be in business and on
how much control you want to have of your site and
operations. Either way works.

Now why would anyone go to all that grief and/or expense? It
makes sense under one set of conditions:

1. if you are doing high-volume business;

2. if you need to give your customer immediate access to the
product, for example, letting them download materials from
your site or enter a protected area for services;

3. if you need to give them immediate feedback on card
acceptance so you don't have to chase them down to correct
a mis-typed number (what if they live on the other side of
the planet?);

4. if you want to capture the sale now, and not risk their
losing the impetus to write you a check and mail it later
after they've surfed on.

There are a lot of businesses for which number one is not an
issue; they're not marketing 500 items and selling hundreds
of them per day. There are a lot of businesses for which
number two is not an issue; their product has to be mailed
to the customer anyway, or is a personal service.

But number three, and especially number four, are important
to just about everyone doing on-line business. People make a
LOT of mistakes filling in on-line forms, and any salesman
will tell you the importance of closing the deal as quickly
and effortlessly as possible once the customer has decided
to buy. Can these aspects be separated out for a cost
savings?  Yes, and there are several ways to do it.

One way is for FREE. Yes, there are places that will do it
for you for free. You set your pages up to connect your
customer's browser to the service provider's site, where
your customer actually enters the order, and they do the
card verification. Typically you then check your account on
their site once a day or so and see what orders you've
gotten. Now before you leap up to subscribe, a word of
caution. It's been a decade or so since everyone on the
Internet was a good Samaritan, and you can be sure they are
not offering you a free lunch.

Some will sell banner advertising to put on the pages your
customer sees when they arrive to enter their charge
information. Others may capture their email or physical
addresses and sell them to mailing lists. The methods vary,
but they ARE going to make a profit, and the means may not
reflect well on your business or may annoy your clients, and
they will blame it on you. However they actually make money
off the operation, you don't have any control over quality
and security because you're getting the service free.

Also be sure to understand the difference between
verification and authorization and transaction processing,
and ask how the money actually gets to your
account. Verification can mean just running the card number
through a formula to check that it COULD be a valid card
number. This helps because it's hard to forge a number that
will pass the test, but it doesn't guarantee there's any
cash in the account - or debit it and deposit it in yours.

Know what you're getting, and be aware that since they owe
you nothing they can go out of business overnight (and many
do) and leave you holding the bag.

Now that I've tried to frighten you off both ends of the
continuum, let me tell you about the middle ground. There is
an obvious niche based on the four points I analyzed above,
and a number of companies have moved to fill it.

In one form or another they offer a service that will let
you link to a page where your customers can securely enter
card information, have it authorized immediately and receive
confirmation, and do it so seamlessly that they will
probably not be aware they've been off your site. Such a
service should then send you an email notice immediately
which you can use for order fulfillment on whatever schedule
is appropriate for your product or service.

A service of this sort is not economical for large scale
retail sales, nor is it suitable for products which are made
available to the customer directly from your web site on
confirmation. For many businesses however it admirably
fulfills the need to capture credit card sales at the moment
of decision, and the need to provide the customer with
immediate feedback of confirmation.

The exact details of the plans offered vary from one provider
to another. Some also offer check clearing, and foreign
check clearing, which can be an especially useful service if
you're marketing globally. Not all countries have the same
level of credit card adoption, and foreign checks are
notoriously costly to handle.

Different methods of getting the money to you are also
available, with some services offering a choice. Some may
"buy" the transaction from you and pay you themselves while
crediting the charge to their account. An advantage of this
is that you don't need a special merchant account with a
bank. A disadvantage is that you're not credited instantly
with the funds. Also in this case the service will often
hold a reserve against the possibility of default.

It will pay you to shop around and compare plans and prices
of different services to find what's best for your
particular situation. There are too many variables and too
many different situations to discuss all the possibilities
here. Two services we've looked at that can give you a
starting point for understanding the details of operation
are Kagi (www.kagi.com) and iBill (www.ibill.com) but there
are many others.

In general, the on-line transaction process is generating
more diverse choices of service and less rigid models of how
transactions are to be conducted while still retaining good
authentication and security. At the same time the ability to
buy just the services you need is reducing costs. This is an
exciting prospect for owners of small on-line businesses and
services, and it may be to your advantage to investigate it.

If you want to consider adding on-line card transactions to
your web site with some of these approaches, be sure to talk
to your webmaster first about the changes or additions that
may be needed on your site.

Jamie Kent
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