THE SIX DEADLY SINS OF E-COMMERCE

Thomas Harpointner, CEO of AIS Media

If you plan on cashing in on the e-commerce revolution, the question
is no longer whether or not you should accept credit cards and
checks on your web site. The question now is how to set up a
successful e-commerce solution that fits both your business model
and your budget.

Here are some statistics you should be aware of:

According to Nua Internet Surveys, as of January 2000, there are
approximately 248.6 million people online worldwide.

CREDIT CARD USE DOUBLES IN YEAR
Dec 3, 1999: Twice as many US adults used credit cards to buy products
and services online in 1999 than did in 1998, according to new research
from Cyber Dialogue.

INTERNET ECONOMY WORTH $1 TRILLION IN 2001
Nov 4, 1999: The Internet economy will be worth $1 trillion by the
end of 2001 and $2.8 trillion by the end of 2003.

BUSINESS-TO-BUSINESS E-COMMERCE TO SOAR
Business-to-business e-commerce will show blistering growth in the
coming years, with the worldwide market expected to expand to $7.29
trillion by 2004, more than 50 times larger than in 1999, states a
market research company. (TechWeb)

When you take these facts and figures into consideration, it's no
surprise that more and more entrepreneurs and businesses are
feverishly rushing to establish e-commerce web sites.

On the surface, the concept is very simple: You set up a web hosting
account with a web hosting company; you create an appealing site
that sells your products or services; and you get a credit card
merchant account so you can accept credit cards.

But there is more to enabling an e-commerce web site. There is a
lot of uncommon knowledge regarding the establishment and operation
of a successful e-commerce web site, which makes the difference
between your site becoming a success or thousands of dollars wasted
and hundreds of hours of pain-staking trial and error.

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I have outlined below the six deadly sins that can derail an
otherwise simple process of enabling an e-commerce web site.

1. Merchant account does not support e-commerce or AVS

If your merchant account is not compatible with Internet processing
systems, you will need to manually enter transactions and even risk
losing your account due to bank regulations. AVS (Address
Verification System) is required by VISA and it is a system that
matches address criteria on the cardholder's statement to reduce
chargebacks. If AVS is not used, you can be charged up to 3.75% or
more per transaction and leave yourself open to chargebacks. If you
incur a chargeback rate higher than 3%, the bank may terminate your
merchant privileges. Once you are listed as a terminated merchant,
getting another credit card merchant account is virtually impossible.
Be sure your processing solution uses AVS and that your merchant
account is set up for Internet processing.

2. Processing solution does not support real-time processing

Processing solutions that do not work in real-time can wreak havoc
on your growth and marketing efforts. Spending time entering every
order manually can literally cost you more than the order is worth.
Also, when Internet orders are not processed in real-time, you won't
know if a credit card is valid until you manually process it, at
which point you will need to personally contact the card holder.
This can turn into a time consuming and costly process, especially
if the customer lives overseas.

Of all the credit card orders processed by our office, about 7% are
invalid or declined the first time. Fortunately, since we utilize
a real-time processing system, the customer is able to re-enter
his/her credit card number or use a different card.

Additionally, AVS is not typically used or available with manual
systems, thus boosting your transaction discount rate to a whopping
3.75% on every dollar!

3. ISP or hosting company does not support particular processing
solution or shopping cart

Often, a web host does not support a certain shopping cart. In
addition, not all shopping carts work with all credit card
processing solutions. Furthermore, if you're working with a
different vendor for each service, you're vulnerable to customer
service nightmares. Few things are worse for an online business
than not being able to get fast answers to common questions or
problems. You can save yourself a bundle of frustration by working
with a company that can provide one-stop service for your web
hosting, shopping cart, and e-commerce needs.

4. Insufficient processing limit on merchant account

The majority of banks that accept Internet merchants only allow a
certain volume to be processed on a monthly basis. The limit for
newer businesses typically ranges from $5,000 to $17,000 per month.
Furthermore, as part of the fine print in their merchant service
agreement, some banks prohibit you from obtaining a second merchant
account. Businesses that breach their merchant service agreement
are subject to immediate termination of their merchant privileges.
As your business grows, you can find yourself in quite a bind.
To avoid this type of trouble, be sure that the merchant service
provider you choose to work with can help you establish a
relationship with a bank that can offer you higher processing limits
and is flexible enough to grow with you.

5. Higher processing and transaction fees due to credit history

Some merchant service providers will penalize you with higher
processing and transaction fees if you have less than perfect credit.
They may want you to believe that the bank passes on these fees.
The reality is that processing fees have nothing to do with your
credit. It's simply a way for them to make more money from your
account. Your discount rate should be no higher than 2.5% (unless
you have a high-risk product such as an adult site) and the
transaction fee should be no higher than $0.50 per transaction.
The only area where your personal credit plays a factor is in the
rate you receive when you are leasing processing equipment.

Don't get taken for a ride! Be sure that you work with a merchant
service provider that's honest with you and will take the time to
answer all of your questions. The rates you receive today will have
a long-term affect on the profitability of your business.

6. Up front cash reserves required

Often, a new or home-based business is required to pay thousands of
dollars up front to get their merchant account approved. Banks
require reserves from "high-risk" merchants to protect themselves
against potential losses that they may incur. For example, if a
merchant processes $20,000 in one month and then disappears, the
bank would incur all losses due to chargebacks.

If you plan on processing a high volume, have high priced items, or
high-risk products, be sure to select a merchant service provider
that has enough experience to negotiate reasonable terms with the
bank for you. It's to your advantage if the bank will agree to take
just a small percentage from each sale to build up the reserve as
opposed to asking for cash up front.

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