Redbox Biz Blog

Payment Options For Your Online Store
By Nic Sim

“E-commerce sounds exciting yet at the same time, it’s confusing!”

“How do my customers pay me when they buy from my online store?”

These are just some of the questions and worries from people who’ve asked us time and again about e-commerce. The same issue crops up – how do they accept payment for selling their products online?

While payment is an important consideration for any online entrepreneur or online store owner, please don’t forget that payment is just one of the many components which make up e-commerce. However, it is one of the more important components because choosing the wrong (and expensive) payment solution will eat up your profits.

In order to accept payment online, your shopping cart software must be connected to a payment solution or a payment system which allows you to accept payment over the Internet. Most online transactions require payment by credit card.

Whether you are running an online or offline business, to accept credit cards as a payment method, you need to have a merchant account. A merchant account is simply a relationship between a retailer (in this case, you) and a merchant bank which allows your business to accept credit card payments from your customers. To qualify for a merchant account, retailers must meet the bank’s requirements.

Not every business qualifies for a merchant account. While big companies usually have merchant accounts to help them with receiving payments from customers, small businesses don’t have that advantage.

If you are a home business or small business owner, you don’t need to apply for a merchant account just so you can accept credit card payments. Besides, merchant accounts are difficult to get especially for small businesses (although having your own merchant account means you pay less in processing fees).

So what can you do if you are a small business without any means of getting near a merchant account? What you can do is get a third party payment processor which incorporates both payment gateway and merchant account in one place. The third party payment processor handles payment for you but you need to pay them in return a portion of what you earn online. This is called transaction fees (and sometimes other types of fees are included too) but the upside is that you can easily start accepting payment from customers.

Here are some third party payment processors Malaysians can use to receive payments at their online store.

Paypal (http://www.paypal.com)

PayPal is a common choice of payment because it is fast, free to sign up and easy to use. PayPal allows you to sell physical (tangible) and downloadable (intangible) products along with personal services. PayPal enables Malaysians to conduct e-commerce because PayPal enables you to accept credit cards. The other benefit is that your customers don’t need to register for a PayPal account to be able to pay when they buy from you.

When you sign up to use PayPal as a payment mode, you can accept Visa, Mastercard, Discover, and American Express, as well as electronic cheques, debit cards, and PayPal account balances. You can receive payments in any one of five different currencies - U.S. Dollars, Canadian Dollars, Euros, Pounds Sterling, and Yen.

One of the biggest advantages of using PayPal is that signing up or applying for a PayPal account is FREE. You don’t have to pay setup fees, gateway fees or even monthly fees. That’s why it appeals to all types of businesses who wish to set up shop online. But PayPal earns its money from you through transaction fees.

Although registering with PayPal is free, as a seller, you will be charged a fee for each transaction. Whenever your customer buys from you online, you will be charged the standard transaction rate which is 3.9% + USD 0.30 per transaction

Let’s say if your product is priced at US$ 100, the transaction fee deducted would be approx. US$ 4.20.

The downside for Malaysians is that while we are allowed to sign up as PayPal users, the money we get in our PayPal account cannot be withdrawn via a local bank. This is a major problem especially if you rely on PayPal as the one source for getting your online funds. Update: Apparently Malaysians can now withdraw their funds using debit cards, particularly those with the VISA logo, at ATMs.Read more from this link.

2CheckOut (http://www.2CheckOut.com)

2CheckOut works like PayPal. They accept Visa, MasterCard, American Express, Discover/Novus, Diners Club and JCB and derivatives of those brands. However, while PayPal sign-up is free, 2CheckOut charges a one-time set-up fee of USD 49 (approx. RM 186.20) and for each sale transaction, they’ll charge you a 5.5% commission plus a USD 0.45 charge.

So this means for each sale concluded using 2CheckOut.com, you need to pay a 5.5% commission on top of USD 0.45.

But the biggest advantage for Malaysians at least is that you can get your money, unlike PayPal. But note that 2CheckOut charges you whenever they send you a cheque or wire transfer. You will be charged USD 4 (approx. RM15.20) per cheque mailing or charged USD12 (approx. RM45.60) per wire transfer.

iKobo (http://www.ikobo.com)

iKobo is another way you can use to accept payments if you are Malaysian. You can use a credit or debit card to transfer money to anyone anywhere. Sign-up is free at the iKobo website but there are fees to be paid for each transaction.

Whenever you send money using your credit or debit card, iKobo will send your recipient an i-Kard which is basically an ATM card. The person takes this i-Kard and goes to the nearest Visa Plus ATM to withdraw the money you’ve sent her or she can use the card to buy from any Visa merchant worldwide.

Your recipient does not need to have a bank account or Internet connection to get the money you sent her. The advantage of using the i-Kard is that there’s no need to write cheques or wait for cheques to clear at the bank.

While it is easy to get money, the i-Kard costs you a one-time fee of USD 9.95 ( approx. RM37.81) plus both parties (both sender and receiver) must sign-up at iKobo. In addition, iKobo charges a fee for the money transfer. For transferring less than USD60, you will be charged USD3 while transferring above USD60 is charged at USD5 + 3%.

There are also a host of transaction fees such as monthly maintenance fee, ATM withdrawal fee and more. Do check their website for further details.

StormPay (http://www.stormpay.com)

StormPay works in a similar way to PayPal and 2CheckOut. Signing up for a StormPay account is free and it is open to Malaysians.

StormPay allows you to send payments to, or receive payments from anyone with an email address. Once you sign up for a StormPay account, you can make a purchase or sell to anyone with a StormPay account using money from your StormPay balance or another funding option of your choice, such as a credit card, debit card, or your bank account. Recipients are then notified via email that they have received a payment from you.

In order to use StormPay to receive payment from your customers, you would need to pay USD 0.69 (approx. RM2.62) + 6.9% from the total cost of the transaction. StormPay can mail you cheques but they charge you USD 35 (approx. RM133) per mailing.

If you have a StormPay account, you can also go to their website and list your items for free in their free auction listing.

So what is the best third party payment processor to use?

Despite it not being free to sign-up, I would say use 2CheckOut because you can get your money out of their accounts. PayPal is not recommended because there’s no way you can get your money out unless you use the money to shop online or try something like getting yourself a Singaporean bank account and getting your PayPal money from there (or cross your fingers, perhaps one of these days PayPal decides to allow Malaysians to withdraw funds via a local bank). On the other hand, iKobo’s fee structure is hefty and so’s StormPay.

Are these four the only payment processors available? Of course not. If you do a search for payment processor online, you will find a number of these companies. New payment processiong companies are coming up all the time. But the key is to go for a payment processor which has been around for sometime (you don’t want them to go bankrupt or close shop halfway), one that most people use and are willing to use, and one that does not look dubious or resemble a fly-by-night company.

In summing up, whatever third party payment processor you choose, make sure you read the fine print and know your fee structure inside out before you sign up. The terms and conditions by which these payment processors operate under are likely to change from time to time. So do take the effort to check out the payment processor’s terms and conditions before you sign up in order to minimise any unwanted problems later.

Copyright 2005. RedboxStudio.com

About the author: Nic Sim is the owner and founder of www.RedboxStudio.com – a web company dedicated to helping you build a successful business online with its easy to use, no-fuss Redbox eCommerce Website package. Visit www.RedboxStudio.com for more details on how you can get started online today!