Payment Options and Online Services - Credit Card Payment

After selecting products or services they wish to purchase, the majority of online shoppers opt to make payment via credit card. They begin an online credit card transaction by completing a merchant commerce application. To ease consumer concerns regarding the risks involved in transmitting credit card numbers via the Internet, most merchants use secure electronic transaction (SET) or Secure Sockets Layer (SSL) technology, which encrypts personal information sent over the World Wide Web.

An online merchant who receives a completed commerce application sends it to an acquiring bank, which then sends a request for credit card authorization to an acquiring processor, a firm that supplies credit card processing, billing, reporting, and settlement services. The acquiring processor transmits the request to the card-issuing bank, the bank that actually issued the credit card to the customer, which responds with either an approval or denial code that the acquiring processor then relays to the merchant. Thanks to Real Time Online Processing technology, this entire process usually takes less than 15 seconds. Although a shopper's credit card account is not actually charged at the time of purchase, the card-issuing bank does put a hold on the account for the transaction amount. Typically, credit card transactions are settled at the end of each business day, at which time the shoppers's credit card is charged. The card-issuing bank sends the fund to the acquiring bank which deposits those funds into the merchant's bank account.

For online merchants, one downfall of the credit card payment method is the higher fees credit card companies tend to charge for online transactions. In a traditional retail transaction, the merchant typically makes contact with both the credit card and the consumer, reducing the likelihood of fraud. Because online transactions are completed without the customer or the credit card present, both merchants and credit card companies are more susceptible to chargebacks, which occur when a card holder disputes a charge appearing on his or her credit card statement. If a chargeback is issued after the claim is investigated, the credit card company must withdraw the payment from the merchant and return it to the shopper's account. To combat this, many merchants use address verification service (AVS) technology to verify the first four numbers of a U.S.-based street address and zip code supplied to the online merchant by the consumer at the time of purchase. Shoppers who provide a billing address that does not match their credit card billing address are prevented from completing their purchase. In 2001, 40 of the top 50 Visa and MasterCard credit card issuers in the U.S. used Merchant Express LLC's FraudScreenNet. To improve a merchant's ability to pinpoint fraud, the software application goes beyond simply verifying addresses, by also scrutinizing each shopper's email address, shipping method history, product purchasing pattern, payment method history, work and telephone number patterns, and typical purchasing frequency and time.