How Are Online Credit Card Services Different From Traditional?

If you have a business, you may need to explore online credit card services in order to accept credit card payments from your shoppers. Accepting credit cards will enable your customers to quickly purchase products and services without having to travel to the business location. Also, your business may be able to take advantage of the impulse-type of purchases that are made with credit card payment options.

However, you should be aware that there are some significant differences in the way credit card payments online are processed, as opposed to regular credit card transactions where the customer presents the card to a cashier.

Manual Entry versus Swiped Entry

If you visit a retail establishment, and make a purchase with a credit or debit card, your card will be swiped through a credit card machine or terminal. This serves two primary purposes: to verify account and name information on the credit card as well as provide proof that the card was actually presented for payment.

Because most online credit card transactions require the customer to manually input their credit card number, expiration date and name, there are security risks that are involved with online credit card transactions. Therefore, most payment processors will charge a higher discount rate. The discount rate is the amount charged to process the card payment.

On the other hand, swiping a credit card at the time of purchase is considered to be a safe transaction; therefore, most banks charge lower discount rates for a transaction where the card is physically present and swiped through a machine.

Major Authorization Differences

In addition to the risk and rate differences associated with various types of credit card and debit card transactions, there is also the issue of how credit card information is verified and how card purchases are validated.

For example, if you are making a credit card purchase where you present the credit card to the cashier or salesclerk, you may or may not be required to provide some form of identification to prove you're the owner of the credit card. Most of the time, if you are known to the person accepting the credit card, you will not be required to offer proof of identification to complete the purchase. However, many small businesses now make it a practice to require identification for all credit card purchases to ensure that the credit card is used only by the person authorized to do so.

However, with an online purchase, it is impossible for any company to actually verify the personal identity of the person entering credit card transaction information. Therefore, online credit card processors rely on other ways to verify ownership of the credit card.

For example, if you are purchasing a product on the Internet, you will be required to enter the billing address associated with the credit card. Many online processors have the ability to match the billing and shipping address against bank records for the account holder's billing address. Many processors now have the ability to match your street address and zip code with credit card banking information; therefore, if the information is entered on the website for billing or shipping does not match the records retrieved from your credit card issuing bank, the transaction will probably be declined.