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Using
credit cards for online auction transactions has become much
more easier and much more commonplace for both buyers and
sellers. Although Billpoint, eBay's online payment service,
estimates that 80 percent of the site's transactions still use
conventional payment methods via snail mail (credit card, money
order, and so on), credit card-based online auction transactions
offer several benefits, most notably expediency--they
significantly cut down the length of the transaction process.
First we look at some of the other payment methods available,
and then we provide an overview of what online auction users
should know if they decide to use and/or accept credit cards for
their transactions.
The
Traditional Approaches
As a buyer, avoid paying with cash, though some sellers
recommend it. You have no recourse with cash payments, such as
stopping payment on a check or requesting a credit card
chargeback from your credit card issuer.
Paying for auction items by personal
check remains one of the easiest and most common, albeit
slightly slow, ways to pay for merchandise. Forms of certified
payment, such as cashier's checks, money orders, and C.O.D.s
(collect on delivery), must be obtained from a bank or post
office, and come with a modest fee. These forms of payment
should be reserved for items of justifiable value.
As a seller, it's wise to offer a
variety of payment options, including checks, so that the buyer
can choose what's best for him or her and for the particular
transaction. No one wants to pay $5 for a cashier's check to buy
a $4 book. A good rule of thumb: Require certified payment on
items more expensive than $30.
The
Cutting Edge
Accepting payment or buying merchandise via credit card has some
obvious advantages. For one, the seller can ship the product
immediately to the buyer if his or her credit card is valid and
the charge is not denied. This is good for both the buyer and
the seller. The seller doesn't have to wait for certified
payment or a personal check to clear, and the buyer gets his or
her merchandise sent immediately. Payment by credit card also
reduces the seller's transaction management: no back and forth
with the bank, less opening mail and matching checks with buyer
emails, and so on.
Online auction sites themselves are
offering users the capability to pay by and accept credit cards.
All the major auction venues have rolled out online payment
services that integrate credit cards: eBay has the
aforementioned Billpoint, Amazon.com Auctions offers its
Amazon.com Payments, and Yahoo Auctions users have the option of
using Yahoo PayDirect. The fees can vary somewhat but they
usually are in the same general range. (In contrast to Billpoint
and Amazon.com Auctions, Yahoo PayDirect is a free service,
although fees might apply in the future.) In essence, the
service functions as a third-party processor in the transaction
process, and funds are transferred either to or from your
account with the service. Buyers are not charged to use the
service, but sellers pay a small percentage of the transaction
plus a minimal per-transaction fee.
The main benefit of using an online
payment service that's integrated with a particular auction site
is just that--it's integrated. On the other hand, that benefit
also can be viewed as a drawback. Sellers or buyers are limited
to auctions on a specific venue. Multiple venue users might find
this to be frustrating.
Third-Party
Processors
But there are third-party online payment services not affiliated
with specific auction sites that allow buyers and sellers to
accept and use credit cards for their transactions on more than
one venue. PayPal
is the largest such service, with more than 2.7 million
customers--that's five times the amount of any other online
payment service. PayPal
offers two types of accounts, one of which is a free and more
basic service, and one of which is a more robust and fee-based
account aimed at high-volume sellers and merchants. Additional
non-site-specific third-party online payment services include
ProPay and BidPay.
Other possibilities include companies
such as CCNow
and Verza.
Both eliminate the need for applying for a merchant account at a
bank, something that most folks in the online financial services
industry liken to obtaining a home mortgage. These companies let
you accept credit cards in any venue you want--be it a
classified marketplace, newsgroup, or auction site. Typically,
they also offer value-added services to justify a more premium
price. One caveat, though: Companies like CCNow, which actually
take ownership of the seller's property during the transaction,
tend not to pay sellers immediately.
Merchant
Accounts
Sellers also have the option of opening a merchant account. In
brief, a merchant account is a bank account that allows a retail
or online business to accept credit cards from its customers.
Because traditional brick-and-mortar banks have been slow to
adopt e-commerce-based services, we've seen a big increase in
the number of online merchant account companies--called
Independent Sales Organizations (ISO) and Merchant Service
Providers (MSP)--which have partnered with traditional merchant
banks and online credit card authorization providers.
The main benefits of merchant accounts
are twofold: One, they offer more premium services and control
over your account, and two, you usually can get your money
faster. There's no middleman, which is what services such as
Billpoint and PayPal essentially are. On the downside, however,
they require more attention and management; plus, they're more
complicated and involve a variety of fees and charges, which can
cause some confusion. For more information on merchant accounts,
consult our tip "Considering a
Merchant Account."
Processors
By Default
Though they are not known for processing credit cards for buyers
and sellers, online escrow services, such as i-Escrow,
TradeSafe,
and Internet
Clearing Corporation, do it as a matter of course while
operating their businesses. Since they are paid directly by the
buyer during an escrow transaction, they accept payment a
variety of ways, including credit cards. In effect, this allows
sellers to accept credit cards and expedite their sales. It also
lets buyers pay by credit card. They, of course, also provide
online escrow, which tends to include shipment tracking. When
you look at online escrow in this light, the 5 to 6 percent
commission is easier to swallow. On the downside, escrow adds a
delay to fulfillment
Back to Auction tips &
tactics
by Vendio Services
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