Setting Up A Streaming Subscription Site, Part 1

Selecting a payment transaction option

Presuming that you want your transaction to proceed the "old-fashioned" way – a customer gives you the money and you give them a product – there are two obvious choices for electronic payment. These are PayPal and online credit card transactions – Visa/Mastercard.

There is a third alternative, recently put into place by Yahoo. It is Yahoo’s PayDirect, an attempt to marry the marketing power of Yahoo with the online payment concept created by PayPal. It is a competitor to PayPal and works much the same. PayDirect allows you to create an "online" bank account and send and receive money online. PayDirect takes a cut of 2.5% of your transactions and an additional 0.30 per transaction. You can link your account to a real-world bank account with a little bit of work. The system could really have been cloned from what PayPal offers. We still tend to prefer PayPal as they pay real attention to fraud prevention and offer chargeback protection (if you ship something to a verified PayPal member and the credit card company refuses the charge, PayPal will cover it). PayDirect doesn’t quite seem to have matured to this level of service yet. On the other hand, Yahoo PayDirect does offer a service that works with mobile phones which is way ahead of anything offered by PayPal (PayPal no longer offers Palm to Palm payment services, a very cool feature now discontinued).

The choice is not really between PayPal and Visa. Electronic payment and transaction processing are more properly characterized as being at different points on the same continuum. There are a lot more similarities between Visa and PayPal then there are differences. The most relevant difference is that the customer has little or no recourse in the case of fraud when using an electronic payment service (though this is only true if you don’t use a credit). PayPal is only promising to complete the transfer of funds between two parties. PayPal, the corporation, doesn’t bear any responsibility for the misuse of its technology. That being said, they have some fairly extensive anti-fraud mechanisms in place.

PayPal does protect you from being defrauded by a "verified" PayPal member. You are covered for chargebacks and you have the same protections offered by your credit card company if you use a credit card through PayPal.

PayPal began as a mechanism for making payments after concluding an eBay auction. As of this writing, 25% of all eBay auctions are still paid for using PayPal. As long as both you and your customer have PayPal accounts (free to set up) transactions are both quick and simple. A customer can buy your product and have confirmation that payment has been received within five or ten minutes.

PayPal lets you make a payment from your PayPal account to anyone who has an email address. Getting a PayPal account is a process that takes about half an hour (if you wish your PayPal account to be able to credit and debit your real world bank account) and when you’re done you can accept payments from other PayPal users or even credit card payments. All without having to install any software on your Web site. A fantastic feature for those of us who are averse to massive software installs.

PayPal makes money from you the vendor. Depending on the scale of your transactions (both size and volume are important data points) it’s a very good way to start out doing business on the Web. PayPal takes a percentage of the transaction value (2.2-2.9% depending on volume) and assesses a per transaction fee of 0.30 cents.

As you can see from this chart it is rapidly apparent that the cost of implementing a full Visa merchant gateway – with its concomitant requirements of a credit check, setup costs, and substantial monthly service fees – can be prohibitive until you broach a dollar volume of transactions per month of between $10,000 and $20,000.

Note that integrating Visa payment services into your Web site is going to require the use of a secure server and probably some programming time to make the integration smooth and seamless. If you’re doing a high volume of transactions, you are going to need to have some pretty good server capacity and, regardless of capacity, you will have to co-locate your server in a secure facility (or make your location physically secure). These are requirements from the credit card companies that you will have to adhere to if you wish to do business with them. You will also need to obtain a secure certificate from RSA (necessary to "prove" that your secure server is who it says it is). All this leads to a significant investment in time as well as money.

Page 4: Escrow Services >>