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Online Transactions

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ONLINE TRANSACTIONS

Online transactions take many forms. In business-to-business (B2B) transactions, businesses conduct transactions with one another. For example, if Microsoft Corp. purchases office supplies from Office Depot online, both firms are engaged in a B2B transaction. Business-to-consumer transactions (B2C) take place when businesses and consumers conduct business online, such as when individuals buy tickets from Ticketmaster.com. Person-to-person transactions (P2P) are online interactions between two individuals, like those conducted on online auction site eBay. Although these three types of transactions are the most common, other forms do exist. For example, when individuals submit their taxes electronically, they are completing an online transaction.

Not all online transactions involve payment, but the majority do. In a B2C transaction, the most common method of payment is by credit card, which involves a series of smaller transactions. Similar to traditional credit card payments, online credit-card payments make use of a merchant bank that processes and complete transactions. After an online purchase order is submitted, sellers use real-time online processing software to transmit the customer's credit-card information to its merchant bank. Upon receipt of the information, the merchant bank sends a request for approval to an acquiring processor, which transmits the request to the bank that issued the credit card to the customer. The card-issuing bank then transmits an approval or denial code that makes its way back to the seller who initiated the process.

Online B2C payment transactions quite often also make use of check cards, which withdraw money directly from a client's checking account. Customers using check cards on the Internet simply enter their check-card number as they would a credit-card number. Accepting check cards is very similar to accepting credit cards; in fact, the transaction processing methods for both are nearly the same. Despite the complexity involved in these types of transactions, they are usually completed instantaneously.

The payment process for a B2B transaction can differ from that of a B2C transaction, particularly if the business making the sale uses an invoicing system to bill its business clients. In this case, the payment transaction might make use of electronic bill presentment and payment (EBPP) technology, which allows businesses to bill clients and secure payment online. Such an online transaction typically begins when a business e-mails an invoice, which includes a link to an online payment service provider's Web page, to a client. The client can then visit the Web site to view more detailed billing information and submit an electronic payment by clicking a button that automatically debits their checking account. This type of automated payment transaction can only take place, of course, if clients have previously agreed to allow the online payment processor to withdraw funds from their bank accounts.

To complete P2P payment transactions, many individual buyers and sellers use PayPal, the leading P2P payment service, which handles roughly 50 percent of the payments processed via eBay. Both parties must be members of PayPal for the transaction to be completed. To make a payment, members can e-mail funds to any other PayPal account holder via an automated e-mail message titled "You've Got Cash!" Individuals making payments can stipulate whether they want the funds charged to a credit card or withdrawn from a bank account they have agreed to allow PayPal to debit. PayPal also allows users to set up PayPal accounts from which they can make and receive payments.

If you are interested in making use of online payment processing, you can either contact a bank to set up the necessary accounts and obtain the software you need to handle these types of transactions, or you can contact a payment processing provider like PayPal. Other popular service providers include BillPoint, Check Free, or Web Pay. Each of these companies handles payment processing somewhat differently, although the end result, allowing consumers and businesses to complete online payments, is the same.

Still, a transaction is not completed just because payment has been made. Goods and services must also be delivered to the customer. In some cases, delivery can actually be completed online. For example, customers might be able to download purchases, such as software. Or they simply may print a copy of an e-ticket for their flight reservation. Customers purchasing an online subscription to something like the Wall Street Journal might receive their password via email. In these cases, the transaction is completed electronically, as soon as customers receive for what they have paid.

Most online transactions, however, involve some sort of physical packaging and shipping. Many small businesses decide to handle their own packaging and shipping operations. Upon receipt of an order, they package the goods and either take them to a branch location or drop box of a shipping company like UPS or FedEx, or they scheduling pickups with one of these firms. Other companies use a fulfillment company, such as Ifulfillment.com or Fulfillmentplus.net to handle tasks like packaging and delivery for them. Some fulfillment companies oversee payment processing as well as packaging and shipping.

The options for handling online transactions are varied, so you will likely need to do some research before deciding what option is best for your business. As your business grows, be open to changing how you handle online transactions in the interest of cost savings and efficiency.

FURTHER READING

Hirsh, Lou. "Battle of the Online Payment Systems." E-Commerce Times, April 30, 2002. Available from http://www.ecommercetimes.com.

Miller, Tim. "Online Alternatives to Credit Cards." Entrepreneur.com, February 18, 2002. Available from http://www.entrepreneur.com.

Vallone, Julie. "Going Once.Going Twice." Entrepreneur, February 2000. Available from http://www.entrepreneur.com.

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