One day, online retailers promise, it will be so easy. All that customers will have to do is choose a product and click on it.

The rest will be automatic: the company will trace the order, identify the purchaser, debit their account for the exact amount while ensuring the deal goes smoothly – and, of 1course, without any risk of personal details being intercepted or used dishonestly.

Until this happy day arrives, plastic cards are likely to remain the method by which most e-commerce transactions are settled. However, obtaining the ability to use credit and debit cards through a website is likely to be a fraught and expensive process for retailers.

In addition, even if a retailer’s website is able to handle credit card transactions, the cost of these services can rise dramatically and without warning. For many online businesses this will be a necessary hurdle on the route to enabling that all-important cash flow.

There are many choices for card payment services on offer, the most obvious being banks that provide merchant acquirer facilities. This means the bank will, for a fee, settle transactions conducted with the main card-issuing associations (Visa, Mastercard, etc).

Alternatively, there are specialised e-payments service providers. These have multiplied over the past three years and include Clareon Corporation, WorldPay and Planet Payment among others.

These can be utilised either for card processing only (where your bank remains the ultimate acquirer) or can bypass the bank relationship altogether. In addition, many web hosts now offer an established e-commerce solution (most likely a white-labelled version of the above).

All of these alternatives have their relative strengths and weaknesses, but one drawback they do share is that they all charge substantial transaction fees. These vary enormously – from 2.5 per cent to 10 per cent of the value of the sale. Since 10 per cent may represent a healthy cut of the profit margin for many businesses, there is an obvious need to minimise transaction costs.

Start-ups lack attributes The best way of reducing fees is to have an excellent credit rating, combined with a strong trading record in a low-risk activity. A guaranteed minimum volume of sales can be an added bonus. Unsurprisingly, few internet start-ups enjoy these attributes.

From the banks’ perspective, the ideal customer is a safe, high-volume (and preferably profitable) concern. Though they will still charge a transaction-based fee (from 2 per cent), it will be among the lowest obtainable.

Since both banks and non-bank providers have to give some of the fee to the payment card association, there will always be some charges. In addition, service levels are likely to be high and a bank is a safe pair of hands with which the principals of the business already have an established relationship.

On the downside, banks have stringent credit checking procedures because they want to minimise costly “charge backs” (when a cardholder disputes a transaction, initiating a manual investigation).

Also, the acceptance procedure can be slow, so time to market for the e-tailer is increased. After all this, an internet start-up is likely to be rejected for a merchant account – and this is increasingly the case since the shakeout in the industry last year.

However, last year’s correction means there are now many e-payment providers competing for fewer e-commerce businesses. And since the surviving e-tailers are mainly those with the biggest trading volumes, they could justifiably expect to be treated as desirable clients by even the pickiest of providers – that is, the banks.

Not so, it seems. Firebox.com, a high-tech gadgetry retailer, is about to break even after three years of selling almost exclusively to cardholders. Turnover through the website reached around £1m (E1.5m) last year. However, earlier this year its merchant acquirer made a demand that almost forced the company into receivership.

"It wanted to increase our money in settlement [cash held against the risk of Firebox's non-fulfilment of a credit card order] from £30,000 (E43,440) to £300,000(E434,400)," says Michael Smith, chief executive.

This move was apparently prompted by the reversal of fortune suffered by internet businesses last year, and nothing to do with Firebox’s fulfilment record. "We have an unusually low level of charge backs, around 0.1 per cent over the last 12 months," asserts Mr Smith.

Souring relationships However, it was a struggle to make the bank back down and simply shifting service provider was not an attractive option – due to the operational disruption it would cause and the higher fees likely to be charged by a non-bank provider.

The dispute was finally settled with an undisclosed compromise figure, but it soured a previously amicable business relationship. "This has been a difficult time for the industry as a whole, with cash flow concerns being uppermost in our minds. The kind of increase they were requesting was simply unreasonable," says Mr Smith.

Firebox could have approached a non-bank e-payment provider. These can bypass the need to go to a bank altogether and, because they were specifically set up to meet the needs of online businesses, tend to have a more "merchant-centric" structure. This means they are structured to meet the needs of the customer rather than of the organisation itself – a charge often levelled at banking products.

Non-bank services are more flexible about the businesses they will accept on to their merchant services. And, because they use the most up-to-date open technology standards, the online payment facility tends to be up and running more quickly than if it were established through a bank.

Value-added services This new breed of e-payment provider also offers a variety of value-added services, which distinguish its offerings in the marketplace: for instance, through assurance products which guarantee to the client that they will receive funds, or security guarantees against fraud.

WorldPay will shortly launch a business-to-business (B2B) payment service, in addition to its business-to-consumer (B2C) services, a facility already provided by Clareon. They may provide management information services for analysis purposes and risk management capabilities. For most of their clients, multi-currency facilities are available.

Philip Beck, CEO of US-based Planet Payment, which has just over 1,000 merchants signed up to its e-payment services, says: "Large banks have been unable to meet the needs of small companies – particularly outside the US and UK."

However, the value-added elements of such a service come at a price. In the UK, Planet Payment charges 3.4 per cent of the value of a transaction, plus a 17p (28 cents) flat fee per trade.

Added to this is a $17 (£11.73) per month facility access fee. The higher fees cover the cost of Planet Payment protecting itself against its client’s potential financial failure through insurance bought from a financial institution. It also covers the cost of settling the retailers’ transactions through a bank that will remain the "final acquirer" of customer transactions.

Banks do not want hassle In WorldPay’s case the final acquirer for all its transactions is the UK bank NatWest, part of the Royal Bank of Scotland group. In fact, newly launched e-payment service providers such as WorldPay are competing for a slice of the merchant services business dominated by the banking sector.

NatWest, for example, has a substantial investment in WorldPay and a spokesman for the bank admits it actively channels small businesses towards this provider. The bank simply does not want the risk or the hassle internet start-ups represent.

Unlike many internet business ideas, the e-payments industry seems to have developed in response to a genuine, rather than perceived, need for a service. Demand from online companies to be able to accept and automate plastic card payments (and avoid the need for time-consuming re-keying of information) is unlikely to go away soon.

Email Katy Massey at katymassey@aol.com