Why your business needs a Domain
Taking your business online is now a necessity to keep up with the competition, to do that; you'll need a domain name.
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Choosing the Best Name for You
You've decided that you want to own a domain name. There's just one problem, you're not sure how to choose a good one.
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Direct Navigation
As the Internet matures, the number of potential customers online is growing and with it, the number of ways to promote your business online. More...
Finance
Finance gives buyers the ability to purchase domains that are beyond their cash reserves.
It is also about:
- Clearing funds from buyers
- Preventing financial fraud
- Interacting with other financial institutions (see Creative Finance)
- Holding funds in escrow
- Dispersing funds to domain sellers
The most common form of finance for domain sales under $5,000 is by credit card. Unfortunately credit card fraud and charge backs are commonplace for Internet commerce. Considering the small margins that most finance companies work on, it is important to reduce the risk of fraudulent transactions and charge backs. Buyers can charge back on their credit cards for up to six months after the transaction. This is of a particularly high risk for domain sales as the buyer may "fall out of love" with the idea which drove them to buy the domain in the first place. They may be disappointed with the level of traffic the domain produces compared to their expectations, or in the worst case it offers a six month window to hide the domains acquired from potential recovery. The best form of ensuring that transactions are not reversed is the "Verified by Visa" service. This verification transfers the risk to Visa as a credit provider documenting sufficient proof that the credit card holder had fully committed to the transaction.
Credit card fees can be expensive. Depending on the credit card finance company and location of the merchant facility, credit card fees can be between 1.0% - 4.5% and may include a minimum fixed fee per transaction.
Credit card companies offer little protection for transactions over $5,000,
due to this most marketers will not sell domains over $5,000 by credit card
Bank transfers are the most secure form of finance as they are the equivalent of cash. The only difficulties with bank transfers is the lack of immediacy that credit card transaction have, tracking the transaction to ensure the payment has been received, and the manual labour involved. When a transaction becomes manual it adds significant costs. Other than the transfer cost of funds itself the labour cost may equate to an average of half an hour per transaction. This represents a cost of approximately $25 and another $25 for the wire transfer bank fee. On a $1,000 domain sale this is a finance cost of 5% ($50) before any profit. Most credit fees for domain transactions are 3% or less. Therefore bank transfers should be avoided for domain sales less than $1,500 as the costs would exceed the finance profits. One benefit the bank transfers have is that they overcome the $5,000 maximum credit card transaction that most domain marketers use to prevent fraud.
Financial payment companies like PayPal.com offer another means to facilitate transactions. These companies also have services that equate to those offered by Visa. For example, PayPal.com offers Verified by PayPal.com which once again removes the liability from the finance company processing the funds.
The greater the transaction value, the higher the propensity for criminals to commit fraud on domain transactions. Financial fraud is wholly the duty of the financial clearing house. This is in conflict with the low profit margins that most finance companies can charge for their service on domain transactions.
The potential to overcome this conflict lies in an examination of the process, the timing and the profit.
Process: Once a domain has been sold, it is the finance company that controls the process that eventuates in a financial transaction being executed. No other party in the transaction has the capacity to minimize this risk.
Timing: Credit cards are the most likely source of financial fraud. The time frame for this fraud is up to six months, by which time the domain owner has lost control of the domain involved and no longer has any capacity to reverse the transaction. The only party with any power to control this process is the registrar that receives the domain once transferred.
Often the sales agency also acts as the lead generator. If a domain owner pays a commission of 20% on a domain sale, approximately 15% of that commission will be shared between the sales agency and the lead generator. As these two parties (often one) have the most to gain from each transaction, and they maintain the largest transaction margin, they might choose to adopt the financial risk to push the limits of safety and generate new sales. This is the nature of marketers as they want to promote volume and growth of sales.
Sales agencies may decide to take on additional financial risks
if it has the capacity to generate more sales
With creativity come rewards in the financial arena. New forms of domain purchase loans and payment schemes are continually being developed. There is plenty of room for improvement and the potential to extract further value from the domain buyer by offering financial leverage to purchase domains. Ultimately, domain owners will benefit from the improved means of buyers to purchase higher value domains.