Merchant accounts for your online business.

     You may need a merchant account to process credit card payments for your online business. Sometimes new businesses have limited funds. If you expect that you will be processing less than $1000.00 per month in credit card transactions, we do not recommend having a merchant account. The monthly requirements and charges can be cost prohibitive. In this case you may want to look into using a 3rd party processor such as AlertPay, Paypal or 2Checkout. They offer the option of allowing you to accept credit cards and only charge a fee when an actual sale is made. Charge backs and fraudulent transactions are inherently riskier when using a 3rd party to process credit card payments. However, when you are on a limited budget, you may find the savings outweigh the possible risks.

     If on the other hand you do expect to have more than $1000.00 per month in credit card sales, then you should look at what different companies have to offer. Don’t just settle for the first merchant account you come across or what your local bank offers. The majority of the banks use independent sales offices called ISO’s and ISA’s and generally they have web sites where you can obtain information about their merchant services. You can also find a wide-range of retail and e-commerce suppliers at a merchant service directory online. A number of the ISO’s that you will find will have an agent available in your area that will be glad to meet with you.

     When you are doing your comparisons you may find that the online sources will have much lower fees than what your bank charges. This is normal. When you do the comparisons some of the differences to pay close attention to are the discount rate, the per transaction fee, statement charges, monthly minimums, contract time and cancellation fees.

Discount Rates and Per Transaction Fees.

     Generally the most important items to consider are the discount rate and per transaction fees. The discount rate is the percent you are charged for each sale that is processed. This rate for a “swiped” card is usually around 1.59%. When you use a card and it is a “non-swipe”, the discount rate is about 2.29%.

     Both a swiped card as well as a non-swiped card will be charged a transaction fee. Per transaction fees are in addition to the discount rate mentioned above and generally range from $.10 to $.99. A frequent misconception by merchants is that they think if they have a lower discount rate and a higher transaction fee then they are getting a better deal. This is not necessarily the case, so you should do some math to see which will be better for you. If the majority of your sales are less than $20.00 per ticket, then you should negotiate a contract with a higher discount rate and a lower transaction fee.

Monthly Minimums.

     Many ISO’s have a minimum dollar amount that has to be met in order to cover the cost of customer service. Generally this minimum is about $25.00. What this means is your sales need to generate at least $25.00 in discount points and transaction fees. If you have over $1000.00 in credit card charges in a month you would meet the monthly minimum requirement and then this will not be an issue. There are some ISO’s that waive this fee and it may seem like a bargain, however you do need to consider the consequences. If they are willing to lower their normal fee in order to obtain clients that do not have as many charges, then it is probable that they will have numerous customers of this kind. A client that has lesser charges tends to use more customer service resources and this burdens an ISP with less of a profit margin. It may also mean less customer service personnel to help you when you need assistance. If you save a bundle because of extremely low rates and minimums you may end up regretting this when you get less than satisfactory service.

Length of Contract and Cancellation Fees.

     The majority of the banks will require a 3-year contract. If you commit to a longer contract then generally the bank will give you better rates. If you are not offered better rates, then you should make this a part of your negotiations. Also realize that most banks will have a cancellation fee. This fee is usually the amount of the remaining months times the monthly minimum. A monthly minimum of $25 x 12 remaining months = $300.

     Some banks will charge application fees, setup fees, programming fees and numerous other fees instead of extended contracts and some banks will have both.

     There are some other fees that may arise. These include mid and non-qualified rates, batch fees, charge back fees, AVS fees, gateway and terminal fees, programming fees, annual fees and more. You should make a spreadsheet of all the banks you are considering so you can get a better idea of which will be more cost effective in your case.

     Many fees can be negotiated because there are numerous banks that will work with you to get your business. In making your decision, make sure that they are an FDIC insured bank and get the best fee structure available for your online business.

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