We all understand that the ability to accept credit cards contributed immensely to stretching the limits of commerce and especially e-commerce. At a certain point, in the life of your business, you probably asked (or will ask) yourself if you need to accept credit cards.
As credit card processing comes with a cost, this question should trigger a serious decision making process, featuring costing and marketing exercises, making sure accepting credit cards is indeed feasible.
Let’s say for a minute you already decided to accept credit cards. Your second question would probably be, ‘where do I find the cheapest merchant account around?’
Now, that is a tricky question. Obviously, as a merchant, you need to minimize your costs. But when it comes to merchant accounts there is no straight forward way to make sure that what you see is what you get.
In the world of online payment solutions there are many factors you need to take into account when you try to figure out how much you will pay and what would be the quality of the services you get.
A partial list of factors will contain discount rate, other fees, the need to use a gateway, contract terms and customer services.
Discount rate
Your very first task would be to try and figure how your discount rate might behave. The discount rate is the fee that will apply to each and every transaction you process. It is comprised of several fees and dues such as network fees, assessment fees and interchange fee (the largest portion).
Your basic –qualified- discount rate will be set by your merchant account provider and should cover most of your transactions (i.e., for instance, all transactions that will come from a basic, non rewards, credit cards and that will be swiped in your terminal – in other words a ‘Card present transaction’). You have to bear in mind the discount rate might eventually become higher and turn into a Mid-qualified rate (for instance, in cases where you would key in the credit card details, instead of swiping the card- otherwise known as ’Card not present transaction’) or even turn into a Non-qualified (incase a certain reward card is accepted).
You really need to try and make few assumptions on how your credit card transactions will split between the different types of discount rates. Your potential merchant account provider might help you with statistics he gathered, based on his experience with merchant from the same line of business.
Other fees (look for them in the contract or even better, ask the provider!)
- Per transaction fee
Will apply to each and every transaction you process
- Batch fee
Charged for ‘batching ‘ transactions and sending into the network, to start the settling process (should happen at least once a day)
- Chargeback fee
Your merchant account provider will help you fight (represent) chargebacks and will expect to be rewarded for it. The fee can be charged even if the representation process failed and your customer got away with all his money.
- Set up fee
Charged upon the setting of the account.
- Statement fee/ monthly fee
Covering the activity statement you will receive each month.
- Quarterly/Annual fee
Paid for the maintenance of the account.
- Monthly minimum fee
Assuring the provider receives a minimum of processing fees each month. You will not have to pay it if you will process transactions above a certain amount (if you processed to some extant, yet did not reach the required level, you will usually be requested to pay the difference only).
- Customer Service fee
Covering the support services you get from your provider.
- Early Termination fee
Will apply should you elect to terminate your contract earlier than expected.
- Gateway fees
If you are an e-commerce merchant you will have to pay for gateway services that will enable your secure connectivity with the credit card processing network. These fees might be paid to a different provider (if services are not bundled by your merchant account provider into one package), and might include, among others, a set up fee, authorization fee (per transaction), monthly fee, virtual terminal fee and reporting system fees.
- Fraud detection fees
Should you decide to use fraud detection services (and unless you will be doing the fraud prevention internally, you should), either through your gateway or by other sources, you will have to pay fees. Some of the fees are per transaction, other fixed, depending on the depth and volume of services rendered.
The fees above (and other fees) come in different ‘shapes and sizes’ and in different combinations. You will find that some fees are completely waived by some merchant account providers, while between others, that do charge them, there are substantial differences. One thing you should bear in mind, there are no free lunches in the credit card processing industry. Merchant account providers need to earn their living, exactly as you do. They render services and charge fees based on risk management models and this industry has substantial embedded risks.
As an informed merchant you need to understand that there is a tradeoff between the different pricing models offered by the different providers. The best you can do is make sure the merchant account you signup with provides you with the combination of fees and level of services that suits you most. For instance, you might decide to work with a merchant that offers 24/7 customer support, and charge for it, rather than choosing one that waives the fee but maintains office hour’s support. You may decide to prefer working with a merchant that charge a bit more in the discount rate or in the per transaction fee, just because he waived the termination fee (and right now you don’t feel you can make a long term commitment).
An important thing you should remember is that there is always some place for negotiation. A merchant account deal should leave both you and your merchant account provider satisfied, otherwise, it will not last long.
Use http://www.creditcardprocessing-r-us.com to learn more about the industry, get acquainted with the providers, compare, and pick the provider that suits you most.
Dan Pirogovsky, Co-Founder and SVP Business Development
www.CreditCardProcessing-r-us.com
Tags: Credit Card Processing, Credit Card Processing Fees, Merchant Account
The average interchange fee in the U.S. is seven times the interchange fee set by Visa and MasterCard in countries throughout the rest of the world. Using 2008 figures, if the interchange fee charged by credit card issuers was decreased (via comprehensive credit card reform legislation) from the current 2.10% to 0.60%, the result would be an annual savings of approximately $34.3 billion for U.S. merchants and consumers. Credit card issuers could retain 0.3% as a processing fee, the remaining 0.3% could be a “tax” used to fund a Natural Disaster Trust Fund (NDTF). In 2008, this would have generated $6.86 billion in funding for a NDTF.
Let’s be clear. The interchange fee is a hidden tax, just not a tax subject to political control or for which there is any discernible social benefit. Decreasing, and imposing a transparent tax on, the interchange fee would have the same stimulus effect of a tax break, but without an impact on the federal budget.
The following article discusses how comprehensive, standardized, simplified, and transparent credit card reform legislation may fund a Natural Disaster Trust Fund.
http://www.csnews.com/csnews/images/pdf/creditcardreform.pdf
Was also posted at: http://debitcardcreditcard.net/2009/10/merchant-account-should-i-pick-the-cheapest-one-around/. Thanks! The Debitcard & Creditcard News Team.
Merchant accounts are marketed to merchants by two basic methods: either directly by the processor or sponsoring bank, or by an authorized agent for the bank and additionally directly registered with both Visa and MasterCard.
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Cheap is the way to go if you know a few pitfalls to stay away from. The right Questions and staying away from fly by night processors is the way to go. If a company only has 1 or 2 reps in town, and those reps serve as both sales and installation tech guys you’re going to have problems in the future because odds are they won’t be there in 6months when your terminal breaks. Second these companies are bottom feeders (brokers of brokers) if you actually have a truly competitive bid from a reputable company and one of these fly by night processors says they can blow it out of the water they are desperate and lying to you. Go with a reputable company, First Data, Heartland, US Bank, Bank of America, etc.
An easy way to find a good company is to Google their name, if you find a dozen ripoff stories talking getting screwed on leases find another company. If a sales rep tries to lease you a terminal as a first option, show him the door. A basic warranted dial terminal still in the box can be purchased online for $150-$250. Ex. Vx510 or T7plus. If a sales guy is pitching a lease to you for one of these popular terminals for $29.95 a month he’s trying to take you to the woodshed. Ask him how much if you just wanted to buy it outright and you will get an inflated cost quote like $600-$900 to scare you into signing an ironclad lease for a $200 terminal for $19.95 for 48 months.
If you have found a couple reputable companies and a descent rep that shoots you straight about terminal prices then its time for some inquisitive talk.
Rules of Thumb.
1. never agree to pay an installation fee or application fee
2. never agree to pay annual fees
3. Monthly fees should range form $5.00 to $10.00
4. Before buying a terminal research the going price on Ebay or another reference that is not tied to a processing company.
*note: Most companies will match any price you find on a terminal.
5. Contracts are optional. Always ask the length of the contract and ETF or Early termination fee. If you don’t won’t a contract don’t mention it at the beginning of negotiations, wait till the deal you want is on the table before you say ” now if you can make this contract a month to month deal I’m ready to sign.” They may play hardball but stick to your guns.” After they agree to write the deal on a month to month basis make sure you see it in writing.
6. Finally the meat and cheese, Discount rates and Transaction fees. This part gets tricky. The best way to understand and not get lied to is to take one of your previous statements and divide the total amount charged by the total volume processed. This will give you an effective rate like 2.50% for example. Have them bid in these terms. If my current effective rate is 3.25% and another company looks at the same statement and promises that they can lower my effective rate to 2.25%, I know exactly what I’m being offered. After I take the deal and run a couple months with the new company all I have to do is find my effective rate on those two months. If my total rate now is know where close to 2.25% I know I got lied to. Luckily I signed a month to month deal and can switch to a company that can deliver on there promises without costing me anything but time.
Hope this helps and best of luck
I found a German website with information about the highest interest savings you can get from banks.
More info (in German) can be found at: bankenrente.nl/Lijst-met-de-rente-van-de-banken.html
Moved to NatWest when undertaking a huge expansion of our small company 6 years ago (from Barclays as they were not helpful with our plans). I don’t know why I’ve stuck with them for 6 years, the personal business manager is useless, their customer relations are non existant, their attention to our needs is zero, no calls back, no help whatsover. Don’t waste your time with NatWest. They are hopeless and I’m now going to look elsewhere.
Specializing in small and medium-sized businesses in both traditional and Internet environments, we at FDIS-westcoast.com think the answer is NO.
Prior to applying you should check acceptance rates, as going through this tedious process and getting rejected is frustrating!
Also, compare technological capabilities. There are a lot of players out there, and it’s almost never apples to apples…
Best of luck with your new merchant account!