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!)
Will apply to each and every transaction you process
Charged for ‘batching ‘ transactions and sending into the network, to start the settling process (should happen at least once a day)
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.
Charged upon the setting of the account.
- Statement fee/ monthly fee
Covering the activity statement you will receive each month.
Paid for the maintenance of the account.
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).
Covering the support services you get from your provider.
Will apply should you elect to terminate your contract earlier than expected.
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.
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
