Basics of Credit Card Merchant Accounts

What is a Merchant Account?
A Merchant Account  is an account for a business merchant, established to accept credit card orders from customers. The bank is the Merchant Account Provider (MAP) that collects the funds from credit card purchasers, handles credit card processing, and disburses funds to the merchant. Once the merchant has set up a merchant account, the merchant can accept credit card information from customers. With each transaction, the Merchant Account Provider (MAP) verifies the credit card, processes the transaction, and deposits the funds into your account, usually within two to four days.

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Merchant Account Processing
Merchant Account Processing services are provided to the merchant by a bank or a third party processor through the bank. Merchant Account Processing includes authorization of credit cards, settlement of funds through the bankcard associations (MasterCard and Visa), depositing of funds to checking accounts, merchant billing, and account activity reporting.

Online Merchant Account
An online merchant account has different terms and regulations than standard merchant accounts. There is more risk with online transactions since the merchant cannot physically see either the customer or the credit card, which increases chances of fraud and charge backs. Online merchant accounts are charged different rates than accounts used for in-store transactions.

An online business can begin credit card processing through a Merchant Account Provider (MAP). Shop and compare Merchant Account Processing fees. The generated revenue from credit card processing will more than justify the costs.

Advantages of Accepting Credit Cards

All businesses benefit from accepting credit cards. Internet businesses can accept payment immediately online, and ship out merchandise immediately. Service oriented businesses will notice a large decline in the number of past due accounts when they start accepting credit cards. 

Setting up a Credit Card Merchant Account allows a business to accept credit card payments, as well as ATM and debit card payments, and of course check payments. Increasing payment options for customers means increased sales. 

Credit card processing can be an efficient way to lower overhead and generate greater cash flow with less paperwork and fewer past due account receivables. It costs less money in transaction fees to accept a $60 payment from a credit card than the time and cost to create and print an invoice, as well as to mail repeated past due billings. Credit card processing reduces bad debts and increases cash flow. 

If you do not have a merchant account for accepting online payments, consider this: websites without credit card processing lose 60 to 80 percent of potential orders. Shoppers who have the option of paying with credit cards are more likely to buy, and are more likely to place larger orders. Offering credit card processing legitimizes your business, simplifies accounting, and generates more customer buying.

Finding the Right Credit Card Merchant

Knowing some basic information about the credit card processing industry will help you to navigate and avoid the pitfalls. Following are some key issues to consider:

Long Term Relationship
Find experienced salespeople who depend on residual commission and who will focus on a long-term relationship that considers customer interests and budget. Like most industries, credit card processing is sales-driven and competitive, so ask in-depth questions for the right fit. Get all fees and promises in writing to protect from future misunderstanding. Read the fine print that includes rules, regulations, and fees that can sometimes be negotiable. Look for hidden fees, surcharges and cancellation policies in smaller print, usually on back page.

Buyer Beware 
Credit card processors can raise or lower fees at any time. They may be forced to increase rates due to increases from Visa/MasterCard. Credit card processors may increase rates if your business is considered “high risk" for its industry type, or for a history of excessive returns, declines, or chargebacks. They can also increase rates for the simple reason of increasing profit.

Choose a contract that can be cancelled, due to the high level of variables with credit card processing services. With the right contract, you can determine who you do business with, based on rates. The wrong contract can lock you in to exorbitant cancellation fees that range from $300-$1000’s of dollars. If a deal sounds better than all the rest--Buyer Beware. All credit card processors share a competitive profit margin and are bound to pay the same interchange fees to Visa/MasterCard. Also, make sure the contract will not change in 60 days.

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Education
A good credit card processing company will take the time to educate you about your options and the credit card processing industry. It is worth paying a little extra for education and service. You will save time and money choosing a responsible professional. But just because a credit card processing company is the most expensive, does not mean it is the best, either. A quality credit card processing consultant will find a program tailored to your business needs.

The credit card processing industry changes rapidly with ever-diverse options for retail, mail/phone order, and internet businesses.  Inquire about how to avoid unnecessary surcharges, as well as how to protect your business from fraud and mounting chargebacks.

Service
Find a company with quality service 24-hours a day. A sales agent should be consistently available during regular business hours. Shop carefully for  quality, in-depth service.

Credit Card Merchant Fees

Credit Card Merchant fees  are a necessary part of credit card processing. As with any service, shop around, but remember that business owners who accept credit cards increase their profit margin, even after merchant fees. Customers who would ordinarily bypass a purchase due to short funds will tend to spend given credit card processing options. The business profit from credit card processing, more than offsets the merchant credit card fees.

Fees charged by Merchant Account Providers can be confusing. Be clear on all credit card processing fees before signing with a merchant. Look for hidden costs buried in the contract.
Terms for fees and rates vary depending on the merchant provider. Following are some of the Setup Fees and Ongoing Fees. Some Ongoing Fees can be unnecessary.

SETUP FEES:

Application Fee
The one-time setup fee varies widely, but averages anywhere between $50-$200. The setup fee can be standard with most merchant services, but not always. Those Merchant Account Providers that do not charge an application fee often charge other higher fees. The setup fee covers processing, including credit check.

Set Up Fee
The average set up fee ranges from no charge to $300. A setup fee usually includes hardware or software installation. If there is no charge for the set up fee there are often ongoing fees for leasing of software and hardware.

Rolling Reserve/Security Deposit Fee
Average cost for Rolling Reserve/Security Deposit is first month's receipts or 30 percent of your monthly business volume. Security deposit fees and rolling reserve fees are sometimes charged to start-up businesses, bad-credit merchants, or high-risk industries. Both fees are refunded to the merchant after building a consistent profit history.

Hardware Fee
To purchase hardware averages $500 to $1,500; leasing averages $15 to $50 per month. Internet merchants do not usually need hardware. High-end hardware models for real time transactions can cost up to $1,500, or lease at even higher costs.

Click here to learn more about Point of Sale SystemsSoftware Fee

Software averages $400 to $800. Standard software sends credit card transactions across a dedicated or protected line to a Merchant Account Provider. Online Shopping Cart software connects your site to a Merchant Account Provider’s secure server, allowing customers to process credit cards in real time.

ONGOING FEES:

Monthly Statement Fee
The statement fee is monthly and averages about $10. The bank and/or payment processor sends a monthly statement of detailed deposits and transactions in the account

Monthly Minimum Fee
The Monthly Minimum Fee averages $30. The set minimum fee is charged only if your credit card transactions and fees do not reach the specified monthly minimum.

Per Transaction Fee
The Per Transaction Fee is anywhere from 20 to 60 cents per transaction, charged every time you charge and process a customer's credit. Most merchant providers charge the transaction fee to pay overhead for processing. A low Per Transaction Fee will usually mean a higher Discount Rate. A lower Discount Rate will usually mean a higher Per Transaction Fee.

Discount Fee
The average Discount Fee is 2.5 percent to 3 percent. The Discount Fee is the principal profit for the Merchant Service Provider. It is a percentage of each transaction amount; it reduces as your monthly sales volume increase. (Discount Fee rates usually average lower for in-store transactions.)

Daily Batch Fee
The average Daily Batch Fee is around 10 to 40 cents a day. Each day the Merchant Service Provider sends all of your transactions to the bank in one batch. The Daily Batch Fee is the charge for closing out your account each day. A late Batch Fee is charged if you do not close out within a certain time frame, usually 24 hours.

Authorization/Verification Fee
Average cost for Authorization/Verification is 5 to 10 cents per transaction. Remote transactions--such as mail, internet, or phone-- may be an added charge to the Per Transaction Fee. Authorization/Verification can reduce the number of chargebacks.

(Less common fees include the Monthly Gateway Fee for processing in online real time, as well as the Chargeback Fee for contested charges, plus the Annual Fee. These fees can be unnecessary, adding up to compromise profits, so shop!)

Monthly Gateway Fee
Average cost for the Monthly Gateway Fee is $15 per month. If your Merchant Account Provider uses a third-party service, it will probably charge you a Monthly Gateway Fee to offset that cost.

Chargeback Fee
Average cost for Chargeback is $25. Chargebacks are any customer credits for returned items, misorders, or fraud.

Voice Authorization Fee
Average cost for Voice Authorization is no charge to $1 per order. If the credit card processing terminal goes down, you must dial a voice authorization number to process orders. Some, but not all, companies charge a fee for this service.

Fraud Protection Fee
Average cost for Fraud Protection is 10 cents per transaction. (There can also be a setup charge between $100 to $150.) Fraud screening software that automatically stops questionable transactions is available through some Merchant Service Providers.

Every Merchant Service Provider charges varying rates. Spend the time upfront to compare prices, including any hidden charges. Fees can add up quickly, especially if the Merchant Service Provider does not have the supporting reputation and customer service.

Credit Card Processing Equipment

Purchasing credit card processing equipment is usually less expensive than leasing. Leasing credit card processing equipment can cost well over $1000 for a 48-month lease. In addition to traditional credit card terminals, available with or without printers, there are also wireless credit card terminals and virtual or software-based credit card terminals. Following are the basic types of credit card machines.

Traditional Credit Card Terminals: The basic credit card macines include the magnetic stripe reader, a keypad for entering prices or other data, and a display. A printer is either built into the system or comes separately. Backlit displays are standard on most new terminals, allowing for greater visibility. Keypads vary in size and number of keys. 

Wireless Credit Card Terminals: Wireless credit card terminals can be an advantage for many businesses: mobile businesses, seasonal setups, or larger operations can all benefit from using wireless terminals. Wireless credit card machines have built-in printers. When choosing the right wireless credit card terminal, consider battery life, area range, weight, and shock-resistance.

Virtual Credit Card Terminal: Businesses that only do transactions by phone or Internet can forgo a physical credit card terminal for the virtual kind. Merchant account providers can provide point of sale (POS) software to process transactions. 

Since credit card processing terminals must be used through the merchant account that processes your business credit card transactions, it will probably pay to purchase equipment directly through the merchant account provider. The merchant account provider will probably offer better pricing for the equipment for a long term relationship. 

Purchasing credit card equipment can be a simple process. A good merchant provider will consult with your business for particular credit card terminal needs.

Weighing the Cost of Using a Merchant Service

Merchant accounts can be expensive. There are numerous reputable merchant account providers  that offer quality value, but beware: there are plenty of merchant account providers that charge excessive fees and hidden costs that were not so apparent when you agreed to use their service for accepting credit cards.

Fees range. Per transaction fees, for instance, are usually a percentage or a few cents on each card processed. Monthly or annual maintenance fees can range from a few dollars to a few hundred dollars.

Good merchant accounts are worth paying for, depending on the type of business you are operating and the volume of sales you process on a given month, as well as the merchant account provider you choose to go with. You need to do some research before selecitng a merchant account provider. Consider which fees are necessary and which are not. Consider costs for purchase or lease of any special equipment. Determine if the software for processing online credit card payments is included in the service, or is additional.

Compare costs and services between different merchant account providers, then determine what projected credit card sales will be each month, based on your best estimates. Consider that people typically spend more with a credit card than they do with cash.

If estimated monthly sales offset monthly merchant account fees, it makes good businesess sense to pay for a merchant account. An online business should expect to accept credit card payments in order to become successful.

Third Party Merchant Services

 Consider using a third party credit processor. Third party merchant services are the link between you and the bank: they handle all credit card processing for your company. Third party merchant services take care of the entire purchasing process: the shopping cart, credit card authorization, customer service and billing inquires.

When buyers on your website click to buy, the link takes them to a secure order form on the third-party server. You are notified, usually by email, when a transaction is processed. Your only responsibility is order fulfillment. With third party merchant services managing all aspects of processing, small-business owners save money on administration and customer service. There is no need for confirming transactions or answering billing questions.

Advantages of A Third Party Merchant Service