Obtaining A Merchant Card Account
by Dr. Robert Sullivan
There is little doubt as to the value of being able to take
credit cards as payment for your product or service. This
merchant status requires you to deal with a provider or
electronic clearinghouse for the credit card transactions and a
participating bank for deposit of your funds. The process simply
involves finding a bank that will accept you as a merchant card
customer.
The problem is that it can be difficult to obtain a merchant
account if you do not have a storefront operation or if the
majority of your business is via mail order. Currently, most
banks are simply not interested in working with you unless you
are a "traditional" business owner. However, with the
proliferation of mail order and home based businesses, many
electronic clearinghouses are associated with banks that cater
to the mail order business. That's the good news. The bad news
is that if you are not very careful, your merchant account will
cost you a lot more than necessary.
This appendix provides information to assist you in
evaluating various banks and ensure you are getting the best
deal possible. You do not need one of the numerous
"manuals" that sell for up to $60 and claim to
"guide you through the process." The
"process" is actually very simple ... you just need to
find the best deal out there by using the information provided
here.
Finding a provider
First, try going to your own bank and ask if they will help.
If they will, be sure and review the various charges discussed
below. Be careful since many banks deal with agents who in turn
represent an electronic clearinghouse. These agents are
commissioned and are not looking out for your interests. If your
bank won't help, check the yellow pages under "Credit Card
& Other Credit Plans-Equipment & Supplies" or
similar heading. You may also search the Internet that is how we
found our merchant account provider. Most listings will be
agents that represent an electronic clearing house or the
clearinghouses themselves. Remember, talk only to the electronic
clearing houses. It may not be clear if you're talking with a
clearinghouse or an agent, so ask! Here are a couple of websites
to check:
Card Service International
http://www.cardservice.com
Electronic Clearing House
http://www.echo-inc.com
Transaction costs
There is a discount rate (expressed as a percentage of the
sale) associated with each credit card transaction. This rate is
always higher for mail order businesses, but you should not pay
much over 2%. A transaction fee is also charged and this should
be approximately 20-30 cents.
Hardware/software
requirements
You will need a terminal (or software) which allows you to
enter credit card data and obtain authorization for each charge.
The terminal connects to a telephone line and calls the
clearinghouse; with software you need a computer and modem. This
is an area where many providers make their money. Terminal costs
can range from $300 to $2000 (the terminals are all basically
the same). Software, such as "IC Verify," is
approximately $350. Many providers require that you purchase or
lease equipment from them and will tell you cost is not
negotiable. This is not necessarily true. One provider told us
their terminal was priced at $1200. Later they reduced the cost
to $800. Finally they agreed to $400. In addition to the
terminal you might want a printer to generate a "sales
receipt" for the customer which you will mail with the
merchandise or invoice. Typical printer costs are $150-250. You
do not need a printer, however, since you can use a manual
imprinter (usually furnished free) for receipts.
I recommend you purchase software. It's handier and no
additional printer is required since you can use your computer
system printer. Furthermore, there are no hassles with
warranties, electronic failures and mechanical problems. Do not
deal with a provider if they will not allow software as an
alternate to a terminal.
Questions (Q) and Comments
(C)
Questions to ask the perspective provider before committing.
Each question is followed by a comment to assist you in
determining a "satisfactory" answer.
Q: Are there any application fees?
C: Some providers charge up to $500 but you should not pay
more than $75. Check to make sure this fee is refundable if you
are turned down.
Q: Are there any installation or programming fees?
C: There should be none although some providers charge up to
$100.
Q: Are there any statement fees?
C: A typical monthly statement fee is $15/month.
Q: Is there a minimum account billing?
C: There should be none, although some banks charge a monthly
fee of up to $50 for accounts that do not meet the minimum.
Q: Is there a charge-back fee?
C: A charge-back occurs when a bankcard customer has their
account credited for a prior purchase (i.e., merchandise
returned under a guarantee). There should be no fees to you for
this although some providers charge up to $10.
Q: Is there a voice authorization fee?
C: A voice authorization is required when your terminal or
software is not available. The provider usually has a toll-free
number to use for this purpose. There should be no charge but
some will charge up to $1/call.
Q: What are the transaction fees?
C: These fees are in addition to the discount rate charge on
each transaction. They can vary depending on the form of the
transaction and, in general, bankcard numbers taken over the
telephone are slightly more expensive. A fair fee is 20-30 cents
per transaction.
Q: Is there a bank setup fee?
C: This is typical of a fee you will not find out about until
the 11th hour unless you ask. There should be no setup fee but
some banks charge up to $50.
Q: Is there a daily close-out fee?
C: You will normally "close-out" your transactions
at the end of each business day. This is done by a simple
transmittal to the provider via your software or terminal. There
should be no fees associated with this.
Q: When is customer support available?
C: Support should be available to you via a toll-free number
during normal business hours.
Q: Is a reserve account required?
C: Some banks will require that you maintain a reserve
account whose amount is determined by your estimated sales
receipts. You should not deal with a bank that requires this
reserve.
Q: When will funds be available?
C: That is, what is the time delay between a transaction and
when the money is available in the bank? It should not be longer
than 3-days.
Q: Is money deposited in my own local bank?
C: In some cases, the provider's bank will require that funds
be placed in their bank, and not yours. If this is the case, you
simply move funds from their bank to yours a few times a month.
Q: What is the equipment warranty and what assistance is
available if the terminal becomes defective?
C: Warranty should be at least a year and if you are leasing,
as long as the lease. A 'loaner' should be available if your
terminal requires repair. (Note: We strongly recommend you do
not lease. We didn't find a single supplier who had lease terms
that were reasonable.)
Q: What credit cards can be processed?
C: Visa and Mastercard are usually processed. You can easily
add Discover at no cost but there may be additional fees
associated with American Express.
Q: Is a manual imprinter available?
C: This should be included at no charge.
Remember, most fees are negotiable. As a mail order business
you may not have much clout with which to bargain, but the right
provider will charge few, if any of these fees.
Recommendation
When shopping for a merchant account we were turned down by
our own local bank of over 15 years. We searched and talked to a
LOT of providers, many of whom had no interest whatsoever in
dealing with a mail order or home-based business and others who
had a variety of outrageous fees associated with the account.
Our research finally led us to an electronic clearinghouse who
had no problems with mail order and home-based businesses. They
are out there ... you just need to search them out. Use the
Internet!
Remember a deal that sounds too good is probably suspect. Be
a wary customer and do your homework. Shop for the best rates
and fees, ask for references, and check them! Once you have had
your merchant account for a few months, check back and negotiate
for better rates.
This article is an excerpt from "The Small Business
Start-Up Guide" by Robert Sullivan, who is also the author
of "United States Government - New Customer!" Order
books toll-free at 800 375 8439 or visit the award-winning site,
"The Small Business Advisor," at http://www.isquare.com
Return To The Top
Read
More Finance Articles
|
