Merchant Accounts
Merchant accounts
can be a confusing subject. Before you jump in with both feet
lets give you an introduction; What merchant accounts are, what
information is needed to obtain your merchant account and
rates/fees involved.
What Merchant
Accounts are?
A merchant account is a special account that is
setup for a business to accept and process credit card orders.
After processing a customers credit card the transaction goes
through a series of complex stages. The money transferred
through the merchant account is then deposited into the
business's checking account within 2 to 3 business days.
Requirements for Merchant Accounts
Getting important
information together ahead of time will ensure that you breeze
right through your merchant account application process.
Here's what you may or may not (depending on the provider) need
in order to obtain your merchant account:
Explanation of Credit Card Processing Solutions
In order to process credit and debit cards through your
merchant account, you need to decide which processing solution
is right for you.
Retail Swipe Terminal - This particular solution is
for retail and storefront merchants who see their customers
face-to-face. This type of solution incurs the lowest
merchant account processing fees since you actually are able to
swipe the customers credit card through the terminal. It
is believed that orders that are swiped have a lower fraud risk,
hence the reason for the lower processing fees.
Real-Time Processing - This is the solution for
businesses on the Internet. Real-Time allows you to
automatically process credit card orders through your merchant
account with no assistance needed on your end. Everything
is automated, and the funds transferred into the merchant
account, from the cardholder, is deposited into your business
checking account, within a few days. All Real-Time
solutions are secure and the purchase of a secure certificate is
not usually required.
Virtual Terminal - If you are a merchant on the
Internet and expect to receive orders via phone, fax or mail
then getting a Virtual Terminal solution (along with a Real-Time
processing solution) is the best route to go. The Virtual
Terminal is a secure website where you login and manually type
in a customers credit card information. Once the
information is submitted, it is securely processed and funds are
then deposited into your merchant account within a few days.
A Virtual Terminal can be accessed securely from any computer
connected to the Internet. Most all Real-Time processing
solutions also come with a Virtual Terminal at little or no
additional cost. Virtual Terminals can also double as good
mobile processing solutions,
click here for more
information.
Merchant Accounts Rates & Fees
These are the typical fees you will see associated with a
merchant account. Rates will vary from one provider to the
other. We have found
ECHO, Inc. to offer the lowest merchant account pricing
around, click here for
details.
Application/Setup: $0 - $100+ (one time fee)
All providers have an application fee. Some charge it right out
at the beginning, while others add it into the solution
purchase/lease costs.
Hardware/Software: Purchase: $99 and up or Lease: $20/month
and up
One important note worth mentioning here, stay away from leases
if all possible. It's always better to purchase from the
beginning than pay a lease for the next 12, 24, 36 or 48 months.
Why? With a lease you'll end up paying sometimes 3 times or more
then if you would of just purchased the solution outright from
the beginning. While a $29.95 monthly lease for 48 months sounds
good in reality it isn't. Leases are very hard to get out of
once started. If your business goes under before the 48 months
are up, you still have to pay on the hardware/software costs
until the last penny has been received by the leasing company.
Also, the lease fee you see
does not include your state sales tax or the amount charged for
the damage/loss waiver. If you do go for the lease, always
determine the lease's buyout clause, end of lease terms, and
especially beware of clauses that allow the lease company to
continue charging you even after the 48 months have passed (they
say that you should contact them in writing one month prior to
the end of the lease, or you can just let them keep charging
you).
Programming: $0 - $100+ (one time fee)
This usually only applies to retail merchants who have changed
from one provider to another. The programming process isn't
difficult but watch out for the cost, some
providers may nickel and dime you on programming fees. Why do
they charge this fee if you use your own equipment? It's used to
somewhat make up for the loss of not selling or leasing you
their equipment.
Discount Rate: 1.49% - 4% per transaction
This is the fixed percentage amount that is deducted from the
purchase cost. The lower discount rates are for retail
establishments while the higher are for Mail Order/Telephone
Order (MOTO) and Internet-based businesses. Why the lower
cost for retail? The instances of credit card fraud are much
lower so banks are able to charge lesser percentages for these
types of businesses. A typical discount rate for US business is
right around 2.49%, perhaps a little higher or a little lower.
Non-US businesses will pay a higher discount rates closer to the
3% to 4% range.
Don't let a few tenths of a percentage point be the deciding
factor between two providers. For example, if Provider "A"
charges 2.29% and Provider "B" charges 2.49% you'll only save
$0.20 for every $100 processed through your merchant
account.
Transaction: $0.20 - $0.50 per transaction
In addition to the discount rate a transaction fee is also
deducted from the purchase cost. Also, just as with discount
rates, transaction fees are lower for retail businesses while
slightly higher amounts are charged for MOTO and Internet
establishments. Address Verification (AVS) may either cost an
additional fee, or may be included in the base transaction fee.
The typical transaction fee for US businesses is right around
$0.30 while the higher end of this fee is sometimes the case for
Non-US businesses.
Monthly Minimum: $0 - $25 per month
The fee is based on your transaction and discount rate fees from
your credit card sales each month. For instance, say your bank
charged $25 as a monthly minimum, the transaction and discount
rate fees collected by the bank must equal or go over
$25 each month. If this is the case no monthly minimum will be
charged. However, if the fees collected for that month do not
meet the $25 minimum, you will then be charged the difference.
Not all processors have a monthly minimum fee, however most do.
Gateway Access: $0 - $25+ per month
Since in most cases, the Secure Payment Gateway provider (e.g.
Authorize.Net, VeriSign, etc.) is a separate company from the
Merchant Processor, they charge extra fees. For every month that
you are on their system, you pay an access fee.
The usual fee to pay for gateway access is around $10.
Statement: $0 - $15 per month
The statement fee is charged because at the end of each month
you will receive a statement from your processing bank that will
list all the transactions that went through for that particular
month. It's very much like your credit card or telephone bills.
Daily Close-Out: $0 - $0.15 each day
Associated with software and terminal processing solutions where
at the end of every business day you close-out all your
transactions. Most providers no longer charge this fee.
Address Verification System (AVS): $0 - $0.05 per transaction
The AVS service checks to see that the billing address given by
the customer matches the credit card. If you opt not to use AVS,
VISA and MasterCard will not support your transactions and will
charge you an additional 0.17% to 1.25% on those sales. Most
merchant accounts come with AVS at no extra charge. If there is
a charge, it is combined in with the per transaction fee in most
cases. The AVS service works only with US credit card holders.
Currently, there is no AVS service
in place for non-US credit card holders.
Chargeback: $5 - $25 per instance
A chargeback occurs when the cardholder disputes a charge that
they found on their monthly credit card statement. A large
number of chargebacks can cause your merchant account to be
dropped totally and leave you in a bind when trying to
get another merchant account for your business. If this is the
case you may not be able to get another merchant account for
several years. As a merchant it is important that you take the
necessary steps to reduce and potentially eliminate the
instances of chargebacks.
Reserve: Varies, ask the provider for details
Some providers will require you to have a reserve account where
the amount is determined by your businesses estimated sales
receipts. Usually a reserve is almost always charged to a Non-US
based merchant who is trying to obtain a merchant account. Also,
businesses that do a high volume of sales each month may be
charged a reserve fee. Otherwise, there usually isn't a charge.
In most cases, the reserve fee is used to cover for any
chargebacks on the merchants account. A reserve should be
avoided if all possible.
Annual Fee: $0 to $100 per year
Some credit card processors will charge this fee
just as additional way to pay for maintenance and system
upgrades. This fee usually isn't disclosed upfront.
Ask your merchant account sales representative for information.
Tips for Merchant Account Holders
Once you have your merchant account you will
need to take necessary precautions to avoid chargebacks and
fraud. Here are some tips to follow:
1. Collect CVC2 and CVV2 Verification
Numbers
This tactic alone can not only reduce instances of chargebacks
by 26%, according to Visa, but also reduce any pass-through fees
that may be charged when a credit card order is conducted. On
the back of MasterCard, most Visa and Discover credit cards is a
3-digit security code located right after your credit card
number. Requiring customers to give the 3-digit code acts as an
additional verification measure. American Express cards also
have a similar security code that is located on the front of the
card right above the cardholder's account number and is usually
4-digits long. Most online payment processors support entering
the security codes when processing credit card orders. Check
with your payment gateway provider (i.e. Verisign, Authorize.Net,
ECHO Inc., etc) for details.
2. Use Address Verification System (AVS)
AVS checks to ensure the address entered on the order form
matches the address to where the cardholder's billing statements
are mailed to. People ordering products and/or services using a
stolen card number will never use the real cardholder's billing
address, so this is your chance to stop the order before it's
too late. AVS only works with orders conducted in the US.
Failure to use AVS when processing
credit card transactions will always result in paying higher
credit card processing fees.
3. Scrutinize orders from developing foreign countries
A large percentage of fraudulent Internet purchases are made
from Indonesia, Russia, and other eastern block or developing
countries. Accept orders from such countries at your own risk
until a worldwide AVS system is developed.
4. Let customers know what name will appear on statements
Many merchants who use 3rd Party Processing companies have run
into problems because the company name that appears on
cardholder's monthly statements is usually the name of the 3rd
party processing company and not the company name of the site
the cardholder made their purchase from. This isn't always the
case, but in many cases it is. If you use a 3rd party processor,
and even if you don't, make sure the customer knows what name
will appear on their credit card statement at the end of the
month. This will help to reduce any confusion that might would
otherwise occur.
5. Handle suspicious orders accordingly
If an order seems suspicious the best way to handle the
situation is to either call or e-mail the customer and attempt
to verify that they placed the order. As a rule of thumb, if in
doubt, check things out. It may be a good idea that if a
customer makes an unusually large volume purchase from your site
to follow-up with a verification call.
6. Watch out for orders using free e-mail addresses
Be wary of accepting orders from people who used a free e-mail
address when ordering (i.e. Hotmail, Yahoo, etc.). Tracking
people who used a free e-mail address is almost impossible, it's
much easier for them to get away then if they used their
Internet Service Provider (ISP) or their own company web site
e-mail address. To check whether an e-mail address is a freebie
or not just take the part of the
address after the "@" symbol, add "www" to the front of it and
see what website it brings up (i.e. joe@yahoo.com =
www.yahoo.com).
7. Signatures on delivery
If your business delivers products use a carrier that requires a
signature on delivery, and allows you to have a copy of the
signature. Retain these for your records.
8. Request fax copies of ID and credit card
You may want to request your customer to fax a copy of both
sides of their credit card and driver's license. This tactic
usually works best in a B-to-B (business to business) sales
environment. While this is not a defense under Visa or
MasterCard rules, it is yet another way to deter fraud.
9. Posting a warning message
Taking the time to post a warning message on your order page to
those who may attempt to make a fraudulent order will greatly
deter the number of instances of fraud. Be sure to mention that
IP (Internet Protocol) addresses are being logged. IP addresses
can come in handy when locating people about fraudulent orders.
Need a merchant account provider
recommendation? We highly recommend ECHO, Inc.,
for more information:
http://www.merchantseek.com/echo.htm
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