Guide to Retail Merchant Accounts
& POS Swipe Terminals

By:  Jim Conley II, MerchantSeek

As a retail merchant, you should know what you're doing when it comes to choosing a merchant account provider and a Point Of Sale terminal solution.  Selecting the wrong merchant account provider can mean paying high priced leases on a terminal your business doesn't need, and even paying high monthly fees.  Don't be caught by surprise!

The purpose of this guide is to help you get a merchant account and aid you in selecting the right terminal for your business needs.  Let's get started...

Step One:  Understanding Retail Merchant Accounts

Before you can start looking for the right merchant account provider, you need to know what a merchant account is and what it does.

A merchant account is a special account that is set up for a business to accept and process credit card orders.  After a customer swipes their credit card through a terminal, the information is passed securely to a processing bank.  The processing bank makes sure there is enough available credit in the customers account, and if so, they then deduct the appropriate funds from the account.  If there are not enough funds, the card is rejected and a message is displayed on the terminal read-out screen.  Assuming the funds are available, the money is transferred to the merchant's business checking account within 2 to 3 business days.

In addition to checking for available funds, the processing bank also makes sure the card has not expired or wasn't reported as lost or stolen.  If either of these are the case, the transaction is immediately halted.

Step Two:  Preparing Your Retail Storefront

Before even starting to look for a merchant account provider (or perhaps when you've just started to look), it is important to know where you want to place your credit card processing equipment.

Here are some aspects to consider when deciding where to place processing equipment:

1.  Customer access to terminal
If you plan to accept debit cards, customers will need to access your terminal (or PIN pad) so they can enter their PIN.

2.  Ease of processing access
The faster the better, customers are an impatient bunch and expect speedy checkout times.  Having a terminal located halfway across the store won't accomplish this task.

3.  Access to telephone jacks
Terminals will need to be placed close to telephone jacks for connection.  Have your local telephone company install jacks where you'll be placing processing equipment.

4.  Size of equipment footprint
Do you want an all-in-one integrated terminal solution or separate equipment?  More merchants desire a smaller footprint, to conserve countertop space, and tend to choose integrated equipment.

5.  Purchasing a second phone line
In most cases, you'll want to purchase a second phone line from your local telephone company to connect your terminal to.  Tying up phone lines when processing transactions can cost you sales.  You're in business to bring in sales... not lose them.

Step Three:  Choosing A Merchant Account Provider

It is important that you conduct your due diligence before settling on one particular merchant account provider.  The reasons are obvious.  You certainly don't want to be stuck paying high monthly fees.  Plus, I'm sure you wouldn't want to overpay on a terminal solution.  Don't let price be the only deciding factor though.  We'll look at this in a minute.

Never hurry through when trying to find a merchant account.  If you move too fast you will surely miss on a really great deal.  I can't stress this enough.  Don't wait a week before opening your doors to customers to find a merchant account provider.  Not only could you miss out on a good deal, but in some cases it can take up to a week to approve your application once it's been submitted.  Then you need to factor in the time it takes for the merchant account provider to ship you a terminal (or multiple terminals).  And on top of that, you have to set up your terminal(s) correctly and make sure they work.

Three main factors should be considered when choosing a merchant account provider (in no particular order):

• Integrity of the provider

• Price

• Customer Service

We'll look at each determining factor, in detail, so you can get the scoop on what to look for.

Integrity of the Merchant Account Provider

Don't automatically assume a provider is legitimate just by what they have posted on their website or conveyed to you over the telephone.  The merchant account industry has a number of ruthless and greedy sales representatives who are more interested in themselves then helping you.

Here are some red flags to watch out for and suggestions to test a provider's integrity:

• Repeatedly getting an answering machine every time you call.

• Representative seems to give you the run around every time you ask them a question about rates or their agreement.

• If they use one of those free web hosting services for their website and/or a free domain name (i.e. www.xyz.com/merchantaccounts/4876/5thave/index.html), look the other way.  If they can't afford a real domain name and website, then they shouldn't be in business.

• Their website doesn't show which bank(s) they represent.  It is unlawful for a merchant account provider not to show what banks they represent on their website.  Visa and MasterCard cracks down hard on those who don't.

• They don't post all their rates and fees on their website. 

Here are some additional ways you can avoid unscrupulous sales tactics:

• Scrutinize their merchant agreement, go over it with a fine tooth comb and question anything that appears "loose" or suspicious.  You certainly don't want to get caught in a loophole.

• Check the Better Business Bureau (BBB) database for complaints.

• Search the Internet and newsgroups at Google (http://www.google.com/grphp) for any unsatisfactory remarks made about the company.

The Right Price for a Merchant Account

Next on our list of factors to consider is price.  You certainly don't want to pay too much for a retail merchant account.  Sure providers have to make a living, but some nickel and dime merchants to death.  This is simply unacceptable.

Here are the common rates and fees associated with a retail merchant account:

*A reserve may be required, this is where a merchant account provider will hold onto some of your earnings to cover costs of chargebacks.  A reserve usually applies to high risk, high volume and non-US based businesses.  A reserve will vary, ask the provider for details.

I highly recommend Thompson Merchant Services for a retail merchant account.  They offer the lowest rates I've ever seen.  I can personally say I know them very well and have used them as my merchant account provider since November 2001.  I couldn't recommend them any higher.

Here are some questions to ask merchant account providers in regards to pricing:

• Are your rates introductory or fixed?

Some merchant account providers will try to give you really super rates up front, then as the months go by they'll slowly increase your processing fees.  Make sure rates are fixed and not introductory.

• Are you willing to put all your rates and fees in writing?

Make sure their paperwork shows ALL rates and fees you will have to pay.  They should never keep this information from you, ever.

• What are your hidden fees?

Almost all providers have hidden fees, some don't (like the company who set me up, Thompson Merchant Services, they showed all rates on their site).  Again, make sure those fees not mentioned on their website are shown in their agreement.

• Do you impose a cancellation fee if I decide to move to another provider?

If the provider is more interested in your business, rather then themselves, they won't impose a cancellation fee.  However, not every company sees it that way.  Look over their agreement carefully and ask them (to be on the safe side).

• Do you require a reserve to be setup?

A reserve is when a provider will hold on to part of your credit card earnings each month, and eventually release them to you later.  This should be avoided if at all possible.

Top Notch Customer Service is Paramount

Don't get carried away by great rates and then forget about customer service.  Customer service is king for long-term success and smooth transaction processing.  You don't want to be plagued with busy signals and long hold times.  Your time is valuable and downtime will cost you money.

Before signing up with a company, try out their customer service number.  Give it a ring and ask them a few questions.  Take note of their attitude, do they seem interested in wanting to help you?  Are their answers fully-detailed, yet easy to understand?

Some criteria that should be met for superior customer service:

• 24/7 availability (and yes, even on holidays too, if possible.  Definitely, if your business operates 365 days a year.)

• Hold time 5 minutes or less

• Friendly, courteous representatives who are knowledgeable

• Toll-free number

One last note before we move on, don't get conned by providers who say the reason they charge high rates is because of the superior customer support they give.  Sure, that might account for a slight price increase, but don't let them go overboard.  Customer service is important, but shouldn't cost you hundreds more than with another provider.  This type of scam is just so they can fill-up their pockets more.

Requirements for getting a Merchant Account

Now that we have covered the three most important factors in choosing a merchant account provider, let's look at what you'll need in order to expedite the process of getting your application approved.  Having this information handy will help considerably:

• Business checking account (some providers set you up with one)

• Copy of a voided check (if you use your own business checking account for credit card funds to be deposited in)

• Articles of incorporation, business license or reseller license. (A 'Certificate of Assumed Name' from your county Register of Deeds office may be all that is required. These only cost around $8.)  The purpose of this is to prove you are a legitimate business.
• Photocopy of your return or refund policy
• List of trade references
• Photocopy of recent tax returns (may or may not be needed depending on monthly sales volume you expect through your merchant account)
• Photocopy of your drivers license
• Social Security Number of the principal owner(s) (to run a credit check)

Step Four:  Choosing The Right Point Of Sale Swipe Terminal

OK, we have covered every aspect of preparing your retail establishment, what to look for in finding a merchant account, and lastly the information you'll need to obtain your retail merchant account.  Let's switch gears a bit and look into choosing a POS terminal for your business.  Do you need a full-featured all-in-one solution?  Perhaps just a basic swipe terminal solution is all that's required.  This section will aid you in the decision-making process.

Determining the Features Your Terminal Needs

Before you begin looking at swipe terminals, you need to come to a conclusion on what types of payment you will want to accept.  POS terminals have the ability to accept much more than just traditional credit cards.  Here are some of the other types of payment that can be processed, in addition to credit cards:

• Debit Cards

Most all POS terminals have the option of allowing you to accept debit cards like Star, Interlink, Pulse, Maestro, and others.  Some terminals have an internal PIN pad which your customers use to enter their PINs.  Others have a port to connect a hand-held PIN pad.  The biggest benefit to accepting debit cards is the fact that only a transaction fee is charged, almost never a discount rate.  Choosing whether to have a POS swipe terminal with an internal or external PIN pad depends on some factors like:

1.  Do you mind customers handling your terminal to enter their PIN?  Or would you be more comfortable with them using a hand-held PIN pad instead?

2.  There is less clutter with an internal PIN pad since it is an all-in-one unit

External PIN pads usually can be purchased for between $100 and $200. 

• Electronic Check Conversion (ECC)

Simply put, ECC will allow you to process paper checks electronically.  In order to do this you'd need to have a check imager/reader.  These run a few hundred dollars.  What they do is scan the MICR line at the bottom of the check and take an image of the entire check to store for your records.  You might see this at some bank ATM machines, where they scan your check and print a copy of it out on your receipt.

Here's some advantages to using Electronic Check Conversion:

1.  Money is deposited into your account faster

2.  Reduces paper check handling, like eliminating the need to deposit checks at your bank

3.  Eliminates risk of losing or having paper checks stolen

4.  Returned checks are reported sooner so you can collect more effectively

• Loyalty Cards (gift and rewards cards)

Accepting loyalty cards is great if you plan to be very promotional with your goods.  This solution is good for primary cash environments like grocery, movie rental, hardware stores, etc.  Accepting loyalty cards will help increase business.  You've seen these at grocery stores where they scan a little card that gives you "bonus points" for shopping.  They also allow you to take advantage of current promotions.  Many terminals can be programmed to accept loyalty cards.

• Smart Cards

Smart cards are still very new.  In addition to paying for goods, like a credit card, smart cards have a special chip in them that allows you to store specific information.  College campuses have begun using these to keep information on students, in addition to allowing them to "charge up" their cards with money. 

Smart cards will probably take over the traditional credit card market within the next 5 to 10 years.  It would be in your best interest to invest in a terminal that can be upgraded for smart cards, either with an internal smart card processor or the addition of a hand-held smart card reader/writer.  These external units cost about the same as external PIN pads.

• ATM/Check Cards

These are commonly referred to as debit cards, however they are actually check/ATM cards.  You can tell their difference from typical debit cards because they will have a Visa or MasterCard logo on them.  These cards can either be processed the same as credit cards or you can accept them as debit cards where the customer enters in their PIN.  It would be beneficial to you if you accept them like you would a PIN-based debit card, then you'd only incur a small transaction fee and no discount rate.  This will save you money in processing costs.

• Electronic Benefits Transfer (EBT)

If you wish to cater to food stamp and cash welfare benefit customers, then accepting EBT cards is for you.  EBT isn't just good for food purchases, but can include many non-food items.  EBT works just like debit card processing.  You will either need a POS terminal that has an internal PIN pad or purchase an external PIN pad.  EBT customers need to be able to enter in their PIN during checkout.

Integrated vs. Non-Integrated POS Swipe Terminals

Now that we covered what all you can accept, it's time to decide whether you want to use an integrated POS swipe terminal or a non-integrated system.  There are benefits to both sides, lets take a look at the pros and cons of both types:

Refurbished vs. New POS Swipe Terminals

Just as with other electronic refurbished products, you can save a great deal of money purchasing a used swipe terminal.  Refurbished terminals were returned to their manufacturer to be fixed and are then sold at a much lower price.  And in many cases, the warranty is the same on refurbished terminals as it is for new terminals.  Refurbished terminals may have some slight blemishes, but that can be expected of a previously own POS swipe terminal.  If you are on a tight budget, you might want to consider looking into a refurbished terminal instead of a brand new one.

Purchasing vs. Leasing A POS Swipe Terminal

From a quick look, leasing does appear to look a lot better than purchasing a solution outright.  However, there is a lot more to leases than meets the eye. 

Always remember if you choose to lease, you will end up paying more than if you would just purchase the processing solution from the beginning. Lets say you find a merchant account provider who will charge you $350 to purchase a credit card terminal. Or they will lease you the same terminals for $30 each month for the next 48 months. After figuring that up, in the end you will end up paying $1,440 for that terminal if you chose to lease it for 48 months. That's $1,090 more than you would have had to pay if you just purchased the solution right at the beginning. Also, be aware the above calculations do not include your state sales tax on the lease or the amount charged for the damage/loss waiver. With these two additional costs you can end up paying as much as $20 more along with the lease charges. Another factor you may not realize is the 48 month lease is not cancelable, so even if you go out of business you may still have to pay on that lease until the 4 years (48 months) is completed.

Unless you have to have a costly terminal with all the bells and whistles (and can't afford to purchase it outright), avoid a lease and purchase a POS terminal at the beginning.  It will save you a lot of money in the long run, as well as the potential headaches in case something unfortunate happens to your business.

Conclusion

Hopefully this guide has educated you and pointed you in the right direction to both choosing the right merchant account provider, and the right POS swipe terminal solution.  As mentioned previously throughout this guide, I highly recommend Thompson Merchant Services for all your credit card processing and terminal purchasing needs.  They have the best pricing available and house some of the best customer support around.  Whom ever you choose for your merchant account, take time to read over all agreements and don't allow yourself to be pushed into using one particular solution.  If the merchant account provider is truly interested in your success, they will be patient with you and provide you with any information needed to help in making a final decision.  I wish you great success and happy selling!