Choose Your Merchant Account With Care
Choosing the right merchant account may be one of the most difficult business decisions you make. There are hundreds to choose from. And they are scrambling for your money as aggressively as do the credit card services for your personal dollars. As in most high pressure advertising, there are lots of downright lies. Not in what is said, of course, but in what is not mentioned. Believe it; in selecting a merchant account it is strictly buyer beware! What follows is an attempt to make some sense of the bewildering morass of options.
The Jargon
Setup Fee: Varies widely, from $200 on up. It may or may not include the software required to access your account from your computer. It often includes a "commission" for the person who sold you the service. And there is often a monthly fee as well. For example, you may pay $15/month to use software.
Monthly Lease Fee: Many services do not charge a setup fee. Instead they charge a monthly fee for using their software or virtual terminal. The commitment is generally for four years.
Annual Renewal Fee: With so many services to choose from, there seems little reason to pick one that requires this fee.
Transaction Fee: A flat rate paid on each transaction. It varies greatly, but $0.20 to $0.30 is common.
Discount Rate: The percentage of the amount of the sale charged on each transaction. This also varies greatly, but 2.5% to 3% is common. There is generally a monthly minimum, often not mentioned. It ranges from $25/month and up.
Monthly Statement Fee: $10/month is common.
Daily Batch Fee: The charge for closing out your account each day. It is generally about $0.30. For a thirty day month, this amounts to $9.00
Minimum Costs
The minimum monthly transaction fee is important to those getting started, for you pay it whether or not you have any sales. This becomes a non-factor given better sales. For example, at a discount rate of 3% there will be no minimum charge if sales are greater than $834 for the month.
Still, when getting started, minimum costs are likely to be the minimum transaction, monthly statement, and daily batch fees, or about $40/month and up.
Costs Of Greatest Concern
Whether or not to go for a setup fee and lower monthly costs versus the higher rates on a monthly lease may be a tough call. Some people prefer to pay cash for major items and save the often high cost of interest over time. The same thinking is needed here.
However, do not be mislead by the grand brag of "No setup fee." This needs to be treated as a red flag, for it really should read "Lease." If you find it necessary to cancel a given service and turn to another, you will be liable for the unpaid balance.
One way to compare costs is to total those of all plans being considered over a four year period. That is, compare $35/month over 48 months ($1680) to a setup fee of $200 and $15/month for software over the same period ($920).
Hidden Costs
There are a variety of other charges, often not spelled out. Most are small, and of little concern. But two need to be considered.
Chargeback Fee: Charged when a customer reverses a transaction. It commonly ranges from $5 - $35. This can be costly if a flaw appears in your product and you can not satisfy your customers quickly.
Late Batch Fee: If you fail to close out each day, you may get hit with significant charges.
Check Out The Website
Many good merchant services are not supported with a website, for the bank offering them has not expanded to the Web. But where one exists, you can save time by checking it. If charges, including exceptions, are not presented openly, it may best to go elsewhere.
I found several sites that make things sound very sweet. All I needed to do to obtain this unusually precious service was to fill out a form which includes my phone number. I ignored such sites. Leave a number, and you will be inundated with high pressure sales pitches, from which the only rational action is to flee.
Is The Service Provided Only Through The Web?
I may be unnecessarily wary, but I personally question the value of a service not supported by a brick-and-mortar business. I sense, but can not demonstrate, that an outfit that exits only on the Web, is not as stable and reliable as one that operates out of a building. While unlikely, they can disappear at any time. And they certainly can become instantly unavailable if I have a problem with which they do not wish to deal.
Ask Questions And Demand Answers
In deciding upon a service, ask questions and get good answers. One I asked of one company was, "Under what circumstances can my account be terminated?" The reply was, "There are different reasons for Merchant termination." Not helpful. And it took me three days to get it. I scratched this outfit from my list very quickly.
If you can't get a simple and complete answer to a question such as this, what kind of answer are you going to get to a tough one, such as why your account was terminated?
Questions For Which Answers Are Required
What are grounds for termination? Solid answers are needed here, for if terminated, you may never be able to get another account anywhere. I did *not* get good answers from most of those with whom I talked. Many mentioned such things as contract violation and illegal activity, which are rather vague.
What is the minimum monthly transaction fee? As suggested, it is usually about $25 to $35. Be sure to find out exactly what it is.
Are batch fees applicable? If so, what are they? What do late charges amount to? Not all services demand this fee.
Is there an application fee? If so, there will likely be assurances that it is refunded if the application is turned down. However, it is generally *not* refundable if you change your mind and choose a different service.
What transaction limit can I expect? This is an amount based upon anticipated monthly volume. Exceed this limit, and you may be charged additional fees. One company reported that exceeding this limit for three months was cause for termination.
Is a reserve required? Reserve is the amount of your money the service holds. There should be none if you have been in business for a time. But if you're new to business and/or have less than good personal credit, you may have to accept this restriction. It may mean depositing cash, having an amount equal to half your monthly volume held, or something of this sort.
Is there a toll-free support number answered by real live people? To me, this is the most important question of them all. Several firms I called simply record a message; a representative supposedly calls back. (If you can only contact via email, you likely have the wrong service.) Why is this important?
Very few things go wrong with a merchant account from a reliable firm. And it is unlikely that anything serious will. But if something does go haywire, it will likely need a quick fix. When one considers all the restrictions placed on you as a customer, not to mention the fees you are paying, there needs to be a way to get fast help if needed.
A Note About International Sales
If you plan to sell internationally, be aware that not everyone has a credit card payable in US dollars. Further, many merchant services charge a higher discount rate on such transactions. Ask about this rate, if a number of your customers live outside the US
Wrapping Up
These notes arose from my own need to make changes in the way I currently handle orders. As I got into the topic, I saw the possibility for an article, so actually went further than I intended.
As I sat down to write, I found that only one of the fifteen companies contacted answered all my questions. And many of the answers were vague, if not evasive. At bottom, I sense one must read the contract in detail before signing up. I suggest passing on services that can not present a readable document. And on those that are written in such a manner as to leave the company pretty much free to do as they please.
I had planned to include the names of half a dozen services that seem satisfactory. Things did not turn out that way. At MerchantWorkz.Com click on Rates in the center column about three folds down, you will find a long list of services, with some basic data on each.
I only contacted a couple of larger banks. Of those, Wells Fargo seems the leader. They have been active on the Web longer than most. If you lean toward an established bank, they may fill the bill. Call 800-451-5817.
Update: 11/21/00 - Word of mouth advertising is powerful stuff. And here is a good example. After checking over a dozen services, and wasting a ton of time, I decided to go with one recommended by a friend. Here are the details, and it is doubtful you can do better.
Call Rob or Kim Lyons at 800-313-5198. These are absolutely super folks who will answer all your questions with grace and style. They represent Authorize.Net, likely the largest and most successful credit card processing firm on the Web.
They handle all the get-started details and make it easy to wade through the related documents. Unless you hold things up, they will have you up and running within a matter of days. For doing so, they get the setup fee, $395.
I have been using this service for some time now. And I love it. The minimum monthly fee is $25 which means nothing if your volume is sufficient. There are no ups and extras I'm aware of beyond a modest chargeback fee. There is no daily or monthly batch fee, or any other such fees as are quite common. On any transaction, funds are deposited directly to your bank account and accounting of all transactions is provided via email each day. My recommendation is to ask for a maximum transaction amount much higher than you expect, and to do the same with total volume. Rob is the fellow who set me straight on this. They are not at all concerned about low volume customers. Their only concern is unexpectedly large transactions or a high frequency of smaller ones.
I pay an additional $15/month for their Gateway fee ($10 less than most services charge). I do so in order to be able to use their virtual terminal. That is, I go to their site and fill out a form. This saves me the cost of software and the hassle of updating it as required. Should you have reservations, just write me a note. I will be happy to update the above comments for you. -- Bob