5 Mistakes People Make With Their Ecommerce Merchant Account
Getting setup to accept credit cards with a credit card merchant account is a relatively easy process and can be done without much hassle. I’ve put together this brief guide to introduce you to a few components of internet merchant account pricing and a couple of comparisons to Paypal which has a good service as well.
The discount rate is typically what every merchant asks about when calling me for quotes. Although this is important, I can mark this down very low and still have merchants paying just as many fees as other providers. I guess what I’m trying to say is that don’t overlook other fees when faced with an “awesome” discount rate. Expect to pay around 2.1 to 2.5% for your qualified rate. Competitive rates are usually anything below 2.25%. Paypal doesn’t have a “qualified” rate as much as they just charge a flat rate of 3% which is on the high side. Paypal does a fantastic job of making things very simple and easy to manage. They’re higher priced on some things, but their simplicity makes up for some of the higher price.
Traditional merchant accounts have other pricing categories for their discount rates. These are the mid qualified and non-qualified rates. Although the majority of all transactions go through at the qualified rate, the mid and non still have their place when pricing accounts. The mid-qualified rates are typically the rewards cards or other credit cards with some cash back or other incentive associated with them. The non-qualified cards are government or corporate credit cards or in some other way are deemed “risky” such as when the funds aren’t captured until 48 hours or later after the funds were first authorized.
Each transaction also has a cost, no matter how much the volume of the transaction. Makes me laugh sometimes when I buy a $.49 refill at the local convenience store on my credit card because I know that they’re paying at least $.15 to $.18 per transaction if not a bit more which on a $.49 gross volume transaction, they’re probably losing money. No wonder they sometimes just smile and tell me it’s on them. Most internet based transactions run about $.20 to $.30 which is competitive when you compare to Paypal at about $.30 per transaction. Watch for AVS or the gateway transactions as they can easily get their advertised per transaction cost up there.
Unlike Paypal, traditional merchant accounts have a batch header fee. This is basically a daily processing fee. For every day of the month you process transactions, whether it is one transaction or 100 transactions, you’ll have a batch header fee. This is usually negotiable, but something that most merchant service providers don’t talk too much about. A lot of pricing is on a “don’t ask, don’t tell” meaning if the merchant doesn’t ask, the merchant sales person doesn’t tell. Don’t get me wrong, the pricing is all over the application, but unless the merchant asks, certain assumptions are made which may cost as much as a couple hundred dollars per year. When in doubt, ask what each fee is and when it will apply so that you aren’t caught off guard.
Merchant accounts have monthly fees. Paypal has a monthly fee if you use their merchant services. If you’re just accepting payments from other Paypal customers, you won’t have a monthly fee. But if you use them as you would a traditional merchant account where the payments can come from either Paypal customers or individual cardholders without a Paypal account, you’ll have a $25 monthly fee. Traditional merchant accounts can be as low as $10 to $15 per month including the gateway fee. If you’re an internet business just getting off the ground, try to get your monthly minimum waived. This is usually a $25 minimum and can be pricey especially when you’re just getting started.
Processing transactions through the internet also implies that you’ll have additional fees involved. This is usually through what’s called a gateway which is a company or software that will facilitate getting the transaction information from your customer to the bank for processing and is done online. Authorize.net is probably one of the more popular gateways that you’ve heard of. There are a lot more, but only a handful that are compatible with just about every shopping cart solution out there. If you do decide on Authorize.net, plan on a setup fee of about $100 or so. There are plenty of companies that give this setup away for free, but most of them also charge more on the monthly or will charge you the equivalent in an annual fee.
Credit card merchant accounts are worth having and with an internet based business pretty much your only real option. There may be a few other ways to get around having to get a credit card merchant account, but not without the expense of losing customers and sales. Make it easy on your customers and yourself by getting setup with an internet merchant account. This can be done easily and without a major hassle. Just follow the above guidelines for pricing and you’ll be fine. Check each contract before you commit. Plan on getting setup about 1-2 weeks before you need to go live. This will give you 2-3 days to get approved and a week or so of testing before you go live.
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Brian Armstrong is an internet merchant account executive. His focus is on helping internet business owners get setup with their internet merchant account. This specialization in ecommerce merchant account setups is because Brian is also an internet business owner that knows what it’s like to setup an internet business and run that business.
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