Credit Card Processing

By Sylvia Rosen

A merchant service account is the best way for your business to benefit from credit card acceptance. By starting credit card acceptance, businesses who currently invoice all their customers can improve cash flow: payment times go from 30, 60, and 90 days down to three to five days.

Setting up to accept credit cards

The terms and players involved in setting up merchant services can be confusing. And there are definitely some lower-than-dirt scam artists out there who will try to stick you with unfavorable terms and tricky contracts. Here are the players you should know:

• Banks - Your everyday business bank should be the first place you contact about credit card acceptance - many banks offer small business packages that include merchant services. Banks can be picky about accepting your application, though.
• Independent Sales Organization - An ISO is essentially a credit card broker. They set up and service merchant service accounts so you can accept credit cards, but do not do the actual processing. ISOs are less selective than banks, but that comes at a somewhat higher price. They are also not strictly regulated the way banks are, so be particularly vigilant when evaluating potential suppliers.
• Financial Service Provider - MasterCard and Visa require you to establish a merchant account through an intermediary. However American Express and Discover give you the option of applying directly to them.

You should also inquire at the various business associations and trade organizations you belong to - some of these groups offer good deals for small merchants through the power of bulk purchasing.

Online merchant account services

If you're opting to get an online merchant account, there are a variety of factors to take into account, especially if you're seeking an ecommerce merchant account such as PayPal, 2CheckOut, ClickBank, CCNow, DigiBuy, or OSCommerce. With so many Internet merchant account vendors out there, which one do you choose? Well, first we have to consider the following:

• Setup Fee: How much does it cost you to establish your account?
• Discount Rate: What piece of the pie is the processor going to take out?
• Transaction Fee: What is the amount of the flat fee they charge for each transaction?
• Monthly Fee: How much are you charged per month to keep the merchant account open?
• Gateway Setup Fee: What is the cost for them to set up your gateway?
• Gateway Monthly Fee: How much are you charged each month for gateway services?

Now that you understand the factors you need to consider when opening an online merchant account, it's time to compare three of the more majorly used Internet merchant account providers.

2CheckOut:

• Setup Fee: $49
• Discount Rate: 5.50%
• Transaction Fee: $.45
• Monthly Fee: $0

WorldPay:

• Setup Fee: $299.00
• Discount Rate: 2.95%
• Transaction Fee: $.35
• Monthly Fee: $35

PayPal Basic:

With PayPal basic, things are a little different. The more volume you reach each month, the more your discount rate is lowered.

• Less than $3,000 = 2.9 % and $.30 transaction fee
• Greater than $3,000 but less than $10,000 = 2.5% and $.30 transaction fee
• Greater than $10,000 but less than $100,000 = 2.2% and $.30 transaction fee
• Greater than $100,000 = 1.9% and $.30 transaction fee

For all of these PayPal options there is no setup fee and no monthly fee.

Cost and fees

There are an astonishing number of other fees related to credit card acceptance: statement fees, annual fees, programming fees, Internet processing fees, customer support fees… essentially a range of arbitrary jack-up-the-bill fees. Make sure you have a complete understanding of all the one-time, monthly and per-transaction charges you will incur before making your decision.

Banks and merchant services providers often label new customers applying for a merchant services account as high risk. It may be because of your industry, sales volume, or past history with merchant accounts, but no matter the cause, the high risk label means higher fees for you.

There are ways to manage your risk and lower your costs that are worth considering if you've been tagged as a high risk merchant.

If your risk level is considered high because of a high sales volume or highly priced merchandise, you may want to spread your charges out over more than one merchant account. This spreads your charge-backs over two different accounts as well, reducing the chances of your accounts being closed.

Additionally, if one of your merchant accounts does get closed for excessive charge-backs, having a second account means you don't have to close up shop. Continue accepting payments through your remaining account while you shop for a replacement for the one that was closed.

Protecting against security and unnecessary fees

Reduce your risk of fraudulent orders by declining transactions from high risk countries, using address verification (AVS), and requiring card verification values (CVV) for each transaction. Credit card fraudsters will often have the CVV or address, but they often lack both. Checking as many details as possible can catch a significant number of fraudulent orders.

The IP address of online orders can be checked against a list of open proxies, which thieves will often use to hide their true locations. Declining orders with IP addresses originating in a different country than the billing address can help reduce fraud as well.