It's time to look at how you should compare merchant accounts, so you can optimize your chances of selecting a merchant account service whom you can work well with for many years.
|This part of The Nine Minute Tutorial involves a
discussion of the specific issues you should address when you begin
to compare merchant accounts. You can then determine which
providers to whom to submit an application.
Look For When You Compare Merchant Accounts
overriding principle involved when selecting your merchant account service
is to be thorough. Lack of proper investigation prior to signing on
with a provider can result in subsequent unexpected costs and hassle. You
really don't want to find yourself spending a whole day on the phone with
your provider trying to resolve a dispute over chargebacks or other
The issues that you need to address when
you start to compare merchant accounts fall into 5 main
1. Fees Charged: Initially at least, most
businesses seeking a credit card processing service focus exclusively on
the fees they will be charged.
But be wary! When you compare
merchant accounts, you'll find that some providers attempt to lure new
merchants with unusually low discount rates. If it looks too good to be
Keep in mind that VISA, MasterCard and the other
card issuers charge their standard discount rates to the merchant account
providers. The merchant account provider is responsible for paying this
amount to the card issuing company. It then charges you, the merchant, a
higher discount rate, with some profit built in for itself - as it should.
After all, it is in business to make a profit.
So when you
compare merchant accounts, if you see unusually low discount rates being
offered, be on your guard. Remember that what looks like a super deal
to begin with may end up costing you in the long run, through unexpected
fees, poor service, etc.
As we discussed earlier, you'll
likely be paying some sort of upfront fee (whether specifically called
that, or whether identified as a payment for software or equipment), or a
monthly lease payment, together with the discount rate charge on your
sales, the per-transaction fee and some monthly service and/or gateway
Some merchant account providers will set high start-up
costs, but low per-transaction fees. Others will have high monthly
minimums and high discount rates, but low start-up
So how do you actually compare merchant accounts,
as far as costs are concerned, and sort out which may be worthwhile
The best answer that can be given is:
evaluate them based on what your business model is - and don't be over
persuaded by small differences in the costs they'll be charging
Here's a simple example where we compare merchant accounts
offered by two providers.
Provider A offers a start-up fee of $300; a discount rate of 2.40%, with a
minimum monthly charge of $20; a per-transaction charge of 20 cents; a
monthly gateway fee of $20 and a monthly statement fee of
Meanwhile, Provider B offers a start-up fee of $100; a
discount rate of 2.20%, with a minimum monthly charge of $25; a
per-transaction charge of 30 cents; a monthly gateway fee of $15 and a
monthly statement fee of $15.
Now let's suppose your business
sells CD's for $20 each, and since you're just getting started, you expect
to sell about 50 CD's each month ($1,000 per month in sales). Let's
compare merchant accounts. If you choose Provider A, you'll pay $24 for
the discount rate fee, $0 for the minimum monthly fee, $10 for
per-transaction charges, and monthly gateway and statement fees totaling
$30. The grand monthly total: $64.
With Provider "B", your
total would be $70, comprised of $22 for the discount rate fee, $3 for the
minimum monthly fee, $15 for per-transaction charges, and monthly gateway
and statement fees totaling $30.
So you can see that with
this business model, except for the higher start-up costs charged by
Provider A, there really is little to choose between the two providers, as
far as pricing goes ($6 per month).
2. Now let's
compare merchant account fees using a different business model. Let's
assume you sell high-end computers, at $2,000 a piece, and that you
anticipate selling 50 each month ($100,000 in monthly
Provider A would charge you $2,400 for the discount
rate fee, $0 for the minimum monthly fee, $10 for per-transaction charges,
and monthly gateway and statement fees totaling $30. The grand monthly
On the other hand, with Provider B you would
pay a monthly total of $2,245, comprised of $2,200 for the discount rate
fee, $0 for the minimum monthly fee, $15 for per-transaction charges, and
monthly gateway and statement fees totaling $30.
only a difference of $195 per month. However, over the course of a full
year, all other things being equal, the annual saving of about
$2,400 may swing you towards going with Provider B.
lessons: When you compare merchant accounts, of course you should
examine each provider's costs carefully, using reasonable assumptions for
your business model, and see what the bottom line is. But unless the
costs differ significantly overall, you'll likely be best off selecting a
provider based upon some of the other factors we'll be
Compatibility: Two issues here. First, different merchant account
providers use different gateways for online processing. Make sure you
won't have to make modifications to your website to accommodate the
gateway - and that your site will work effectively with the provider's
Second, and this is a related issue, if
you have a shopping cart within your website, make sure that it is
compatible. If you don't yet have shopping cart functionality but you
think you need it, you may wish to consider a provider that offers an
integrated system, including a merchant account, card processing service
and shopping cart. If so, review The Merchant Account Advisor's section on
Click the link to compare merchant accounts
as they relate to online
Issues: To fully compare merchant accounts, you must check out the
support and customer service each provider offers. Do they have a
toll-free number you can call when you have a question or problem? Does a
real live person answer, or do just get asked to leave a
When speaking with a representative before signing
on, find out how long it will take for the sales proceeds from your
transactions to be deposited to your checking account. Ask for the names
and phone numbers for a few of their customers - see what this sampling of
their customers says about their service.
Their Websites: As you compare merchant accounts, take a good hard
look at their websites. Make a determination from the website as to
whether the company appears credible and forthcoming with the information
they present. Does the site say how long the company has been in business?
Website review is an efficient and effective way to compare merchant
account providers and weed out those that may be fly-by-night
Contractual Issues: In order to compare merchant accounts properly,
you absolutely must carefully read each provider's contract before you
Explore each of the following contractual
the grounds for their terminating your merchant account?
assign you a transaction limit, so that if your monthly sales exceed
that figure, your fees can be
their chargeback policy?
or can they, require that you maintain a minimum reserve with them?
If so, on what terms?
have excessive chargebacks, do they have the right to withdraw or
withhold funds from your merchant account?
have the right to raise the discount rate - or any other charges -
without notifying you?
can you get out of the contract or are you tied in for a lengthy
their service allow you to process international orders?
contract allow them to take a security interest over the funds in
your merchant account?
advice when you compare merchant accounts:
Do Your Homework Before You Sign On With Any
And be sure to check out our recommendations for the top internet merchant accounts, phone & mail merchant accounts and retail merchant accounts.
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