How do I get the money from a credit card sale?
good question and here is how it works. When you, the merchant,
want to accept a credit card for payment, the following process
occurs (this is a brief summary):
submit a Transaction to your processor using your electronic terminal
or Online Processing Software. Either option works almost the
same way. The terminal or Online Processing Software communicates
with the Visa/MasterCard Authorization to ensure that the Credit
Card is valid and that the transaction amount does not exceed
the cardholder's credit limit. The authorization puts a "hold"
for the transaction amount on the cardholder's credit limit. That
way, the funds are available to you when you complete the transaction.
To complete the transaction you will simply close your batch at
the end of the day with your terminal. By doing this, you are
promising the merchant account provider, sponsoring bank, and
issuing bank that you are prepared to deliver the goods and services
expected by the cardholder.
Online Software, you usually do not need to close your batch as
transactions are processed Real Time. From the time you close
your batch, funds are directly deposited into your bank account.
This process usually takes 48-72 Hours.
Can I go to a bank to get my merchant account?
you can but banks have tougher requirements for approval and do
not generally like new businesses. I suggest obtaining a merchant
account with a company that specializes in offering merchant services.
These organizations, known as Merchant Service Providers (MSP),
specialize in providing merchant accounts for new businesses.
MSP’s usually have less stringent approval requirements,
lower fees, better understanding of risk issues and customer service
departments that only handle inquiries about merchant accounts.
You will probably not deal directly with a Merchant Service Provider,
but rather an ISO that contracts with a MSP. These independent
sales organizations specialize in marketing to new businesses
soliciting merchant accounts. The ISO’s focus is selling
you a terminal or software that will allow you to process credit
card sales. The MSP also compensates ISO’s but the focus
of the ISO is usually selling equipment or Software. There are
many reputable ISO’s in the bankcard industry but a few
bad apples. I will explain how to choose the right MSP and ISO
is the main concern of any bank or merchant service provider.
Banks are more conservative and are highly regulated which gives
the MSP and ISO an edge. Internet, mail, telephone or any business
that does not see the credit card usually must use a MSP or ISO
because banks will usually not approve these types of businesses.
In addition, many MSP’s and ISO’s offer a number of
associated services, especially to online businesses, such as
shopping cart capabilities and website design.
How do I find the right merchant service provider for my business?
I said ISO’s were the marketing arm for merchant account
providers. Well, they will find you. You only need to ask the
right questions to ensure the merchant service provider fits your
here is where most problems start that could adversely affect
your business. ISO’s employ sales people to sell their service
and like all sales people make their living from making a sale
to earn a commission. Most have no interest in your success and
do not receive any additional money from the ISO. The industry
is competitive and sales people will sometimes not identify fees,
risk issues and other important issues that can affect your ability
to accept credit cards. I will not identify specific instances
that I have witnessed and please do not think all ISO’s
or sales people use deceitful tactics - but it is worth saying
to convince you to read and understand any contracts you sign
and understand how the process works because ultimately you are
responsible for your business. Therefore, all these ISO’s
are trying to promote their service as the best including the
lowest price on terminals, the lowest discount rate and the BEST
is easy to get distracted in this whirlwind of who has the lowest
price and the “best deal” and base your decision on
cost alone. One problem with using the lowest cost as your deciding
factor to determine who you choose to be your merchant account
provider and to process your credit card transactions is that
the processor is also handling your money. That is right, your
money. Price is important but should not be the only factor when
choosing a credit card processor. Credit card processors are not
all the same.
may take all types of businesses but specialize in one specific
field. For example, there are processors who specialize in Internet
businesses while other have better expertise in retail businesses.
Of course, you want to work with a processor who specializes in
your type of business and will provide you the best service. Here
are some good points to remember in choosing a merchant account
Educate yourself on how the entire process works. Understanding
how it works will allow you to ask the right questions.
Every business is unique. The credit card processor only receives
information on your business that you supply. Be sure that
the processor understands what you are selling, where you
are selling and how you sell. Seems simple but some merchant’s
have discovered the hard way that the processor did not understand
Find a bankcard professional. Someone who asks questions about
your business explains fees, how the service works, what equipment
best fits your needs and why.
QUESTIONS. There are no dumb questions when it comes to your
your Merchant Agreement. If you do not understand something,
ask to have it explained.
to have all fees identified and explained. Read the contract
to identify all cost involved.
not decide on a processor based on the “best deal”
on fees or equipment cost. All processors are very close in
fees. For example, the difference between a discount rate
of 1.79% and 1.89% on $10,000 in credit card sales is $10.
Saving a few bucks and picking a processor that does not fit
your needs could cost more in the long run.
you decide that a terminal or online software program fits
your needs understand that they all do one thing, verify credit
cards. Do not be sold on bells or whistles that you may not
need. Never lease equipment. Low cost or even free credit
card terminals are available.
Service. A professional bankcard person will provide good
service and be there to help you when you need it. You will
eventually need assistance with some type of issue. When you
call your sales representative, will he answer the phone -
or ignore your need for help?
use guidelines in approving accounts. Sales representatives
know this and will sometimes not disclose information about
your business if he or she believes this may affect whether
your account is approved or not. Some representatives are
only concerned with making a commission and not the success
of your business. Understand you are not usually dealing directly
with the credit card processor. The processor only receives
an application you sign filled out by a sales representative.
The processor assumes the information supplied about your
business is accurate. The processor uses this information
in approving and managing your account. If there is information
that is not correct there is a high probability your merchant
account will be suspended or terminated.
fraud and security issues. Your processor has material on these
two issues. This will save you money, guaranteed. Although very
important, do not be too critical in evaluating processors.
You will know which one is right based on your instinct and
what feels right. Aside from logic, your intuition - that voice
within you - may just lead you to the right vendor.
7. What do I need to open a merchant account and get set up to
take credit cards?
only requirements to open a merchant account are the following
- unless your business falls into a high-risk category. I will
explain high risk in a moment but here are the basic requirements
to have a merchant application approved. A. Business checking
account B. A web site or physical location C. No open bankruptcy
D. A product or service that is not on a restricted merchant list.
Many processors will work with you if you are willing to submit
to special conditions if you have less than perfect credit or
a risky type of business.
makes a business risky to the processor?
are a few reasons why a processor would consider a business risky
and possibly decline the application. I have listed reasons below
that would lead a MSP to consider a business high risk.
High monthly sales volume - Merchants who process large ticket
items (those over $500) and/or have a High Monthly Sales Volume
(usually over 25K per month) pose a special problem to merchant
service providers and to the merchants themselves. Merchants that
fall into this category need to be aware that Merchant Service
Providers will be more thorough on reviewing Merchant Applications
because of the high potential for fraud and potential losses.
They usually ask for more documentation up front including copies
of Tax Returns and Financial Statements. This additional documentation
helps legitimize your business.
credit - In the not too distant past, it was virtually impossible
for a person with a poor credit history - or no credit history
at all - to receive a merchant account. Heavily regulated banks
are subject to strict controls over their activities; they rarely
saw fit to grant merchant accounts to those without a sterling
credit history. Today, it is much easier to find a company willing
to give a merchant account to a merchant with a poor personal
credit history or even no credit history. The requirements and
terms of service may vary a little from ISO to ISO. If you fall
into this category, expect to pay a slightly higher Discount Rate
and be prepared for Reserve Account.
of business – Each merchant service provider restricts certain
types of business that they have had problems with in the past.
There are too many types to list here but your ISO will know if
your business is restricted. Some types of businesses that may
be on a MSP’s list are adult related businesses, international
merchants, higher ticket items that are not sold in a retail environment,
business opportunities, credit repair and multi-level organizations.
MSP’s consider these types of business risky due to the
high possibility of chargebacks. There are some MSP’s specialize
in higher risk accounts but will charge higher rates, require
a reserve and or delay fund deposits for 2-3 additional days.
I also be able to accept checks payments on my web site?
make sure that the merchant service provider knows your interest
to offer this important payment option to your customers, and
can accommodate this service. On the web page order form, you
can have one section where the customer may put in his/her credit
card information and another section where the customer may put
in the check information required (e.g., routing number, account
number, etc.). The merchant service provider can tell you all
the checking information that is necessary to collect from your
customers. The checking information goes through the payment gateway
just like the credit card information travels.
I now understand the components involved with online credit card
payment processing, how do I actually implement this on my web
you have designed your website, you can easily add another page
called the “Order Form”. If you rely on the expertise
of your web designer, the designer can do this in fifteen minutes
or less, unless you need special customization that may entail
more time. However, an order form is relatively simple to add.
Remember, you still must have a secure server with certification,
a gateway, and a merchant account. The shopping cart software
is optional (though highly recommended) and can be integrated
into your website by you or your designer with the instructions
provided by the shopping cart provider.
is the good news, by choosing the “right” merchant
service provider; you can have access to its secure server and
its gateway. There are merchant service providers who have their
own secure server, their own gateway and their own shopping cart,
and do not rely on other companies to fill those needs. In other
words, you can find a “one-stop shop” solution. It
is essential that you ask any merchant service provider if they
have their own gateway or outsource it to another company. If
they depend on another company for the gateway, you will be dealing
with at least two organizations (i.e., the merchant service provider
and gateway company), and they must work together.
stories abound about the lack of coordination between service
companies, leading to lots of headaches, heartaches, and possibly,
financial woes for you. Use one merchant service provider that
provides all the essentials.