For internet business owners, accepting credit cards is pretty much the only way to conduct business over the internet. The options are to go with a company like Paypal which has its drawbacks or to get a "real" credit card merchant account. Don't get me wrong, Paypal is a "real" merchant account in that you can accept any types of credit cards, but this is only after you sign up for their premium business service which ends up being more expensive than a typical merchant account.
The discount rate on a typical credit card merchant account is about 2.1% to 2.5%. This is what's called a qualified discount rate. Paypal doesn't break these down into qualified or non-qualified rates, they just charge a flat rate of about 2.9% or so. The downside to this is that if you're a merchant accepting transactions mostly from individual consumers, you're overpaying on about 80% or more of your transactions.
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.
Monthly fees include an account maintenance fee or statement fee. Often called something like a customer service fee, etc. These fees are usually only one monthly fee of $5 to $10 or so. If at all possible, work with your merchant service provider to waive the monthly minimum. This monthly minimum fee is usually about $25 or so and if you're not processing transactions, will be very expensive. Even though not processing usually means you'll be going out of business soon anyway, paying an extra $25 worth of minimum every month is often more hassle and pain than it's worth, especially when you can get this fee waived most of the time.
If you're processing over the internet with a traditional account, you'll need a gateway. Authorize.Net is one of the more popular gateways and although some providers give this away for free, they have costs associated with this and will usually hit you with an annual fee or some other fees along the way to make up for this. Try to negotiate your monthly rates so that they are lower even if you end up paying a little more for the setup. Authorize.Net shouldn't cost more than about $100 to setup. I'd recommend against leasing as you'd end up paying 5 times as much for the setup over the 48 month lease you'd be stuck with.
There are some advantages to Paypal over your more traditional merchant accounts. One such advantage is ease of use. Paypal is very user friendly and Authorize.Net as a gateway would be a close second. Most shopping carts are compatible with both and include modules to be able to install both or either. Accepting credit cards is a necessary evil in today's internet world, but can be done with very little hassle or headache.
The discount rate on a typical credit card merchant account is about 2.1% to 2.5%. This is what's called a qualified discount rate. Paypal doesn't break these down into qualified or non-qualified rates, they just charge a flat rate of about 2.9% or so. The downside to this is that if you're a merchant accepting transactions mostly from individual consumers, you're overpaying on about 80% or more of your transactions.
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.
Monthly fees include an account maintenance fee or statement fee. Often called something like a customer service fee, etc. These fees are usually only one monthly fee of $5 to $10 or so. If at all possible, work with your merchant service provider to waive the monthly minimum. This monthly minimum fee is usually about $25 or so and if you're not processing transactions, will be very expensive. Even though not processing usually means you'll be going out of business soon anyway, paying an extra $25 worth of minimum every month is often more hassle and pain than it's worth, especially when you can get this fee waived most of the time.
If you're processing over the internet with a traditional account, you'll need a gateway. Authorize.Net is one of the more popular gateways and although some providers give this away for free, they have costs associated with this and will usually hit you with an annual fee or some other fees along the way to make up for this. Try to negotiate your monthly rates so that they are lower even if you end up paying a little more for the setup. Authorize.Net shouldn't cost more than about $100 to setup. I'd recommend against leasing as you'd end up paying 5 times as much for the setup over the 48 month lease you'd be stuck with.
There are some advantages to Paypal over your more traditional merchant accounts. One such advantage is ease of use. Paypal is very user friendly and Authorize.Net as a gateway would be a close second. Most shopping carts are compatible with both and include modules to be able to install both or either. Accepting credit cards is a necessary evil in today's internet world, but can be done with very little hassle or headache.
About the Author:
Brian Armstrong is a professional merchant account executive. He's been setting up credit card merchant accounts since 2002 helping internet businesses just like yours accept credit cards. Brian specializes in ecommerce merchant account setup. You can reach Brian toll free at 800-893-9540.
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