All about Credit Card Processing and Merchant Accounts
I work for a credit card processing company so I know a few things about merchant accounts. The following applies to a full-fledged merchant processing account where you are not using a third party processing system like paypal. The following is what you should look for when setting one up for a website:
Look for a processing rate of somewhere between 2.00% and 2.30%. The closer to 2.00% the better. Some processors will tell you they can give you 1.50% or something like that. It's Bull$h!t. Internet based sites can never be under 2.00%. Ever. Ever. Ever. It's simply not possible.
There is usually a transaction fee to go along with each tranactions. This can be anywhere from 10 cents to 50 cents. The closer to 10 cents the better. For Internet accounts this will usually be around 20 cents - 30 cents. If you don't see a transaction advertised, they are either hiding it or "blended" it with the percentage rate.
Processing usually entails a recurring monthly fee, usually called a statement fee. This can be from $5 to $25. $10 being average. There is always one. If not, they are getting that money from you in another way without disclosing it. (If you have verifiable proof that your monthly volume will be high, high being $50k a month, it is possible to have this waived but is still not likely).
Monthly minimums: The easiest way to get ripped off. Basically, if you don't process enough, they're going to wack you with a big fee. This can range anywhere from $10 a month to $25. $25 being average. If you expect to be low volume (under $2000 per month) this is a huge point to be explored. It can sometimes be waived so always ask about it!
Funds should be deposited into your account within 3 days or less. If the processor won't do that, they're holding your money so they can make interest. That's not in your best interest, however. If you can't get your money quickly, don't even consider using that processor. There's no good reason to hold the money that long. None. Zero. Zip.
Here are fees you should never pay:
- application fee
- minimum fee
- set up fee
- reprogramming fee
- annual fee
- membership fee
- watts fee
Why not pay these fees? Because the processor is getting a small percentage of your sales and all they have to do to get your money is sit on the a$$es. There's no reason to give them large fees like the above for doing even less then that.
American Express: For Internet merchant's their program is simple. You pay 3.5% for every sale on their card. Cut and dry. Nobody but American Express can control these rates. If someone tells you they can "hook you up" or give you a special rate, they are flat out lying to you.
Discover Card: Their rate varies depending on your average ticket. If your average ticket size is small you'll be looking at a rate around 3%. If your average ticket is higher (over $150) you'll be closer to 2%. You'll also have a transaction fee of 10 cents. Nobody but Discover Card can control these rates. If someone tells you they can "hook you up" or give you a special rate, they are flat out lying to you.
When opening a new account, you will usually be asked to sign a contract for a length of time. If you try to cancel your account within this time you have to pay a cancellation fee. It is extremely rare for a processor to not have one. I actually don't know of any who can waive this. Make sure you ask about this. You can be locked in a contract that automatically renews itself! And the fees can be as high as $800 just to get out. And if you think you can just not pay them, read about THE MATCH FILE below.
You will need to open a business checking account with your local bank. You should never be charged by the processor or your bank to have your funds deposited into it. If you are, get a new bank or processor.
The processor will do a credit check on you. This shouldn't have much of an effect on anything unless you have an open bancruptcy or extremely derogatory credit. There are some picky processing banks out there but there are some who'll take anyone. (We've gotten some unbelieveable accounts open at my day job).
Set up should never take more then two weeks and can be done in less then 24 hours at times. If someone is taking more then 10 days to get an account open, tell them thanks but no thanks. The odds are they're having problems and are feeding you BS.
Charge.com's price comparison is close to accurate but a little blurred. BEWARE! There are some real scumbags who prey on new merchants who have no clue about all of this. You could be slammed and left for dead before you ever even take an sale.
THE MATCH FILE (also known as the Terminated Merchant File) is the black list of credit card processing. If you get on it you can never accept Visa and MasterCard again. How do you get on it? If you owe a processor money, even just $5, they can place you on it. You can also get on it if you have too many chargebacks. If more then 2% of your credit card sales are charged back your account is closed, your funds are held, and you are added to the match file. Fraud will also get you to the match file. The last two scenarios are permanent and you're just screwed. If you are placed on the match file because you owe a processor money, you can get off the list by paying off your debt. FYI: when you are added to the match file, they also add your address so you're family is screwed, your business name, and business address.
One company to stay away from is Card Service International. You actually would most likely be dealing with their agents as opposed to the company directly. We get calls every week from merchants being screwed by a representative of theirs. Their rates and programs are horrible.
One place you may think is a good place to go is your local bank. Believe it or not it's not true. They actually just resell the services of other companies. The result is they are not very knowledgeable about what they are doing and their rates aren't very competitive. You may think it's nice and safe to be dealing with your local bank but in credit card processing nobody is local. Once your account is set up you then have to deal directly with the processing bank that owns your account and your local bank is no longer in the picture. They literally can't do jack for you. You'll be just like every other merchant; you'll need to call a toll-free number for support.
Shop around! There are a ton of businesses that offer merchant accounts. Find the one that suits you best and then reap the rewards of accepting credit cards.