Merchant Account Tips
Read these tips before signing up for a Merchant Account.
Many payment processing companies make themselves look extremely large on the Internet, yet are really just big advertisers and high pressure sales people who are not really a payment processing company at all. They sell processing for whoever pays them the most commission and it is always the merchant who ends up paying for it, usually in the first few months and in startup costs.
It is a known fact within the processing industry that more than 75% of new Internet businesses have a slow start or fail altogether. Avoid companies who's high monthly fees will drain your resources. Remember that many of them are depending on those monthly fees to compensate their sales and marketing efforts.
Since most sales people in the merchant account business are never going to tell you that there are better deals for you out there, we have compiled a list of things to watch out for.
What to Watch Out For:
- Find out if there are any fees whatsoever that aren't disclosed. Here is a list of some of the garbage fees that merchants pay because they are not aware of a better solution:
- Chargeback fees
- Retrieval fees
- Termination fees
- Gateway fees
- Gateway Per Item fees
- Hidden setup charges
- Non-refundable setup charges
- Batch fees
- Cancellation fees
- Minimum fees
- Pass through fees (these vary)
- Over limit fees
- Voice Authorization fees
- Voice AVS fees
- Non-Sufficient Funds fees
- Bank Setup fees
- Daily Close-out fees
- Software fees
- Licensing Fees
- Annual fees
- Amex/Discover setup fees
- Statement Fees (more for more services)
- Customer Support fees
- Technical Support fees
How much does a merchant account cost?
Typical processing fees include per transaction fee, batch closing fee, monthly statement fee, and chargeback fee. Additional fees that may apply are application fee, termination fee, account maintenance fee, monthly minimum fee, and gateway access fee.
Most business owners generally try to find a merchant payment provider that offers the lowest discount rate. This fee is usually calculated as a percentage to hundreds (basis point) on the gross dollar amount of each transaction and is deducted from your deposit of credit card funds. In some instances, it can be more advantageous to have a higher rate rather than a lower one because the overall impact on an average ticket depends on the way a merchant account is set up.
What kinds of typical startup costs can I expect?
The establishment of a merchant account generally requires a nominal application fee . There are, however, instances when a merchant account provider will waive these fees as part of an advertising campaign or in conjunction with added services. Additional startup costs are determined by whether a retail or Internet account is needed to accept and process payments. For example, a retail merchant account might need a POS terminal and supplies to accept credit and debit card transactions. Whereas, an Internet merchant account would need a payment gateway and some form of a shopping cart to accept payment from an online website.
- Be wary about advertisements that are misleading or are flat out dishonest. If they lie on their ads then most likely they will not care about you later on. Watch out for blurbs like:
- $500 Cash Reward if you can find a Better Deal. Research their reward and see what exactly they mean by reward. You may be surprised to find out that the reward is actually a cash refund after you sign up.
- Lowest Prices Guaranteed (Again, research their guarantee. They usually offer money if you can find lower prices, but the money paid to you is a refund once you sign up).
- No Setup Fee (Search their prices very carefully, they usually have another name for it like "real-time fee", "gateway fee", "software fee", or "virtual terminal fee").
- Instant Activation (These types of accounts have severe limitations attached).
- Instant Merchant Account (Be sure to ask them when you can receive your funds).
- Free Merchant Account (This is a gimmick; find out where the hidden costs and stipulations are, because every company must make a profit somewhere).
- No Merchant Account Needed (Do you really want someone else to handle your money for you and pay you when they want to? Technically you are under their umbrella, even though they issue you a merchant ID number. MasterCard and Visa do not allow multiple parties to share the same merchant account and will eventually shut these companies down).
- 99% of all Applications Approved (This is probably untrue, any credit card processing company with a 99% approval ratio is going to be out of business with all the risk they assume).
- 24 Hour Customer Service (Are they really providing it or do they pay an outside answering service. Try it out before you sign on the dotted line).
- 24/7 Technical Support (Are they really providing it because a reseller must depend on someone else. Also if you have multiple services, you may be calling many different support lines).
- We Offer Credit Card Processing (Find out if they are really just a sales office with no data center. If they are, they're at the mercy of a bank which may not live up to the sales office promises).
- We Offer Merchant Accounts (Most credit card processing and merchant account companies are really just sales people selling for someone else.
- Accept Credit Cards and Checks (Is it one company providing many services or a reseller selling multiple services for multiple companies for the most profit? Remember that the merchant will always pay for the higher commission that the sales people are paid).
- We Offer International Merchant Accounts (What they often mean is that they process payments from anywhere. Anyone who accepts Visa payments can accept them internationally).
- No On-Site Pictures Required (Find out exactly what they mean by this statement because this is a bank requirement).
- No Business License or Tax Returns Required (If this is really happening then the bank providing the merchant account is in a lot of hot water).
Remember that Visa and MasterCard regulations require that a company disclose who their sponsoring bank is if they mention Visa and MasterCard anywhere on their website or advertisement.
POS Hardware Scams
Don't assume that low priced hardware comes with the best processing because it usually doesn't.
Don't buy hardware that you can't take with you to any other processor.
Watch out for lease terms, this can be like buying a car. It is sometimes irrevocable and you have to pay a high percentage rate like 15-20% because it is not in-house.
Some processors secretly lock their terminals with a code that only their system can unlock.
Always ask about the total startup cost, hardware pricing, software license fees and be sure to shop around.
In 2005 the amount of POS terminals that were shipped in the U.S. were Over 3 million:
1. Verifone (most popular POS terminals in the U.S.)
2. Hypercom (most popular POS terminals in Europe)
4. Lipman (most popular wireless POS terminals)
Good Advice: Stick with the most popular terminals. Find a company who sells and supports the most popular POS Terminals for most types of businesses.
Give us a call or drop us an email and we will try to help you sort it out.
You Don't Have Full Use of Your Funds
If you are non face to face business (non-retail) be careful because many processors will freeze your funds once you start to show any processing growth. This has put many companies out of business because their cash flow was frozen by their processor. Most Processors only want businesses that do less than 10,000.00/mo. and once a business passes that amount they become a high risk business.
Lack of Integrity
Verify their integrity! Do a background check and see if the company is known for doing business with companies like yours. Did they become successful by supporting online gambling casinos and adult porn sites? These two industries bring in huge revenue:
"We felt the traffic on our site might be interested in the gaming world," said Gary Kremen, CEO of Sex.com. "It seems that the value of gaming is higher than adult sites."
Partnering with gambling and porn companies will bring legal issues with your processing company, and possibly even you. Lou Hirsh of ECommerce Times in his article for NewsFactor called, Is Porn Still the Hidden King of E-Commerce? said, "Experts noted that even as the porn industry as a whole rakes in dollars, it must also deal with legal limitations because of its taboo nature."
"Some companies, however, have decided that casino money isn't worth the risk given gambling's dubious legal status in the United States and the attempts by some state and federal officials to crack down.
In 2002, PayPal (Nasdaq: PYPL) of Mountain View was subpoenaed by the New York Attorney General's office, which is investigating online gambling." NewsFactor July 15, 2002
Chargeback Management Issues
Many processors assume that the merchant is wrong and don't process the chargeback in a timely fashion which robs the merchant of an opportunity to respond and avoid the chargeback.
Fees for chargebacks vary but most processors consider chargebacks to be a huge source of revenue and therefore have no desire to limit chargeback fees and help the merchant to minimize chargebacks to begin with..
Discount Rate Not Refunded
Most processors keep the discount rate whenever a credit is given. What this means is that if your business gives a lot of credits to keep customers happy, you can make a lot more money by working with a processor who returns the discount rate originally charged with every credit you give.
Big Bank Outsourcing
Don't assume a big bank is either better, or more ethical or has less costs. Most big banks outsource all of their services and leave the merchant paying the high fees.
Declined Transaction Fees
Be aware that if you host an online store then you are likely to get a bunch of declined transactions. Those declines cost money per transaction even if they are declined, usually around 20 cents each. The processor will know if these are from fraudulent attempts and might charge you anyway without telling you, as in many cases. A dishonest processor can tack on declined transaction charges in many ways and so it is important to work with a processing company with a good reputation.
Be careful of signing a contract too hastily. Read the application carefully because some contracts carry a non-cancellation clause or penalty. If a company will not leave an application with you overnight, they are probably trying to use "high pressure" tactics so that you don't really know what your signing.
If you really want to get as close as possible to the truth about credit card processing companies visit the Google Groups at http://www.google.com/grphp and follow these instructions:
1. Type in the name of the company that you are considering signing up with and add one of these keywords to it: "scam" "fraud" "lawsuit" "ripoff" "sucks" "dishonest" "illegal" without the quotes.
2. Find out what people are saying and see who has the best reputation. Be sure to check the dates.
I was amazed to find out how many companies were either suing their own customers for an unpaid cancellation fee or would not issue a refund to an unhappy customer or would withdraw unpaid fees directly from a merchants account without prior notification.
Remember that many companies try to cloak their dishonest practices by selling out to a bigger company when the going gets tough. These problems will not just go away so do your homework and find out the history of the company you are considering signing up with.
Note: Please mention InfoMerchant when quoting from this article.