Accepting
credit card payments through your web site
requires an online merchant account as well
as a payment gateway service.
A merchant account is an
account with a bank or merchant account
provider which provides an underwriting
service to pay you for your sales while
it will then attempt to collect from your
customers' credit card accounts through
the banking infrastructure.
Payment Gateway is a software
tool that incorporates a set of functions
and protocols for connecting, to banking
networks, authorizing and capturing the
payment - known as payment processing. This
software will transmit a customer's order
transaction to and from an internet merchant
account provider through the secure banking
networks. Additionally, the payment gateway
provides a merchant database that stores
the order/transaction information whereby
you can at a later date check your orders
and produce reports and issue credit/refunds
if necessary.
The main reason why most
local financial institutions or banks do
not want to provide online merchant accounts
is because transactions conducted over the
Internet are totally different from face
to face transactions where a signature is
required to authorize the purchase. This
makes online transactions prone to credit
card fraud. Fraud protection should be one
of your primary considerations when choosing
an internet merchant account provider.
No matter which payment
gateway service you use or which merchant
provider you select, your Web site needs
to be integrated with your service providers
and you need to follow the integration instructions
that you are provided as part of the service
from providers.
A
bank that is authorized to issue online
merchant accounts (directly or through its
affiliates) to businesses and companies
is called an Acquiring bank and
it has been certified by Visa and MasterCard
associations for online transaction rather
than the usual face-to-face transactions.
An Acquiring bank can provide the merchant
with all of the services related to his/her
merchant account needs, including the Discover
and American
Express (although a separate application
process) which can be added to the merchant
processing for Visa and Mastercard.
Once
the merchant account is setup and "live"
on a payment processing system, merchants
can accept credit cards from customers.
This applies to both brick-and-mortar businesses
as well as Internet-based businesses.
Online
merchant account started around
1995 and and is treated by banking institutions
similar to a MOTO merchant account. MOTO
stands for Mail-Order-Telephone-Order or
card-not-present. The
processing of credit cards online is slightly
different than processing for restaurants,
hotels, car rental, etc. There is usually
a higher associated risk for the bank and
hence their pricing is higher.
Application Fees
or Setup Fees
Although many are waiving
these fees, some internet merchant account
providers still require an up front application
fee or setup fee. In almost all cases, this
is really a sales fee that is paid to the
salesperson or the sales organization and
any attempt to persuade a customer that
this fee is really an application processing
fee is futile. Underwriting departments
that process your application do not charge
a fee and it is part of the overall service
they provide for merchant accounts. Don't
let anyone tell you that this fee is necessary.
However, most merchant account providers
waive this fee.
Monthly Minimum
Fee
The truth about this is
that you will be paying at least $25 per
month (on top of the monthly statement fee)
for your account and this is in case you
do not process enough transactions that
would bring your total monthly fees about
$25. Most all internet merchant providers
require a monthly minimum fee since they
feel that they need to cover their costs
even if you don't use your merchant account
as much each month. To me this is logical
and from my years of experience in this
industry, I have never seen any merchant
provider waive this fee yet (unless they
were playing tricks and get you somewhere
else).
Statement Fee (also
called, Customer Service Fee, Online Support
Fee, etc.)
I have a different name
for this fee. I call it NONSENE fee. Merchant
companies are not content with making $25
minimum per month, so they want to come
up with another trick to charge you more
money. $10 for printed statements, $8 for
online transaction reporting, and $15 customer
support fee, etc. all all nonsense and silly.
You should suggest to the merchant company
that you do not wish to pay for any of this.
Discount Rate
Visa and Master card merchant
account discount rates should be TOTAL of
2.1%. IF you are getting anything other
than this, YOU ARE PAYING TOO MUCH. American
Express and Discover merchant accounts charge
3.25% and 2.6% respectively. This discount
rate gets deducted from your sales ticket
(e.g. if you sell an item for $100 to a
Visa cardholder, your sales proceed will
be $97.90 before other fees are deducted.
MY
ADVICE: For years
I have seen new businesses and companies
get Visa merchant accounts and Master Card
merchant account. Then they also wanted
to add American Express and Discover merchant
accounts to get more customers. However,
this is costly and you absolutely do not
need to do so (in 99% of cases). Anyone
who has American Express and Discover, already
has Visa and Mastercard. Why make your life
more complicated, have more merchant accounts
to manage, and on top of all, pay more in
discount fees and other fees ($10 per American
Express / Discover merchant accounts) when
you really get little or no return for it?
Transaction Fee
This is a fixed fee between
$0.10 and $0.30. The transaction fee is
a fixed fee and does not vary like the discount
fee. You pay 10 cents whether your sales
ticket is $10 or $10,000. This is yet another
fee that the merchant bank makes on top
of all the other fees they charge.
Payment Gateway
Transaction Fee
Some gateways also have
transaction fees. Please remember this is
paid to the payment gateway company or its
processor and not to the merchant account
provider. They are two separate fees.
Termination Fee
I dislike this the most.
Some merchant account providers charge you
anywhere between $200-$400 if in case you
want to cancel or terminate the account
within the first 12-months or the first
3-years. The worst companies I have seen
doing this are Card Services International
(or CS International) and some of their
banking affiliates. There is no need for
this fee. It is unfair and not necessary,
in my opinion.
Chargeback Fees
If one of your customer
requests a refund from their credit card
issuing company without getting a refund
or credit from you directly, your internet
merchant provider will charge you a separate
fee (usually between $10 - $20) for charge
back in addition to deducting the sale amount
from your sales receipts.
Read your merchant account
application and contract carefully as other
special fees may also apply. I have enclosed
a sample merchant
account application for your review
- please remember this just a sample application
only and not an actual application form.
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(last 30 days) 
