Credit Card Merchant Accounts

A friend of mine wants to accept credit cards as part of a business. It seems that there are lots of companies that will help you set up a merchant account.

What are the most reputable ones?

What is a reasonable fee to pay? One company quoted my friend the following: $90 application fee; $20 fee for manual credit card machine; transaction fee of 3.0 % + 55 cents per transaction; $30 per month minimum transaction fees. Is this ok?

Thanks in advance!!!

Everything depends on your friend’s average sale and number of sales. 3% might not be high for someone doing few transactions and a low ticket average.

If your friend has an average charge of $50. and many charges per day, he/she’s paying too much.

All the fees are negotiable.

He/she should definitely shop more than one bank for a rate quote. They oughta be pretty competitive these days.

“Everything depends on your friend’s average sale and number of sales. 3% might not be high for someone doing few transactions and a low ticket average.”

My friend will be doing a small number of sales (one a week or so) of big-ticket items ($500 or so).

In that light, are the figures I mentioned earlier reasonable?

I’ve been through the process of setting up credit card processing for my own web-based business, and I did a lot of investigation and shopping around before I made my final decision.

There are four components to the cost of being able to take credit card orders.

  1. The charge levied by the credit card companies on each transaction. This tends to vary from territory to territory, but here in the UK for Visa / Mastercard it’s about 3.655% per transaction. It may be different where you are, but within any given territory it’s a constant, and shopping around isn’t going to help.

(This is also why, as a customer, if you go into a shop and can pay by cash or credit card, you should be able to negotiate a lower price for cash and get a discount so long as it’s less than the deduction the cc company would take from the merchant.)

  1. The management fee for whoever provides the service for you. This tends to be a fixed monthly fee. If you shop around, you’ll get different deals, but please appreciate simple laws of economics apply here. Those that charge more tend to provide more, and those that charge less tend to provide less. What seems like an attractive deal, because the fixed fee is low, may prove more hassle than it’s worth in the long run. If a supplier provides a service cheaply, he has to cut back somewhere and trim his margins just to survive. Also, beware of ‘hidden’ fees and catches. I’m sure you’re smart enough to know that very often services hyped as ‘free’ simply mean ‘we’ve buried the cost somewhere else’. So take care and read the small print.

Beware of terms and conditions. Several minor banks offer relatively inexpensive packages, but you have to open an account with them, the money can only go into that account, and there are some restrictions on your access to the cash in that account. Sometimes in life, ‘cheaper’ comes at a price, and ‘more expensive’ is a better deal.

Another very good idea is not to think about the situation where everything’s going smoothly. Think about things going wrong. Suppose you believed you had taken 1000 worth of orders but there was only 750 in your account. You’d want to have some access to the people running the service; you’d want to investigate, find out what’s gone wrong; you’d want to see if you’re being ripped off. It’s very hard to do this if your only contact is an email address in a foreign country and a phone line that roboticaly just routes you to nowhere.

  1. The charge for any equipment or consumables you need, such as the purchase or hire of a swipe machine or any other facilities that you must buy or install to provide a cc facility.

  2. The programming cost of integrating your website’s ordering page with the service provider’s server. This is a job for a skilled programmer, and there are lots of people who will do it for you. But it’s a free market - again, different fees for different yields. The only thing I’d say is (a) the service provider will usually offer to pass you on to someone who can handle the integration for you. Bad idea. Find your own independent technical geek, and (b) try to find someone who’s done it before and who, you can physically go visit. You need a signed written contract explaining that you will give him access to your site (including passwords etc.) for the purposes of integrating the payment facility, but that he may not use or abuse this access in any way that is detrimental to your business or obtain any fees outside of those you agree to pay him.

In my own case, I was very wary of many of the deals on offer, and eventually applied to Barclays bank (one of the ‘big four’ high street banks in the UK) for what they call an Internet Trader account. This was certainly not the cheapest option, and there are some aspects of the way they do things that I don’t like.

However, without wishing to provide any sort of advert or endorsement, I’ll say that their level of service suits me. The system works, was easy to set up, and the ‘back end’ reporting facility (so I can see all my transactions and where the money’s going) is very good. They have an excellent telephone support service where I always get through instantly to a real person (not an automated answer) who is qualified to help me. The massive back-up and support is what I’m paying for. Plus, if there are any ‘discrepancies’, I can physically go and visit my local branch and cause merry hell until I get some answers and some satisfaction. And if I don’t, I can get the press and the law involved, and Barclays have a reputation to protect. By and large, I’d say it’s worth it to me. Your mileage may vary.

A handy tip: if you do try and set this up via a bank or some other reputable institution, they’ll send you a ton of paperwork and loads of forms. Conform to the system, complete the paperwork, do as they say and send it off. Never query anything or ask if you could be allowed to do things slightly differently - this will set your application back by MONTHS. They are very good at coping with a ‘smooth’ application that conforms exactly to the norm. If you want something bespoke or you want to be exempt from any of the rules, they just can’t cope with the individuality and it takes forever for them to deal with it. This happened to me!

If the above seems daunting, well, that’s understandable. Only you can decide if access to the gazillion credit card holders around the world is worth it to you. It certainly was for me.

The alternative is to use PayPal or any of its variants, which is simple a cash transfer option, not a credit card option. About which, all I can say is:

It’s a great, hassle-free system. Until the day it goes wrong, and then trying to obtain redress is virtually impossible. They own the casino, they fix the rules. If they say you can’t have access to your money, then that’s it. They aren’t regulated, so it’s just down to you and them.

Hope this helps.

Why do companies accept credit cards at all, since the CCs charge them a part of the sale? Especially since stores (at least big chains, say) don’t charge you more if you pay by credit card.

Take, for example, Best Buy. Say you get a $500 tv there. If you pay with a credit card, Best Buy doesn’t see a pretty good chunk of that money. How is that in their best interest? Is it because people wouldn’t want to bring $500 in cash to the store to pay for the tv, so they wouldn’t buy it at all? Do interest rates they rack up on their store charge accounts cover it? What about stores that don’t have their own charge card?

The C.Card companies don’t keep all that much, especially if you’re a larger merchant. If you get an account for high volumes of transactions, you can pay around 1.75% for Visa/MC, around 2.5% for Discover, and right under 3% for Amex.
I wanted to take cards when I was in business for myself. Even though they would lower your up-front profit margins, they’ll substantially increase the number of shoppers that you get. They’ll also permit larger purchases.
I make a decent income, and buy lots of nice items. I never carry more than $30 or so on me, and I spend all of my money by means of credit cards or debit cards.