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Merchant Accounts - What You Need To Know by Yisroel Goodman
by Izzy Goodman

For a free e-book called "The FoolProof Guide to Accepting Credit Card and Check Payments," by William Hamilton, email us.

We recommend that you read this entire page before going to the end to see who we recommend.

Why should I get a merchant account?

Customers want a convenient and safe way to send payment. Money orders and checks are not very convenient nor are they safe. As a vendor, you want to close the transaction quickly. If you have to wait for the customer to remember to mail you a payment, there are too many things that can break the sale. So credit cards are a method by which the customer can place the order quickly.

What about payment services like Paypal?

Yes, payment services such as Paypal will work and is in fact the method of choice for most customers. But there are drawbacks. Often both buyer and seller must register for an account with the same service. The charge may appear on the customer's card as a charge from the service - not the actual merchant. Sellers complain about payments being accepted into their accounts which they do not want, such as payments from unverified accounts with unconfirmed addresses. Sometimes a minor problem leads to an entire account being restricted (something which should never happen with real merchant accounts) and payments continued to be accepted into these restricted accounts (which would NEVER happen with a real merchant account). Payment services often allow scammers to hide their identities. Disputes often go from the buyer to the buyer's credit card to the payment service and then to the seller. There are too many points along the line where the ball can be dropped and an innocent party made to pay for it. There is little incentive for the service to fight on behalf of the seller. Even if all the proper efforts are made, it is often determined that a scammer used a loophole in the system to perpetrate the fraud. If there is no money remaining in the scammer's account (and there wouldn't be) the victim loses.

With a merchant account you deal directly with the buyer and decide if you want to charge the card. With a payment service all you know about the buyer is what the service tells you. If the buyer used a stolen credit card or changed addresses, you wouldn't know about it. I did have a buyer try to get back his paypal payment made to me because I shipped to an old address from which he had moved years before. That was the only address I was given by Paypal because the buyer had never updated it. Fortunately Paypal ruled in my favor. With a real merchant account the buyer could not have made such a mistake. So while services like Paypal and Google are basically safe if some common sense is used, they still add complications which can make it less safe for the seller.

Since almost anyone can get a paypal account, many buyers have decided that a seller who has his own merchant account is more reliable than a seller who only accepts payment through a service. Many buyers do not want to join a payment service in order to make a purchase. Many sellers have discovered that having their own merchant account not only gives them a more professional appearance to their buyers, it also gives them more protection against fraud.

What about CCnow and Propay? Aren't these merchant accounts?

Not really. Companies like CCNow and ProPay allow merchants to pretend to have a merchant account. I will assume that CCNow (which I haven't used) works similar to ProPay (which I have used). The merchant validates the customer and enters the transaction at the site. There are no monthly fees, statement fees or minimums; it is strictly pay-as-you-go. Payments are not automatically accepted; the merchant must accept them. The merchant uses his own judgement and does not rely on a third-party to validate the customer. Charges appear on the statement with the merchant's name. However, there are still some disadvantages. The transaction fees are high. Propay has a fee to open the account (last I checked it was $35 annualy), a 3.5% percentage and a transaction fee of about 70 cents (35 cents on the acceptance and another 35 cents on the withdrawal. You can make one withdrawal which encompasses several transactions.) CCNow's rates are even higher. There are limits. Propay limits individual transactions to no more than $250 and no more than $1,000 per month, unless the merchant signs up for a different account with higher fees. Even though it appears to be a real merchant account, it isn't. Propay is acting as the middle-man. Chargebacks are reported to Propay, who may or may not contact the merchant in time to dispute them. As for validation, in about 20 transactions I made with Propay, it reported a zip code mismatch every single time. I even charged my own card and it reported a zip code mismatch, though I had been living at that address for over 12 years. When I contacted Propay, they blamed it on typos, on the issuing bank, on the AVS system, and would not for a moment entertain the notion that there might be a problem with their software. This was several years ago so they have probably fixed it by now.

There are some folks who shop by price alone and look for what is (or seems to be) the cheapest deal. There are some who understand that other factors may influence the bottom line. Do you want to deal with a company whose support desk often consists of a telephone answering machine? You can save on your startup costs if you do. But what would the long-term ramifications be? Perhaps it really isn't a "savings" when you take into account that the company with the higher fee provides a manned support line, electronic check processing, free shopping cart software, and a secure order form for your customers.

You also have to be very careful. Unfortunately, there is a lot of dishonesty in the merchant account arena. Like the stereotype of the sleazy used car salesman, providers often mention those areas where their rates are lower and fail to mention those areas where they are higher. Some outright lie.

I spent months researching merchant accounts , for myself and also for a series of articles I wrote for auctionbytes.com. I discovered that while most of them advertise "free application," almost ALL have a fee for opening the account and this fee ranges from a low of $25 to as much as $500. Having opened seven or eight different merchant accounts over the past twelve years, I have detailed my experiences. I suggest you read them and learn the tricks you have to watch out for. Read this for a list of the fees a merchant account might charge and the merchant account provider I recommend, Merchant Account Fees

Don't fall victim to sleazy marketing tactics and hidden charges!

Make sure you ask the right questions:

What does it cost to open the account?
What are the monthly fees, statement fees, gateway fees, annual fees, per transaction fees, batch fees, monthly minimum?
Don't fall for the "qualified" card rate. Ask what the rates are for corporate cards, Canadian cards and other foreign cards.
Is there any long-term commitment? Are there any closing/cancellation fees?

If you want a customized form for your own web site, the source code to our own ASP shopping cart, or have general questions about adding credit card processing to your site, email us.

My Recommendation

Having investigated numerous merchant accounts, the best one I found came recommended by a good friend who has been with them for many years. I spoke at length with a representative and feel comfortable recommending him. Since the fees vary according to the type of business being conducted, I can only give you the general information.

He promised that for those I recommend there would be NO application fee, annual fee, monthly fee, batch fee, avs/cvv fee, cancelation fee or PCI DSS fee. The people who signed up at my recommendation told me David is a man of his word and there were no unexpected charges. There would be a statement fee of $10 a month and a gateway fee to authorize.net of $15 for 250 transactions. There may be a one time fee of $89 to authorize.net. Instead of quoting a qualified, mid-qualified and non-qualified rate, they use the interchange rate table with about 80 rates in it and said the average rate would be about 2.3% plus 20 cents a transaction. Based on my experience, this is the best deal available. (If you know of a better one, I'd love to hear about it.) If you want to know more, email sales@ccs-digital.com and I will provide the contact information so you can talk to David directly and decide for yourself.

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