Who Needs Merchant Services?
If you own a business, merchant services allow you to accept credit and debit cards. Merchant services are available for both online stores or mail orders and those with a physical presence.
Today’s customers rarely use cash for their purchases, so you can increase sales by offering credit and debit payments. The average sale price is often higher when you offer credit card processing versus accepting cash.
Credit cards are less risk than accepting checks. Checks can be drawn off an account that does not have enough money in it or a closed account. You will have a hard time recovering lost money from a bad check. It is true that a credit card can be stolen, but merchant services offer some protection against fraud and stolen cards. Check the terms of your account to learn more.
Customers like the convenience of using a credit card at the store. The transaction is quicker and easier, which helps the cashier get through the line quicker and makes customers happier.
Merchant service providers deposit the money directly in your bank account, so it is safer for the store owner. If you have a lot of cash at your store, you are a target for theft. Less cash means less loss from employees or thieves.
Using merchant services also makes your business look more professional. Customers will see that you are serious about your business and that you value their services by making it easy for them to shop.
When applying for a merchant account, look at the fees. Some charge a monthly fee, but others do not. All merchant services charge a percentage of the total sale, and this rate varies between merchants and the type of merchandise or service you offer. Some change a small flat fee per transaction, which should be taken in to consideration when selecting a provider.
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Fees are More Important than Merchant Account Rates
Many retailers, particularly start-up retailers, are often so happy to find someone who will set them up to accept credit cards that they fail to realize that there are many different merchant account providers and they all offer different merchant account rates for their services. As in most other things in life, it frequently pays to shop around a little before you sign your name to something that is easier to get into than it is to get out of.
It would be so much easier if merchant account rates were just a single number which could be easily compared from one provider to another but this is not the situation. Instead, there are a number of sliding fees and rates, frequently coupled with set-up and monthly minimum fees that can turn the best deal on paper into the worst deal in practice. Here are some things to watch out for.
• The two basic fees are the individual transaction fee and the discount rate. Every transaction is charged a fixed processing fee, usually in the 0.15 to 0.50 range. In addition, the credit card company takes a “discount,” or a percentage of the total transaction price. This generally runs in the 1.49% range for solid retailers and can go up towards 4% for Internet-based purchases, due to their greater likelihood of fraud. The fee/discount ratio tends to balance out, in that a provider with a higher fee will require a lower discount and vice versa.
• Underneath these headline figures lurks a series of one-time setup, programming, and equipment fees, plus a set of daily and monthly service fees that can cost more than many low volume retailers make through an occasional plastic purchase. For those who are just starting their business, these are the costs that need to be carefully considered.
For companies that are just getting started or ones that only do a small gross amount of credit purchases a month, it is important to choose the company that offers the lowest overhead costs as opposed to the one that offers the lowest merchant account rates.
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Find the Best Merchant Account Rates
If you are setting up credit card processing online, you will need to know what the merchant account rates are to ensure that it will work for your business. There are different fees that come along with having a merchant account and you will need to know these before you open an account.
The Transaction Fees
Many new business owners assume that the merchant account rates only consists of the transaction fee, but this is not true. A transaction fee occurs every time a credit card payment is processed. Typically these are flat fees rather than a percentage. For online accounts, the average transaction fee is around .30, which doesn’t sound like a lot but it adds up.
Settlement Fees
Some merchant account rates also have a settlement or batch fee, which is when the money is sent to your bank. It is a processing fee and this typically happenseveryday. You’ll need to find out if this is a fee and how much it will cost.
Monthly Minimum
If the merchant account rates provider requires a minimum amount of credit card sales on a monthly basis and you’re below it, they will charge a fee. However, this fee is charged instead of your processing fees. This is about $15 per month, but can be higher depending on the merchant account.
Annual and Statement Fees
Some merchant accounts charge to generate and send monthly statements to you. In addition, some have an annual fee as well.
Knowing all the fees before you sign up for the account is crucial. You want the account so you can make money not spend more than you have to. The fees to have a merchant account are relatively low for the most part, but some are higher. A little online comparison shopping can save you a lot money.
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Different Merchant Account Rates
For any retailer or service provider, one of the keys to being successful is being able to provide customers with the convenience of having a number of different payment options. One payment option that needs to be accepted is credit cards, which are very convenient for customers. In order to accept credit cards, businesses will need to have a merchant account established. In order to save the most money possible, a business should do their best to find the lowest merchant account rates possible.
When a business searches for merchant account services, they will find that they rates they are charged could vary quite a bit from one service provider to the next. Typically, the merchant account rates follow a three tiered system. The first tiered system is typically the cheapest. Under this tier, a retailer is allowed to accept standard credit and debit cards either online or in person at a physical store. This is the cheapest of all merchant account services.
The second tier, which is also known as the mid-qualified rate, is the rate that is charged for cards that are not accepted by the first tier pricing system. The types of cards that are offered under this pricing system are typically credit cards with high rewards programs. Credit card providers typically charge these higher rates as they will have to offset some of the costs that come with providing rewards to their customers.
The most expensive merchant account rates come with the third tier, or non-qualified rates. Merchants that fall into this category typically have less conservative credit card acceptance rules, which add risk to the credit card provider. For example, merchants that fall into this category are not required to settle credit card batches on a daily basis, or they may not be required to verify zip codes when accepting credit cards.
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