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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