Accepting payments online and selecting the right merchant account provider
The process of setting up online payment may seem confusing at first, but the hard work is choosing the right service provider. In my search I talked to everyone from sales agents to bank representatives, and now I have a collection of very fine print contracts. I have prepared an overview of the process, things to consider and a comparison of fees. I hope this helps.
HOW IT WORKS: CREDIT CARD PAYMENT FLOW
- The customer enters payment information on our secure site (also known as a shopping cart/checkout).
- The payment details are sent to the payment gateway for approval.
- Gateway forwards the transaction to our Merchant Bank.
- Our Merchant Bank sends the transaction to the credit card issuing bank for verification.
- The credit card bank verifies the transaction and sends the response code (Approve, Deny) to our Merchant Bank.
- Our Merchant Bank forwards the response to the payment gateway.
- The payment gateway stores the results and the response to our online store. Payment information is displayed to the customer; i.e. “credit card was charged”, “credit card was denied”, etc.
This process happens in a matter of seconds.
WHERE DO WE GET A MERCHANT ACCOUNT?
Banks. Most banks use the First Data Corporation network for their credit card payment processing. The FDC network settles around 80% of all credit card transactions. Business Service Providers (MSPs). I refer to them as providers in this article. Advantages of MSP over banks:
- MSP has many affiliated banks and third-party account databases, which means higher approval rates (especially if your business is considered high risk).
- MSP will make recommendations on the most suitable solutions or packages. Banks have limited options.
- Better opportunities to negotiate lower rates and contract terms with providers than at a bank.
What are the requirements? Requirements vary depending on the provider and the amount of risk you are willing to take. Three vendors told me they just needed a tax ID or SS#, a business checking account, and an address (which isn’t completely accurate). I later found out that the provider submits our request to the insurer and the insurer will request additional information for approval. Most subscribers will request application and website information as follows:
Applicant and business information:
- Applicant must be the primary owner of the business.
- Business License (Tax ID Number) or DBA (SS#)
- Check account
- Address
- Driver’s license and director contact information
- Credit check: For new businesses, personal credit history is an influential element
On the website
- Must be an active site
- Company name or DBA name on the site
- Sample Product and Price
- Terms of Service
- Return/Refund Policy
- shipping methods
- Privacy Policy
- Contact information for support (email, form, etc.)
- Working Shopping Cart/Payment Page Ë Secure
Alternative service providers Alternative payment services like PayPal, Google Checkout, and Amazon FPS are becoming increasingly popular with small business startups. These companies offer packages that fit most business models, are easy to implement, low cost, and you can get started almost immediately.
CLASSIFICATION AND RATES
Read the fine print. Providers use the same group of financial institutions and gateways. It is a very competitive and lucrative market. They make money from markups on fees and charges for additional services. In my conversations with vendors, only if asked did some of the reps disclose additional costs. A representative told me to read the contract carefully, but he can’t give me the contract or discuss rates until he has my application.
Different fees and rates may apply to a specific card type (MC, Visa, AMEX, Discover, personal, business, and rewards). The industry term for this is Qualified vs. Non-qualified cards (non-qualified cards that have the highest unadvertised rates, of course). Read your contracts carefully, especially the footnotes.
What is important? Please note that rates are not fixed, most companies can change the rate with a 30-day notice. Finding a service provider with a strong reputation, flexible policy, good customer service and 24/7 technical support is more important than fees. An indicator of a good provider is transparency in their company and if they ask detailed questions about your business.
Fee comparison for WellsFargo, USBank, PayPal Standard, Google Checkout, Amazon FPS, CardService International, Electronic Transfer and Merchant Warehouse. see chart [http://www.tyemill.com/articles/wp-content/uploads/2008/12/articles_mspcomparison.png].
Recommendation of new businesses For a new business with unknown sales volume, transaction fees may not make a difference from the start. You could use PayPal or Google Checkout for a few months just to collect information about sales. Because there is no start-up cost, no monthly fees, an immediate sign-up and usage process, and low development time, there is very little risk and out-of-pocket cost. The only downsides are that customers will be redirected from your site during the transaction and the possible perception of not being as ‘professional’. That said, until you understand its volume, flexibility and ease are the way to go.