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The Premier Resource Center for Online Merchant Accounts
Getting a Credit Card Processing Merchant Account
If you are wanting to process credit cards, most banks charge a percentage of each transaction on each merchant account, called a discount rate, and a fixed per-transaction fee. There is often a fixed monthly fee, a monthly minimum order, and a one-time setup fee as well. A credit card payment-processing system, whether hardware- or software-based, is an additional expense, as we shall see.
Fees for your credit card processing merchant account
Fees for each credit card processing merchant account are like interest rates on loans - they vary depending on the perceived level of risk to the bank. Users of credit cards may refuse to pay certain charges for a variety of reasons, ranging from returned products to honest errors to fraudulent charges. Banks want to encourage the view of credit cards as a safe and convenient way to buy, so they are generally pretty lenient about allowing buyers to make chargebacks, as they are called.
Chargebacks on your credit card processing merchant account
The risk to the bank for credit card processing merchant accounts, is that chargebacks may occur after the merchant has already been paid, and the bank could be left holding the bag. How favorable a deal you get for your merchant account depends not only on how large a company you have, and how long you've been in business, but also on what kind of business you're in. Banks have stats on the rates of credit card chargebacks and other hanky-panky for merchant accounts in various industries. Somebody in the business once said that porno Web sites average over 50% chargebacks on their credit card processing, meaning that over half of the charges made don't get paid in the end.
Your credit card processing merchant account and your bank account
Banks do several things to limit their exposure to chargeback risk on merchant accounts following credit card activity. They may ask you to personally guarantee the merchant account agreement, meaning that if your company ends up owing money to the bank, you will be personally liable.
Naturally, companies in businesses that have a high rate of chargebacks, especially those selling big-ticket items, will pay less favorable fees. Banks will also hold back a certain percentage of your money every month as insurance against future chargebacks on the merchant account. If you are deemed to be a high chargeback risk, it could be months before the customer's money makes it through the system form your merchant account to your bank account. The bank's chargeback policy has a dollar cost, because money in your bank account earns interest for you, while money owed to you by the bank does not. Be sure to get all the details of a bank's chargeback policy for credit card processing merchant accounts.
Is your credit card processing merchant account too risky?
As with loans, insurance and other such financial services, some banks simply don't offer credit card processing merchant accounts to businesses in their "high-risk" categories, while others are happy to give a credit card processing merchant account to anybody, for a suitably high price. Some of the businesses considered "high-risk" are what you'd expect - anything to do with porno, gambling, MLM or GRQ (get rich quick). Weight-loss programs, herbal remedies, and (don't ask why) water filtration equipment are considered slightly less risky. If your business is on the official poo-poo list, you'll be forced to deal with a smaller bank for your credit card processing merchant account, and pay premium fees.
A credit card processing merchant account and the Internet trader
Whatever you're selling, an Internet-based store is automatically in a higher-cost category for a credit card processing merchant account than a traditional merchant account. In a traditional store, the customer's credit card is "swiped" through a gadget that reads the data in the magnetic stripe, and transmits that data to the credit card issuer, which either authorizes or declines the transaction in a matter of seconds. The credit card holder also signs a receipt. Such "cardholder present" transactions present little risk to the bank, and thus earn the lowest merchant account rates. Merchants doing transactions when the credit card holder is not physically present, whether over the phone or whatever, will pay a higher rate. Merchants doing business over the Internet will pay yet another slight premium, just for general purposes. When you apply for a credit card processing merchant account, the bank will ask you what percentage of your transactions are "cardholder not present" transactions, and offer you a rate accordingly (for Internet merchants this will of course be 100%).
To sum up, these are the factors that banks use to determine how good a rate to offer you for your merchant account for processing credit cards online:
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For each credit card processing merchant account - The percentage of "cardholder not present" transactions.
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For each credit card processing merchant account - The political correctness of the products you're selling.
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For each credit card processing merchant account - The average amount per transaction.
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For each credit card processing merchant account - Your projected monthly sales volume.
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For each credit card processing merchant account - How long you've been in business, and what kind of credit rating you have.
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The kinds credit card processing of cards you want to accept. American Express charges higher fees than Visa and Mastercard.
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The credit card processing Internet merchant account
Most banks offer credit card merchant accounts, but only a few are suitable for the Internet merchant at the moment. Some Luddite banks won't deal with Web merchants at all. Others may be willing to offer a merchant account, but aren't knowledgeable about the Internet, and will probably screw things up. If you go to the Web site of any of the major payment-processing software makers, you'll find a list of recommended banks. See: CyberCash, Inc. and Authorize.Net.
Simple credit card processing merchant accounts
The simple solutions if you are starting out on the Internet are PayPal and Clickbank. Both will give you a credit card processing merchant account and allow you to start trading. Clickbank is really only suitable for downloadable products such as software and ebooks, while PayPal, despite its shaky start has now evolved into a strong player in the market and is owned by ebay. It is a quick and efficient processor of credit cards.
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