Obtaining Merchant Card Accounts
By Robert Sullivan
Thursday, November 27, 2003; 3:30pm EST
There is little doubt as to the value of being able to take credit
cards as payment for your product or service that is mail order or
online ecommerce. This merchant account status
requires you deal with a provider or electronic clearing house for the
credit card transactions and a participating bank for deposit of your
funds. The process simply involves finding a bank that will accept you
as a merchant card customer.
The problem is that it can be difficult to obtain a merchant account
if you do not have a store front operation or if the majority of your
business is via mail order or online. Currently, most banks are simply not
interested in working with you unless you are a "traditional" business
owner. However, with the proliferation of mail order and home based
businesses, many electronic clearing houses are associated with banks
that cater to the mail order business. That's the good news. The bad
news is that if you are not very careful, your merchant account will
cost you a lot more than necessary.
This report provides information to assist you in evaluating various
banks and ensure you are getting the best deal possible. You do not
need one of the numerous "manuals" that sell for up to $60 and claim
to "guide you through the process." The "process" is actually very
simple ... you just need to find the best deal out there by using the
information we've provided.
Finding a provider. First, try going to your own bank and ask if they
will help. If they will, be sure and review the various charges
discussed below. Be careful since many banks deal with agents who in
turn represent an electronic clearing house. These agents are
commissioned and are not looking out for your interests. If your bank
won't help, check the yellow pages under "Credit Card & Other Credit
Plans-Equipment & Supplies" or similar heading. You may also search
the Internet which is how we found our merchant account provider. Most
listings will be agents that represent an electronic clearing house or
the clearing houses themselves. Remember, talk only to the electronic
clearing houses. It may not be clear if you're talking with a clearing
house or an agent, so ask! By the way, if you are not using the
Internet, you should be! See the news release at the end of this
Transaction costs. There is a discount rate (expressed as a percentage
of the sale) associated with each credit card transaction. This rate
is always higher for mail order businesses, but you should not pay
much over 2%. A transaction fee is also charged and this should be
Hardware/Software requirements. You will need a terminal (or software)
which allows you to enter credit card data and obtain authorization
for each charge. The terminal connects to a telephone line and calls
the clearing house; with software you need a computer and modem. This
is an area where many providers make their money. Terminal costs can
range from $300 to $2000 (the terminals are all basically the same).
Software, usually by "IC Verify," is approximately $350. Many
providers require that you purchase or lease equipment from them and
will tell you cost is not negotiable. This is not necessarily true.
One provider we initially contacted priced the terminal at $1200.
Later they reduced the cost to $800. Finally they agreed to $400. You
should not pay more than $375 for a terminal. In addition to the
terminal you might want a printer to generate a "sales receipt" for
the customer which you will mail with the merchandise or invoice.
Typical printer costs are $150-250. You do not need a printer,
however, since you can use a manual imprinter (usually furnished free)
I recommend you purchase software. It's handier and no additional
printer is required since you can use your computer system printer.
Furthermore, there are no hassles with warranties, electronic failures
and mechanical problems. Do not work with a provider if they will not
allow software as an alternate to a terminal.
Questions to ask the perspective provider before committing. Each
question is followed by a comment to assist you in determining a
Q: Are there any application fees?
C: There should be none although some providers charge up to $500.
Q: Are there any installation or programming fees?
C: There should be none although some providers charge up to $100.
Q: Are there any statement fees?
C: There should be none, although some banks charge a monthly
statement fee of up to $10/month.
Q: Is there a minimum account billing?
C: There should be none, although some banks charge a monthly fee of
up to $50 for accounts that do not meet the minimum.
Q: Is there a chargeback fee?
C: A chargeback occurs when a bankcard customer has their account
credited for a prior purchase (i.e., merchandise returned under a
guarantee). There should be no fees to you for this although some
providers charge up to $10.
Q: Is there a voice authorization fee?
C: A voice authorization is utilized when your terminal or software is
not available. The provider usually has a toll-free number to use for
this purpose. There should be no charge but some will charge up to
Q: What are the transaction fees?
C: These fees are in addition to the discount rate charge on each
transaction. They can vary depending on the form of the transaction
and in general bankcard numbers taken over the telephone are slightly
more expensive. A fair fee is 20-cents per transaction.
Q: Is there a bank setup fee?
C: This is typical of a fee you will not find out about until the 11th
hour unless you ask. There should be no setup fee but some banks
charge up to $50.
Q: Is there a daily close-out fee?
C: You will normally "close-out" your transactions at the end of each
business day. This is done by a simple transmittal to the provider via
your software or terminal. There should be no fees associated with
Q: When is customer support available? Toll-free number?
C: Support should be available to you via a toll-free number during
normal business hours.
Q: Is a reserve account required?
C: Some banks will require that you maintain a reserve account whose
amount is determined by your estimated sales receipts. You should not
deal with a bank that requires this reserve.
Q: When will funds be available?
C: That is, what is the time delay between a transaction and when the
money is available in the bank? It should not be longer than 3-days.
Q: Is money deposited in my own local bank?
C: In some cases, the provider's bank will require that funds be
placed in their bank, and not yours. If this is the case, you simply
move funds from their bank to yours a few times a month.
Q: What is the equipment warranty and what assistance is available if
the terminal becomes defective?
C: Warranty should be at least a year and if you are leasing, as long
as the lease. A 'loaner' should be available if your terminal requires
repair. (Note: We strongly recommend you do not lease. We didn't find
a single supplier who had lease terms we felt were acceptable.)
Q: What credit cards can be processed?
C: Visa and MasterCard are usually processed. You can easily add
Discover at no cost but there are additional fees associated with
Q: Is a manual imprinter available?
C: This should be included at no charge.
All the fees are negotiable. As a mail order business you may not have
much clout with which to bargain, but the right provider will charge
few, if any of these fees. The only charges you should incur are the
normal transaction fees and cost of equipment or software.
We paid $367 for the software (which was our preferred approach) and a
discount rate (for a manual entry; i.e., mail order) of 2% with a
30-cent transaction fee. If the credit card is "swiped;" i.e., you
have the credit card in-hand and can pass it through a reader, the
discount rate drops to 1.77%. The only other up front cost was about
$15 to purchase checks from their bank with which to withdraw our
funds. The rates you negotiate should be close to these figures.
Source of Article
Robert Sullivan is the
author of The Small Business Start-Up Guide, and United States
Government - New Customer!. He frequently lectures on starting small
businesses and appears on CNBC's "Minding Your Business" as a small
business expert. His books may be ordered toll-free by calling 1 800
Robert also developed and maintains an extensive award-winning
Internet website, "The Small Business Advisor," at