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Choosing An Internet Merchant Account

How It Works

Accepting credit card payments through your web site actually requires multiple components. Between a paying customer and your bank account, three layers exist:

Payment Gateway - This is the code that will transmit a customer's order to and from an internet merchant account provider. The payment gateway provides you the ability to accept customer billing information (credit card number, credit card type, expiration date, and payment amount) and the necessary validation steps that must be followed before the credit card is actually billed.

Internet Merchant Account - A Merchant Account is an account with a financial institution or bank, which enables you to accept credit card payments from your clients. The payment gateway actually transmits the billing information to the internet merchant account provider. Unfortunately, most local banks do not provide internet merchant account capability.

The main reason why most local financial institutions or banks do not want to provide online merchant accounts is because transactions conducted over the Internet are totally different from face to face transactions where a signature is required to authorize the purchase. This makes online transactions prone to credit card fraud. Fraud protection should be one of your primary considerations when choosing an internet merchant account provider.

Web Site - Regardless of which merchant provider and gateway service you choose, your web site will need to integrate with your service providers. Most providers include detailed web integration instructions. 

How Much Does It Cost ?

Understanding the total costs of your merchant provider can be tricky. There are more merchant account providers than there are people looking for internet merchant accounts so ask questions and be picky! Typically, an internet merchant account will have three types of costs:

1. Up Front Application Fees
    
2. On Going Fixed Fee
    
3. Discount Rate
    
4. Fixed Transaction Fee
    
5. Termination Fees
    
6. Miscellaneous Fees 

Let's discuss each type of cost:

1. Up Front Application Fees

Many internet merchant accounts will require an up front application fee. This fee, supposedly, is to cover their costs for processing your application. In case you choose not to open an internet merchant account, they still cover their initial costs. Although common, many providers waive these fees and you should choose a provider that does not require an up front fee.

2. On-Going Fixed Fee

Almost all internet merchant providers require a monthly fixed fee or "statement fee" as it is commonly named, which is simply another way to cover their costs and make money. You will be hard pressed to find a provider that does not require this type of fee on a monthly basis. However, do not choose an internet merchant account that requires more than $10 per month. Additionally, most internet merchant providers require a monthly minimum (usually $25). The bottom line is that you will be paying at least $25 per month (on top of the monthly statement fee) for your account.

3. Discount Rate

Usually, the discount rate will be between 2 and 4 percent. The discount rate is the sales commission the provider earns on each sale. For example, if the discount rate offered is 3%, and you receive a sale over your web site for $20, you will owe 60 cents to your internet merchant provider. 

4. Fixed Transaction Fee

Usually between $0.20 and $0.30, the fixed transaction fee is the fixed fee portion of each sale. Unlike the discount rate, the fixed transaction fee is the same for every transaction. Whether you get a $1 sale or a $100 sale, the transaction fee will be the same.

5. Termination Fee

A bit more hidden in the small print, a termination fee can apply if you cancel your merchant account within a specified period of time (usually within one year). But beware, some merchant providers require a three year commitment!

6. Miscellaneous Fees

If a customer requests a refund and they want their credit card credited, an internet merchant provider will charge you a separate fee (usually between $10 - $20). Read the contract carefully, as other special fees may apply.


Making Your Decision 

Before you choose and internet merchant provider, understand all of the cost components. Use your current or projected sales data to forecast what your internet merchant account costs will be. Planning ahead can save you time and money.