Setting up a Merchant Account
Merchant accounts are necessary in order to receive funds from credit card sales. Following organizations offer merchant account services:
- Banks: Banks are secure, reliable and provide a more professional outlook of the business to the customer, but comes with more regulations.
- Independent Sales Organization (ISO) or Third Party Merchant Account Providers: They have fewer regulations and provide a good option for smaller businesses and start-ups with little credit history.
- Merchant Service Providers: They provide merchant account facilities and take care of credit card processing as well.
Fees
A merchant account may have multiple associated fees, so you have to select one based on expected transaction volumes. Some of the fees charged by banks are given below (not all banks charge all fees)
- Application Fee:
Charge for applying for an account, regardless of whether the application is successful or not.
- Setup Fee:Fee associated with establishing your account once the application has been approved.
- Discount Rate:Percentage amount deducted from each credit card sale. Typically, 1 to 3% of the sale amount.
- Statement Fee:Monthly charge for issuing statements on all transactions.
- Mid-qualified and Non-qualified Rate:This rate is usually applied when AVS (Address Verification System) is not checked or card is keyed in by the merchant. It is a higher rate for transactions that don't qualify for the discount rate.
- Transaction Fee:Flat rate on each transaction added to discount rate.
- Monthly Minimum Fee:Amount charged regardless of the level of sales each month.
- Chargeback:The fee which may cost you per fraudulent transaction. Charged when a client disputes transaction successfully.
- Reserve:To cover chargeback fees, some providers require you to maintain a certain amount in the account.
Instead of opening a merchant account with a bank, you may opt for using a payment processing service such as PayPal, 2Checkout or ClickBank. These typically roll merchant account and payment gateway together into one function.
Next we will have a look at the procedures involved in Choosing your Payment Gateway.
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