Date Published: 2000-05-01
by Bob McElwain
Choosing the right merchant account may be one of the most difficult business decisions you make.
There are hundreds to choose from. And they are scrambling for your money as aggressively as do the
credit card services for your personal dollars. As in most high pressure advertising, there are lots of
downright lies. Not in what is said, of course, but in what is
not mentioned. Believe it; in selecting a merchant account it is
strictly buyer beware! What follows is an attempt to make some
sense of the bewildering morass of options.
- Setup Fee:
- Varies widely, from $200 on up. It may or may not
include the software required to access your account from your
computer. It often includes a "commission" for the person who
sold you the service. And there is often a monthly fee as well.
For example, you may pay $15/month to use software.
- Monthly Lease Fee:
- Many services do not charge a setup fee.
Instead they charge a monthly fee for using their software or
virtual terminal. The commitment is generally for four years.
- Annual Renewal Fee:
- With so many services to choose from, there seems little reason to pick
one that requires this fee.
- Transaction Fee:
- A flat rate paid on each transaction. It
varies greatly, but $0.20 to $0.30 is common.
- Discount Rate:
- The percentage of the amount of the sale
charged on each transaction. This also varies greatly, but 2.5%
to 3% is common. There is generally a monthly minimum, often not
mentioned. It ranges from $25/month and up.
- Monthly Statement Fee:
- $10/month is common.
- Daily Batch Fee:
- The charge for closing out your account each
day. It is generally about $0.30. For a thirty day month, this
amounts to $9.00
The minimum monthly transaction fee is important to those
getting started, for you pay it whether or not you have any
sales. This becomes a non-factor given better sales. For
example, at a discount rate of 3% there will be no minimum charge
if sales are greater than $834 for the month.
Still, when getting started, minimum costs are likely to be
the minimum transaction, monthly statement, and daily batch fees,
or about $40/month and up.
Costs Of Greatest Concern
Whether or not to go for a setup fee and lower monthly costs
versus the higher rates on a monthly lease may be a tough call.
Some people prefer to pay cash for major items and save the often
high cost of interest over time. The same thinking is needed
However, do not be mislead by the grand brag of "No setup
fee." This needs to be treated as a red flag, for it really
should read "Lease." If you find it necessary to cancel a given
service and turn to another, you will be liable for the unpaid
One way to compare costs is to total those of all plans being
considered over a four year period. That is, compare $35/month
over 48 months ($1680) to a setup fee of $200 and $15/month for
software over the same period ($920).
There are a variety of other charges, often not spelled out.
Most are small, and of little concern. But two need to be
- Chargeback Fee:
- Charged when a customer reverses a
transaction. It commonly ranges from $5 - $35. This can be
costly if a flaw appears in your product and you can not satisfy
your customers quickly.
- Late Batch Fee:
- If you fail to close out each day, you may
get hit with significant charges.
Check Out The Web Site
Many good merchant services are not supported with a website,
for the bank offering them has not expanded to the Web. But
where one exists, you can save time by checking it. If charges,
including exceptions, are not presented openly, it may best to go
I found several sites that make things sound very sweet. All
I needed to do to obtain this unusually precious service was to
fill out a form which includes my phone number. I ignored such
sites. Leave a number, and you will be inundated with high
pressure sales pitches, from which the only rational action is to
Is The Service Provided Only Through The Web?
I may be unnecessarily wary, but I personally question the
value of a service not supported by a brick-and-mortar business.
I sense, but can not demonstrate, that an outfit that exits only
on the Web, is not as stable and reliable as one that operates
out of a building. While unlikely, they can disappear at any
time. And they certainly can become instantly unavailable if I
have a problem with which they do not wish to deal.
Ask Questions And Demand Answers
In deciding upon a service, ask questions and get good
answers. One I asked of one company was, "Under what
circumstances can my account be terminated?" The reply was,
"There are different reasons for Merchant termination." Not
helpful. And it took me three days to get it. I scratched this
outfit from my list very quickly.
If you can't get a simple and complete answer to a question
such as this, what kind of answer are you going to get to a tough
one, such as why your account was terminated?
Questions For Which Answers Are Required
- What are grounds for termination?
- Solid answers are needed here, for if terminated, you may never be able to get another
account anywhere. I did *not* get good answers from most of
those with whom I talked. Many mentioned such things as contract
violation and illegal activity, which are rather vague.
- What is the minimum monthly transaction fee?
- As suggested, it is usually about $25 to $35. Be sure to find out exactly what
- Are batch fees applicable?
- If so, what are they? What do late charges amount to? Not all services demand this fee.
- Is there an application fee?
- If so, there will likely be assurances that it is refunded if the application is turned down. However,
it is generally *not* refundable if you change your mind and choose a different service.
- What transaction limit can I expect?
- This is an amount based upon anticipated monthly volume. Exceed this limit, and you may be charged
additional fees. One company reported that exceeding this limit for three months was cause for
- Is a reserve required?
- Reserve is the amount of your money the service holds. There should be none if you have been in
business for a time. But if you're new to business and/or have less than good personal credit, you may
have to accept this restriction. It may mean depositing cash, having an amount equal to half your monthly
volume held, or something of this sort.
- Is there a toll-free support number answered by real live people?
- To me, this is the most important question of them all. Several firms I called simply record a
message; a representative supposedly calls back. (If you can only contact via email, you likely have the
wrong service.) Why is this important?
Very few things go wrong with a merchant account from a reliable firm. And it is unlikely that
anything serious will. But if something does go haywire, it will likely need a quick fix. When one
considers all the restrictions placed on you as a customer, not to mention the fees you are paying, there
needs to be a way to get fast help if needed.
A Note About International Sales
If you plan to sell internationally, be aware that not everyone has a credit card payable in US dollars.
Further, many merchant services charge a higher discount rate on such transactions. Ask about this rate,
if a number of your customers live outside the US.
These notes arose from my own need to make changes in the way I currently handle orders. As I got into
the topic, I saw the possibility for an article, so actually went further than I intended.
As I sat down to write, I found that only one of the fifteen companies contacted answered all my questions.
And many of the answers were vague, if not evasive. At bottom, I sense one must read the contract in detail
before signing up. I suggest passing on services that can not present a readable document. And on
those that are written in such a manner as to leave the company pretty much free to do as they please.
I had planned to include the names of half a dozen services that seem satisfactory. Things did not turn
out that way. At
http://www.merchantworkz.com, click on Rates in
the center column about three folds down, you will find a long list of services, with some basic data on each.
I only contacted a couple of larger banks. Of those, Wells Fargo seems the leader. They have been
active on the Web longer than most. If you lean toward an established bank, they may fill the bill.
http://www.wellsfargo.com, Or 800-451-5817.
Word of mouth advertising is powerful stuff. And here is a good example. After checking over a dozen
services, and wasting a ton of time, I will likely go with one recommended by a friend. Your best choice
may be to do the same.
by Bob McElwain, SiteTipsAndTricks.com
Web marketing and consulting since 1993. For Newbie-Friendly Site Stuff, subscribe to "STAT News."
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