Choose A Merchant Account With Care
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 -- 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.

The Jargon

- 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

Minimum Costs

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 high
cost of interest over time. The same thinking is needed here.

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 balance.

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).

Hidden Costs

There are a variety of other charges, often not spelled out. Most
are small, and of little concern. But two need to be considered.

A chargeback fee is 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.

A late batch fee applies when you fail to close out each day. If
so, you may get hit with significant charges.

Check Out The Web Site

Many good merchant services are not supported with a web site,
for the bank offering them has not expanded to the web. But where
one exists, you can save time by checking it. If charges and
exceptions are not presented openly, it may best to go elsewhere.

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 and provide a 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 flee.

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 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 it is.

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 termination.

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 some of your customers live outside the US.

Wrapping Up

These notes arose from my own need to make changes in the way I
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. Visit http://www.wellsfargo.com or call 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.


----------------- About the Contributor -----------------
Article by Bob McElwain, web marketing and consulting since 1993.

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