For internet business owners, accepting credit cards is pretty much the only way to conduct business over the internet. The options are to go with a company like Paypal which has its drawbacks or to get a “real” credit card merchant account. Don’t get me wrong, Paypal is a “real” merchant account in that you can accept any types of credit cards, but this is only after you sign up for their premium business service which ends up being more expensive than a typical merchant account.
The discount rate on a typical credit card merchant account is about 2.1% to 2.5%. This is what’s called a qualified discount rate. Paypal doesn’t break these down into qualified or non-qualified rates, they just charge a flat rate of about 2.9% or so. The downside to this is that if you’re a merchant accepting transactions mostly from individual consumers, you’re overpaying on about 80% or more of your transactions.
A non-qualified or mid-qualified rate will usually add on an additional .5% to 1.5% for these transactions that are “downgraded” because they are either a rewards card which cost more to process or a government or business credit card.
Each transaction also has a cost, no matter how much the volume of the transaction. Makes me laugh sometimes when I buy a $.49 refill at the local convenience store on my credit card because I know that they’re paying at least $.15 to $.18 per transaction if not a bit more which on a $.49 gross volume transaction, they’re probably losing money. No wonder they sometimes just smile and tell me it’s on them. Most internet based transactions run about $.20 to $.30 which is competitive when you compare to Paypal at about $.30 per transaction. Watch for AVS or the gateway transactions as they can easily get their advertised per transaction cost up there.
Batch header fees would probably considered by most merchants one of those “hidden” fees. This is a fee that most merchant don’t ask about and unless they look closely, don’t know about and never question. These batch header fees may be as much as $100 per year or so depending on how often the merchant processes credit cards. What happens is that transactions are batched together usually daily and submitted. Each one of these batches are assessed a batch header fee of about $.25. So, for an easy way to calculate this, if you process transactions every day, you’ll be paying $.25 per day. So, even on your busiest month, this fee wouldn’t exceed $8 per month.
Monthly fees include an account maintenance fee or statement fee. Often called something like a customer service fee, etc. These fees are usually only one monthly fee of $5 to $10 or so. If at all possible, work with your merchant service provider to waive the monthly minimum. This monthly minimum fee is usually about $25 or so and if you’re not processing transactions, will be very expensive. Even though not processing usually means you’ll be going out of business soon anyway, paying an extra $25 worth of minimum every month is often more hassle and pain than it’s worth, especially when you can get this fee waived most of the time.
When processing through a regular merchant account, you’ll need a gateway in order to accept payments online. You may have heard of Authorize.Net which is one of the more popular gateways. Expect a setup of right around $100 or so for this. If you’re getting this setup for much less than that, including free, watch for other fees because merchant account companies will make up for waiving this fee by charging you other fees including a higher monthly or possibly an annual fee. Just be cautious here because like anything, if it sounds too good to be true, it probably is.
There are some advantages to Paypal over your more traditional merchant accounts. One such advantage is ease of use. Paypal is very user friendly and Authorize.Net as a gateway would be a close second. Most shopping carts are compatible with both and include modules to be able to install both or either. Accepting credit cards is a necessary evil in today’s internet world, but can be done with very little hassle or headache.
Brian Armstrong is a professional merchant account executive. He’s been setting up credit card merchant accounts since 2002 helping internet businesses just like yours accept credit cards. Brian specializes in ecommerce merchant account setup.
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