How you accept online payments will determine the scale of your online profits.
So when selecting a merchant account provider, more than just a degree of
circumspection is required. Information is critical - and too many e-businesses
have paralyzed their potential for growth and profit with a hasty or careless
business decision. Choosing the wrong merchant account provider is surely one of
the quickest ways to derail your online business.
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In a nutshell, a merchant account enables you to begin accepting credit card
payments over the Internet. It's a 'liaison' account linking your customer's
credit card account with your own business account, functioning as a
clearinghouse for credit card transactions. Sounds simple right? So what's the
first critical error many online businesspeople make? They assume that all
merchant accounts are alike.
Of course, this faulty assumption has led to much e-commerce frustration -
and more than one e-business crisis. Ask any merchant who's spent a day on hold
trying to resolve a simple chargeback, been drained by vampiric fees, or
attempted to reach an elusive customer service department about increasing a
monthly limit (while business grinds to a standstill online).
Here, building a sound business foundation means finding the best merchant
account for your business model, and for the types of goods you sell. Though the
rates of some merchant account providers can give you vertigo, many of the
cheaper solutions will end up costing you more in terms of poor service,
inflexible limits, technical difficulties, or inept customer care. The key is
finding the right balance.
First, competitive rates and reasonable fees are important, so make sure you
do some rate comparison. Here's what you have to look at:
Transaction Fees:
A transaction fee is a fixed charge for every online
transaction performed online. If you are selling a moderate number of high-end,
high-margin products, the transaction fee is going to be basically irrelevant.
However, if you're selling low-price, low-margin items, a high transaction fee
has the potential to take a sizeable chunk out of your profit.
Discount Rates:
A discount rate will be a flat percentage charged to you for
every online sale you transact. Remember: by itself, a low discount rate means
nothing. Look at a merchant account's entire rate and fee schedule, as well as
other service features. For card-not-present merchant accounts, you can expect
to pay a discount rate of between 2.2 and 2.9%.
Chargeback Rates and Rolling Reserves:
Chargebacks stem from repudiated
purchases and often can be traced to fraudulent transactions. Chargeback
reserves are implemented to protect the merchant account provider in the case of
a repudiated transaction. Your chargeback reserve will "hold" a
percentage of your total monthly sales on a rolling basis. The specific
percentage is determined by your chargeback rate: what kind of product or
service you sell, risk-assessment of your business model, as well as your credit
and chargeback history. Different merchant account providers have different
chargeback policies - and there are some that will not impose rolling reserves
on your business
Chargeback Fees:
Some merchant account providers will charge you a fee for
every chargeback you incur. If your business typically receives a
disproportionately high amount of chargebacks, then chargeback fees - compiled
with a rolling chargeback reserve - can hit you hard. Look out on this one -
many merchant account providers have high chargeback fees and reactive policies
that will establish monthly limits on your business or impose more stringent
chargeback rates.
Monthly Limits:
As a precaution, many merchant account providers will impose
limits on your monthly revenue intake. However, other merchant account providers
have policies with generous limits or no limit at all. If you expect to do
serious business on your website, then you need a serious merchant account
flexible to your needs.
When researching a prospective merchant account provider, you need to make
sure that you are selecting the right merchant account for your business model
and unique business needs. In short, make sure that your merchant provider does
not subject you to a one-size-fits-all approach. While significant, rates and
fees are still just the tip of the iceberg. You need to balance rates with the
best overall fit for your company. Here are more important factors to evaluate.
Chargebacks: Do a meticulous analysis of the chargeback policy and find out
where you merchant account provider stands. Chargebacks are becoming an
increasingly touchy issue with credit card companies and merchants alike, and
the dynamics of card-not-present transactions have pushed merchant account
providers to 'deduct' an increasingly high percentage of transaction proceeds.
So evaluate policy, plan for contingencies, and select a provider that will help
your business grow without the threat of punitive policies.
Underwriting and Risk
Assessment: Before you are approved for a merchant
account, the merchant account provider will underwrite and perform a risk
assessment of your business and business model. To leverage your chances for
approval, applying for a merchant account through a security-minded payment
processing company is good way to get better results on risk assessment. You
will also be in a stronger position to receive a merchant account tailored to
your specific business.
Customer Service: Communication is critical. Make sure your merchant account
provider has the customer care platform to swiftly and reliably answer questions
and resolve problems. Integrity is important - and the flight-by-night providers
don't like to answer the phone.
Online Experience and Personalized
Treatment: Make sure your prospective
merchant account provider has extensive experience working with a wide spectrum
of different card-not-present business models, both Internet pure-play and
'brick and click' enterprises. Some merchant account providers specialize in -
or won't touch - certain online business models. Look for a merchant account
provider who will personalize the experience and won't impose a commodity
solution on your business.
'Integrated' E-Commerce Providers: If you need more than a merchant account,
look for an e-commerce service and payment processing company that can integrate
your merchant account needs with your payment processing, hosting, and shopping
cart requirements. Integrated solutions mean you keep your infrastructure tight
and your customer service centralized.
Remember, rates and fees are simply a part of the big picture. Getting a
wider perspective on initially intangible items like sensible policies and
superior customer service is essential in choosing the best provider for your
unique business needs. Look for the details that distinguish one provider from
next. 'First-step' decisions like choosing a merchant account provider need to
be among your most intelligent strategic moves.
Continue
to Part 2
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