Merchant Accounts

What Are Merchant Accounts and Why Should You Want One?

You've decided to get yourself into business on the Web, or you're an established company who wants to sell goods and services on-line. While browsing around your favorite sites, you've noticed a plethora of adverts which grab your attention. "Take Credit Cards Now", they scream, "0% Commission!".

Fighting your way through the jungle of e-commerce hype can be difficult, but WizoPay wants to make it simple for you. You need a merchant account? You want to sell on-line? Let us help you find some answers to those nagging questions.

Credit Cards? Who cares?

Your customers are all using credit cards to make purchases on the Web already, so don't ignore the demographics! Retailers refusing to enter the e-commerce arena are probably digging themselves an early grave. You know you want to make money using the Internet, especially if you already have an existing site promoting your business. Take it a step further, and actually sell your products online. You're worried about the cost? It's significantly cheaper than opening a new shop!

What is a Merchant Account?

A Merchant Account involves a special type of arrangement with a bank or clearing house that allows you to accept credit card payments into a special bank account (your "Merchant Account"). The result of any credit card transaction passed through your online store are then credited to your merchant bank account if they transaction is approved.

Why use a Merchant Account?

Having a Merchant Account is the most cost effective way of accepting payment by credit card. Once you have a merchant account (and a company who will authorize the payments online), you will be able to accept credit card numbers on your site, and then receive any payments due to you. It's as simple as that.

How does it work?

Getting the money from your customers credit card and into your account involves several stages. The first is actually approving the sale and taking the customer's credit card details on your Web site. Next, the card has to be verified and approved, to check that it's not been stolen, or has expired. Your Merchant Account company may provide this service, or you may choose to use an online authorization company, such as DataCash. It's wise not being too cheap with companies who provide authorization services, since accepting invalid credit card transactions could cost you dearly.

After the card has passed rigorous security checks, your merchant account provider (or online authorization company) then passes the details to their credit card processor who debit the customer's credit card and deposit the money into your merchant account. This chain of events takes between 1 and 2 days with most merchant account providers, although the features that your chosen provider offers may turn out to be different. We'll be covering a number of merchant account providers in our reviews.

The other method.

While some Merchant Account Providers offer an 'all-in-one' solution where they, supposedly, handle your merchant account and the processing of the credit card orders, you may prefer to let separate companies handle each section. For example, you may let one company provide the online authorization service, and get a merchant account yourself with your chosen bank.

When we come to review services, later on in this series, we'll investigate both methods. Remember, however, that using the 'all-in-one' method may mean a larger commission is taken out of your transactions, whereas the latter method may just cost you a larger startup fee.


How to Implement a Merchant Account

Sketching out your digital shop.

Before you apply for an e-commerce merchant account, you need to establish a strategy for your new venture. Are you selling memberships? A wide range of products? A single product? An ongoing service? Whatever your situation, you'll need to approach the task from a certain direction. Decide what your goals are, and stick with them until you're established.

Choose suitable software for your e-commerce site.

You're probably going to need software to run your e-commerce site, especially if you have a large catalogue of items to sell. The software will act as an electronic catalogue, allowing you to enter your wares, categorize them and price them accordingly. E-commerce software usually allows you to enter your own design templates so that your site looks the way you want it to.

Even if you're only going to be operating a simple membership service, you'll need a program to handle new subscribers and supplying passwords, although there are some specialist providers who can supply these services directly on their own servers.

How an e-commerce site works.

To establish what needs to be done before applying for your merchant account, let's run through a sample e-commerce site. Your customer arrives at your site, and is invited to browse a database of items. Product descriptions, pictures , and prices are all displayed to the customer by the database driven e-commerce software. They pick and choose from a variety of products and these are placed into their 'shopping basket'.
Now the user clicks on the Checkout button. Having decided to purchase their chosen items, the user fills out a delivery and payment form, handing over their credit card details, address, and other relevant information. Where do things go from here?

This is the point where different systems/methods can be used. If you're using an online authorization company who provides a secure server for your orders to be sent to, then once the user submits their payment details, it will go to the processors secure Web site, they will pass through the instruction to debit the card, and e-mail you the rest of the details (delivery address, product choices, etc.).

On the other hand, if you run your own secure server, the details will be sent to your own server. Then, depending on the setup, forwarded onto your credit card processor via programs installed on your server, or stored on the server for you to send, or process, manually.

Most Merchant Account Providers can provide you with equipment and software to allow you to process all credit card orders yourself, saving you from paying an online credit card processor to do it. However, this means you will have to provide the secure server for accepting the credit card information, and then you'll have to take each order and run it through your software or credit card terminal. Using an online credit card processor simplifies matters by sending the details straight to them, and they process the orders automatically.

After Processing.

After the card has been processed by yourself, or your online authorization company, the customer's card will be debited, and your Merchant Account credited within usually a couple of days. The Merchant Account Provider will also take a commission of approximately 5% per transaction.

Once you have the details of the order, the products selected and the delivery address, you must take action straight away and e-mail your customer a digital invoice, or at least a confirmation of the order. Many e-commerce software packages will deal with this for you, so there shouldn't be a need to worry.

You will want to arrange dispatch of the product promptly, to reduce the risk of 'chargebacks' when people become dissatisfied with waiting for their orders. Chargebacks cost you money, and won't put you in good favor with your Merchant Account Provider.

Linking your Credit Card Processor with your Merchant Account
If you opt to use an online credit card processor in conjunction with your e-commerce software, you will need to supply the credit card processor with details to link transactions to your merchant account. When you get a merchant account, you will be provided with a e-commerce merchant account number, which you can supply to the credit card processor. When a transaction comes through on your account, it merely delivers the money (minus commission) to the specified merchant account.


How to Implement a Merchant Account

Best Offers and Commissions

Merchant Express - Merchant Account Provider / Processor
Merchant Express are based in the heart of New England and pride themselves on their membership of their local Better Business Bureau. They can provide merchant accounts to a variety of businesses and offer competitive rates. There are no AVS, daily batchout, AMEX set up or annual fees, and the application fee is low, at $75.

A rate of approximately 2% is charged on all transactions, as well as a fixed fee of around 30 cents. They will also cater for swiped cards, in retail situations, and charge lower rates in these instances. Merchant Express will also give you a plethora of "free gifts" when you sign up with them. An online pre-application form is available, making the process simple and non time-consuming. Processing services are provided separately.

Advanced Merchant Services - Merchant Account Provider

Advanced Merchant Services offer both merchant accounts and on-line check acceptance. However, they don't publish their rates directly onto their Web site but claim they offer "the most competitive rates and fees in the industry".

They claim that over 50,000 companies use their services to process credit cards, and the company is backed by the Imperial Bank of California. They are compatible with nearly all the credit cards you could hope for. Visa, Mastercard, American Express, Discover/Novus, Diners Club and Carte Blanche, which makes this account immensely comprehensive. There are also no fees to pay until you're accepted and ready to start accepting credit cards. The company Web site is home to a simple form, which you can use to get the company's rates with.

NetBanx - Processor, Bureau

NetBanx offer a well rounded system which should appeal to the majority of people wanting to accept credit card payments over the net. While the service is based in the UK, it appears as if they'll accept registrations world-wide for their merchant 'bureau' service. You may feel, for real merchant accounts, that they may not be an ideal choice if you're located in the USA.

NetBanx are compatible with a selection of major UK banks, and are able to pass any transactions you receive via your Web site straight to your merchant account provider. To apply for a merchant account, however, you will have to get in touch with one of NetBanx's preferred banks directly and arrange a merchant account yourself. NetBanx will then provide secure server services, authorise any credit card transactions, and then passes the transaction on to your merchant account provider.
Netbanx charge between 1 and 4 per cent per transaction, based on the value of the sales you make. If you do over 10,000 pounds (roughly $16,000) of business within a month, you'll only be paying a 1% fee. For their Bureau service, charges of between 5 and 8 per cent are levied. There is also an upfront fee to pay, depending on the level of service you require, and the number of products you wish to sell.

Overall, Netbanx offer a comprehensive and professional looking service, that would be an ideal choice for those located in the UK. For those in the US, however, it may be advisable to look elsewhere.

Authorize.Net - Processor

While not actually providing merchant accounts, authorize.net do a good job of handling the authorisation and processing of credit card transactions. Their services are used by over 60,000 Internet merchants, which makes them appear as an immensely popular choice.

Authorize.net provide their own system which allows you to authorise, process and manage credit card and electronic check transactions in a real-time, online environment from any computer with an Internet connection and a Web browser. The merchant merely sends Authorize.net the information required using a secure encrypted Internet connection. From here on, Authorize.net handle the details.
As well as providing regular Internet credit card processing services, their Virtual Terminal can be used by traditional off-line business who are looking for a faster, easier way to authorise and manage credit card transactions. For Internet based businesses, the Authorize.net "WebLink" system can be used.

Authorize.net is controlled by Go2Net, Inc, a long standing member of the online community.

CVP Merchant Services - Merchant Account Provider

CVP offer a no-nonsense, simple to navigate Web site, packed full of no-nonsense information. CVP claims a 99% approval rate with all applicants, and they specialise in retail, mail order and Internet businesses. CVP was founded in 1990 with the belief that "our fair prices and customer service [are] unsurpassed in the industry".

CVP will process Visa, Mastercard, American Express and Discover, as well as debit cards. They can provide a virtual terminal for you to process cards or can sell terminal hardware. Check guarantee services are also provided. At this moment, CVP will only accept applications from US based businesses.

CVP charge a 2.29% discount rate on each transaction as well as a fixed fee of $.20. In a retail situation, when cards are being swiped, the charge is 1.49% and $.15 per transaction. A monthly minimum processing fee of $20-25 is charged. There is also no application fee required.

Electronic Transfer Inc. - Merchant Account Provider, Processor

Electronic Transfer Inc. boast that their service offers you a plethora of options for free. There's no application fee, no AMEX setup fee, no credit restrictions and no processing limits. ETI has been in the merchant account business since 1989, predating the World Wide Web, which gives them experience in dealing with retail situations, as well as Internet based scenarios.

As well as claiming to approve your application within 3 days, ETI offer some attractive rates. A fee of $.30 is charged per transaction, and then a discount of rate of 1.49 to 3.5 per cent is charged. Funds will also be credited to your bank and will be available after 48 hours.
You can choose to purchase terminal software and process your own credit card orders, or ETI can provide their own realtime processing system. Setup for this facility is $195 and a fee of $.25 is charged per transaction. Finally, ETI offer a 24 hour support line, unlike the majority of providers.

eCardNet - Merchant Account Provider

Offering a variety of online and offline solutions, eCardNet claims to be able to find a solution for you. Their Web site presents the whole world of merchant accounts in a concise and easy to understand way, which proves to be quite refreshing, compared to many other merchant account providers.


Doing It Without a Merchant

By now you've probably read a few of our articles about getting a merchant account. However, without two years of accounts for your business and a clear credit history you're probably going to hit major problems.

You may be able to convince a bank manager who you've been banking with for many years, to apply for an account on behalf of your new company, but without any real weight behind you you're going to be hitting some barriers. You can get around these, but there are certain cases where this will not be possible.

Oh woe! What can I do?

What's the answer to your merchant account woes, if you can't actually get a merchant account? Well, there are a number of companies providing a service whereby they will take the credit card orders from your site, process them, and then pay you by check at a later date. Sounds ideal, doesn't it? Well, there are many pros and cons to using these services. This article is all about these companies, and their systems.

What does this cost?

The services vary so much that it's hard to give a general figure. Commission charges can vary between about 10% to 20% of each transaction. You may also have to pay a membership fee per month, and possibly a fee for every new product you wish to sell through the service.

The Pros

The advantages of using these services are obvious. For a start, it cuts out the lengthy process of applying for and then obtaining a merchant account. This could easily take up to several weeks, time in which you could have been selling goods! The other advantage is that without these services, you may not have been able to sell your goods in the first place, since you're probably not eligible to get a merchant account anyway. However, these services are not without their disadvantages either..

The Cons

The disadvantages may be as blindingly obvious to you as the advantages were. You may find that certain types of goods aren't allowed, such as Adult materials, firearms, and the like. If you happen to be selling these sort of goods, then you'll be hitting a barrier once again.

The price is also a con. While getting a full merchant account system isn't particularly cheap, the savings add up once you receive barrages of orders. With a non merchant-account based system, you're left with paying a high commission on every order, plus probably paying fees for new products and amendments. As you can tell, it isn't the most flexible solution, which may leave some enthusiastic Web shopkeepers pulling their hair out.

You will also find that most providers keep back a percentage of your fees (over a certain amount) each month, say 50%, for safe keeping against chargebacks. Since they are technically the people selling the goods, they are responsible for any chargebacks by customers. As such, they keep back a percentage as a kind of deposit. You will be paid any held back fees after a predefined period of time, varying between vendor to vendor.

So, can I use this method?

After looking at several different providers of these merchant-less services, it appears that they primarily deal with companies who are selling tangible goods, or those selling software. The reasons for this are twofold. Firstly, they can keep a better track of actual goods, as opposed to 'services' and the like. Secondly, because they are officially the 'vendor' of your goods, they are responsibility for whatever happens. As such, they want to cover their backs wherever they can, and with tangible goods this is much easier. However, two of our featured providers do offer the intangible service.

However, you will see that there are providers who will allow you to sell intangible services through their systems, despite the majority dealing with tangible goods. They are always worth a try, especially if you have no other options available.

Who provides these services?

DigiBuy.com
Digibuy provide an immensely unique service to those wishing to sell software over the Internet. They take a 13.9% commission of each order, and charge either $29.99 or $199.99 for setup of your account, including one product. The higher fee of $199.99 allows you to use customizable order forms. You are then charged $9.99 per extra product you wish to add to the service.

No fees are held back by Digibuy, except their 13.9% commission, which makes this service appear to be fast, professional and worthy.

iBill.com
A defined leader in the market, iBill can provide a variety of services to you. They offer a plethora of options, from those who wish to sell intangible services (such as Web hosting etc.), to those with tangible goods. iBill do specify specific limits on transaction values, depending on your scenario. They also take between 11 and 15 per cent of each sale, which makes them a good deal.

If you're selling intangible goods, these are one of the few companies who'll let you do it without a merchant account. They're one of the big names, they try and look professional at all times, and they're definitely worth a try.

ABanx.com
ABanx provide a very similar service to IBill, providing services to retailers of both tangible and intangible goods. Within the first three months it appears as if ABanx will hold back any sales over $500, to protect against chargebacks, although it will pay the remaining sum to you later. ABanx charge a 14% commission, which may prove to be a cheap option for you if your volume is small.

The only thing to look out for with ABanx is that some of their services are still in beta-testing. If you're not sure about anything, remember to ask.

Conclusion

At this point, you're probably going to be facing a number of key decisions, and the most relevant to us is.. Do we get a merchant account, or allow someone else to process our orders? If you're planning on throwing in your full time job to set up a site selling products over the Internet, and you're destined to become big, perhaps it'd be better to try and go for a merchant account and persuading your bank manager to help you along the way.

If, however, you merely want to 'give it a go', and perhaps sell a low volume of goods, then a non merchant-account based system would probably do the trick, especially if selling arts and crafts or your own software packages.

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