How to find the right merchant account provider for your business.
Written by David Goodale
www.merchant-accounts.ca

I often receive calls from people who are researching to find a merchant account provider for their business, but don’t actually understand what they need or the right questions to ask. The purpose of this article is to shed some light on the subject, so you can make a better, more informed decision when researching to find a merchant account provider for your business.

There are many different types of merchant account providers.
Choosing a merchant account provider can be confusing, or even frustrating. You can read pages of copy, research rates, run comparisons and still have no clear idea which solution is best suited for your business.

However, if you know the right questions to ask you can make an educated and well-informed decision that will best serve your business.

The first issue I must stress is that no single bank or payment gateway is the best solution for every type of business. This means that there is no “one size fits all” solution out there. When I speak to potential customers, and especially when they are making comparisons to other providers, I recommend that they choose to work with the provider that is best suited to their particular business.

It comes down to the fact that there are many banks in the world, and not every bank specializes in taking on the same type of business. Different banks have different risk appetites. It’s just not possible to specialize in every conceivable area of business, and this is why you have to research to find the best solution to meet the needs of your business.

The basics – what to watch for when selecting your credit card processor.
I have previously written a popular checklist with the most common questions that should be asked when researching to find a merchant account provider. You can see this list at:

http://www.merchant-accounts.ca/the_questions_must_ask.htm

My goal in writing this article is to give you more detailed information, and delve further than just the most obvious questions to ask. There are many articles written about rates and getting the best pricing for your company. While rates are an important issue to consider, and while I do talk about rates extensively in this article, I will also focus on an often overlooked aspect of finding a credit card processing solution – the relationship.

The relationship with your bank, agent or processor is an important issue to consider. If rates are the sole criteria you base your decision on when choosing your merchant account provider, it could potentially be a mistake that could have a significantly negative impact on your business.

Understand your business before selecting a merchant account provider.
In order for you to make the best decision for your company, the first questions you ask should be about your own company. You need to define exactly what it is you will require.

The questions you should ask yourself:
Are you the person responsible for building, operating and maintaining your website?

1. If you are the person responsible for the website, how technically proficient are you?
2. If you have an IT staff or are outsourcing to a developer, how often are updates being done? Are you using a pre-built shopping cart, or will the developers build a custom solution for you?
3. What level technical support will you require on an ongoing basis?

Are you processing credit cards currently?

1. If so how long have you been processing credit cards for? How much money are you currently processing per month? How fast is your business growing?
2. If you have not processed credit cards previously, how much money do you expect to process per month? (Realistic expectations, not pie-in-the-sky).
   

Is your company internet only (ie – no brick and mortar storefront), or is the website an online extension of your offline business?

1. Do you need to process offline sales in addition to online sales?
2. Are you responsible for marketing the website and attracting traffic? If so, what is your level of expertise in this area? Expert? Intermediate? Beginner?
   

The above questions will determine the type of service and support your business will require on an ongoing basis. Lets examine this further by looking at how your business interacts with your credit card processor.

Managing the relationship
The reason I had you consider the above questions is because the solution you choose should be an asset to your business. Rates are important, but a low rate is not the magic bullet to operating a successful e-commerce business. If you operate a small business and have limited experience in terms of building and marketing an e-commerce website, you should put a great deal of thought into the resources that are available to you. You may need assistance with website development, or consulting with an expert for advertising and marketing advice (or many other unexpected issues that may come up along the way). If you will need a high level of support, you should work with a provider that has the resources to provide this level of support to you.

In a broad sense, some banks like working with new businesses while other banks typically prefer to take on large accounts like Sony, Home Depot, etc. If you operate a small business and are working with a processor that specializes in working with large corporations, they may not be interested in taking the extra time needed to assist a small or home based business through the process in order to help them get approved.

Small Businesses
If you operate a small company, or do not have expertise or experience in building an online business, it may be of great benefit to work with an agent or merchant provider that can assist you with day-to-day issues in regards to the development and marketing of your website.

This may include helping you to find a web host (and identify what makes a good web host), select shopping cart software, and explain some common and inexpensive marketing avenues that new businesses can use to their advantage.

I see many applications come across my desk every month. Some businesses will succeed while unfortunately others do not. I recommend you learn from the experience of others, as this is a valuable resource. For example, if you need help with selecting a web analytics package, or an expert who can assist you with questions about how to best operate a Google advertising campaign, having access to people who can help you with these issues can make a huge impact on the success of your business.

Large Businesses
If you operate a large business it’s often good to contact multiple different banks, or in some cases to work with an agent that has relationships with multiple banks. If you can find an agent with multiple industry contacts, and in particular if they tend to work with companies specifically in your industry (for example if you operate in the travel industry), they will likely have relationships with banks that are best suited to offer your company attractive rates.

How to get the best rates for your business
In terms of getting the best rates for your company, every merchant should realize that as the business grows and the trading volume grows, the account will become more attractive to the bank they are working with. If you operate your account in good standing, it is likely that you can request a rate review after several months of trading (usually 6 or more). At this point your rate may be reduced depending on the history of your account. Generally speaking, the stronger your trading history and the fewer your chargebacks, the better chance you stand of having your rates reduced.

If you have a processing history and are looking to find a new credit card processor, when getting a quote do not forget to tell them that you have a processing history. A processing history can be used to review your business and prove that your account will operate in good standing. In other words, it helps to qualify your business to receive a lowered discount rate.

How to spot hidden or unclear charges – research before signing up
When researching potential merchant account providers, you should make sure that you understand all of the costs which will apply to your account. Fees are not always obvious or easy to understand, so don’t be afraid to ask about hidden or unclear descriptions of different charges.

Most merchant account providers will charge some or all of the following:

1. Setup Fee – fee to open the account
2. Monthly Fee – monthly fee to maintain the account
3. Discount Rate – percentage of each transaction processed is retained as a service fee
4. Per Transaction Fee – flat rate fee charged for every transaction
5. Gateway Fee – monthly fee to use the payment gateway
6. Chargeback Fee – fee which occurs when a transaction is disputed
7. Statement Fee – fee for providing you with a paper (or electronic) statement each month
8. Monthly Minimum – see notes below
9. One fee in particular that some merchants do not anticipate is often called a “monthly minimum” fee. This is where the bank will charge you an additional fee in addition to your regular monthly fee, if you do not process enough transaction volume. This is more likely to impact small businesses.

Another issue to watch for are mid and non-qualified discount rates. “Qualified”, “mid-qualified” and “non-qualified” are industry terms used by credit card processors to classify different types of transactions.

Rates that are advertised on websites are commonly the qualified discount rate because it is the lowest of the three types. I won’t go into great detail about mid and non-qualified discount rates because it is beyond the scope of this article. What you need to know is that within the U.S.A most banks will charge a discount rate that fluctuates depending on the type of transaction. Mid and non-qualified transactions typically add from 1.5% - 2.5% onto the normal discount rate. If a company is advertising a 2% discount rate, and if you process internet based transactions, your transactions will likely be charged at a mid or non-qualified rate, which means your actual applied discount rate is likely to be significantly higher than anticipated.

Most internet transactions, transactions from corporate or reward credit cards, and transactions where address verification (a fraud screening check) is not used will be classified at a non-qualified rate. Some merchant account providers (most Canadian merchant account providers) do not charge mid or non-qualified rates, which makes it easier for a merchant to anticipate costs and develop more accurate financial projections. If your rate appears to be quite low, you should take the time to ask your processor if they charge mid and non-qualified discount rates. Remember - if a rate looks to good to be true, it probably is.

The other fee to pay particular attention to is the per transaction fee. Your processor will most likely charge a flat rate “per transaction” fee in addition to the monthly fee. For a merchant with a small ticket size (transactions under $10) the per transaction fee becomes more important. If your item has a particularly low ticket price it becomes particularly important – as while the discount rate is only a percentage of the overall transaction, if your ticket price is low (for example, an average sale of $5) the per transaction fee can make a huge impact on the costs of running your business.

Which pricing structure is best for small businesses?
If you operate a small business that is still in the early stages of development upfront costs are likely an important issue. While it would be nice for every small business to start out processing thousands of dollars per month, many start small and grow slowly. This means that your focus in the short term may be on the setup and monthly fees as opposed to the discount rate and per transaction fee. Remember that as you establish a processing history most processors will give you an opportunity for a rate review after several months of processing.

Which pricing structure is best for large businesses?
Large businesses process more money per month, which means that the discount rate and per transaction fees become much more important than setup or monthly fees. The discount rate is the percentage of the transaction that the bank will retain as the service fee for performing the transaction.

Conclusion
There are many different criteria to consider when selecting a merchant account provider. This article is not meant to be a comprehensive resource. There are too many criteria to consider.

The best way for you to select a merchant account provider is to determine what you really need. Customer support, marketing and development advice, low rates and a reliable solution are all important criteria to consider.

My best advice is simply to remind you that your merchant account provider is there to assist you with building your business. Call and discuss your concerns and questions before applying. Do not hesitate to ask any question that comes to mind. Responses from your merchant account provider should be candid, honest and to the point. Don’t make a decision on the spot. Research, see which company you fee most comfortable with, and move forward with confidence knowing that you have made an educated and well-informed decision.

David Goodale
www.merchant-accounts.ca