The Advisor

OBTAINING A MERCHANT CARD ACCOUNT
by Robert Sullivan, author of "The Small Business Start-Up Guide"

There is little doubt as to the value of being able to take credit cards as payment for your product or service. The problem is that it can be difficult to obtain a merchant account if you do not have a store front operation or if the majority of your business is via mail order. Up until now most banks will not even talk to you. However, with the proliferation of mail order and home based businesses numerous "providers" have sprung up everywhere. That's the good news. The bad is that if you are not very careful, your merchant account will cost you a lot more than necessary.

This article will assist you in evaluating various providers and ensure you are getting the best deal possible. You do NOT need one of the numerous 'manuals' that sell for up to $60 and claim to guide you through the process. The process is really very simple ... you just need to find the best deal out there!

Merchant status requires you deal with a provider or electronic clearing house for the credit transactions and a sponsoring bank for deposit of your funds. Also you will need a terminal (or software) for entering the credit card data.

1. Finding a provider. Firstly, try going to your own bank and ask if they will help. If they will, be sure and review the various charges discussed below. Be careful since many banks deal with agents who in turn represent an electronic clearing house. These agents are commissioned and are not looking out for your interests. If you bank won't help and this probably will be the case, you can find many providers by searching the net. Most listings will be agents that represent an electronic clearing house or the clearing house houses themselves. Remember, talk only to the clearing houses.

2. Your merchant status will require that you pay a discount rate on each transaction. These rates are always higher for mail order businesses. You should not pay much over 2%. A transaction fee is also charged and this should be around 20-30 cents. Don't pay more.

3. If you're a store front operation, you may need a terminal (or software) to enter credit card data and obtain authorization for the charge. This is an area where many providers make their money. Terminal costs range from $200 to $2000 (they are all basically the same). For e-commerce, software (usually by "IC Verify") is around $350. Many providers require you purchase equipment from them and will tell you cost is not negotiable. Not true in many cases. One provider we worked with initially priced the terminal at $1200. Later they came down to $800. They finally agreed to $400.

I recommend you purchase software. It's handier and no additional printer is required since you can use your system printer. Furthermore, there are no hassles with warranties, mechanical problems, etc.

4. Here are some of the fees that you may or may not be told about. Be sure and ask about each of them before agreeing to an account:

• Application fee. There should be none. Can be up to $300.
• Installation (or programming) fee. There should be none. Can be up to $100.
• Statement fee. Most banks charge $10/month.
• Minimum account billing. There should be none.
• Chargeback fee. There should be none. Can be up to $25.
• Voice authorization fee. There should be none. Can be up to $1/call.
• Transaction fee. Typically around 20-30 cents per transaction.
• Bank setup fee. There should be none. Can be up to $75.
• Daily close-out fee. There should be none.

5. Other questions to ask the provider (or associated bank):

• When is customer support available? Is there a toll-free number to use?
• Is a reserve account required? There should be none.
• When will funds be available. Should be no more than 3 days.
• What is equipment warranty (if equipment is utilized)?
• What credit cards can be processed? You need Visa and Mastercard at a minimum.
• Is check guarantee service available? Handy if you want to take personal checks.
• Is a manual imprinter available. If so, what is cost? Should be free.