Should Your Business Take Credit Cards Online?

Should Your Business
Take Credit Cards Online?

Can you afford to have most of your customers get to the cash register and find out they don't carry a credit card that you'll accept? Store owners who take credit cards online estimate that they would lose 80% of their online business if they made customers use phone, fax or snail mail to complete the transaction. Most buyers want the convenience of being able to order quickly and the satisfaction of receiving their products within a couple of days. To maximize your sales and profitability, you need to be ready to ring up the sale when your customer is waiting, credit card in hand, to place an order.

What do you need to know about merchant accounts? These accounts let your business establish a link between the bank that offers the account and a credit card processor. That means that they'll deposit your money directly into you bank account after taking out their fees. Sounds like a good deal, right? Well, there are some costs that you'll have to be prepared to pay bundled in under that heading of "fees."

Banks see their relationships with businesses as a risk of losing money as well as a chance to make money. So what they charge you is going to be related to how big a risk they think your business will be. That's going to depend on a number of factors. They will consider how long you've been in business, your credit history and even what your business is. If you've been in business for a short time, your credit history is spotty or you're in a high risk business for chargebacks, you'll be paying a higher price than if you're in a business where few returns are expected. That price might come in higher fees, higher discount rates and a requirement that some of your funds be held in reserve by the bank to resolve chargebacks.

Here are the questions you should ask when you are applying for a merchant account:

How much can you expect to pay? Rates can range from 1.5% for a sales situation where you scan or imprint the card and get a signature to 2.5% and up for internet sales where you can't physically verify the card and signature.

Set up fees include your application fee ($30 & up) and equipment and software fees. These can carry hefty markups and are an area where you can actively reduce your costs by shopping smart. Online, you'll have to use computer software like PCAuthorize or ICVerify costing $350 and up or use an internet gateway service. If you're entirely on the internet, the gateway service is probably better for you.

Find out what the minimum monthly charge will be (it's often @ $30). If your business doesn't reach this minimum with your monthly sales, you'll still have to pay this fee.

What is the discount rate for each credit charge? This is the percentage of each sale collected by the bank and processor for their processing service and to cover risks. Rates are set after considering the average purchase size, total number of credit card purchases each month, risk of the business, credit history and age of the business. The normal range of rates is from 2% - 4%.

Does it depend on volume or type of transaction?

What is the transaction fee charged? This is a price you pay for each charge made by a customer. Some banks don't charge anything but others can charge up to $0.30 for each purchase.

What will the bank charge you if your customer claims not to have ordered your product or returns it? Expect this to cost you $10 - $25 for each returned or refused charge.

Will the bank make you establish a reserve fund? This can contain as much as 15% of your first 90 days worth of sales, so you'll want to shop around to see if you can avoid it or reduce the total reserves.

When will the bank deposit the money in your account?

Will you need a credit card terminal? What will it cost you?

Are there any other fees you will be charged? What will it cost to receive a monthly report? It may cost as much as $10.00 but some banks do not charge for this service.

Do they guarantee 99.9% availability of their services or better? It's just like your site, if your merchant account is busy, that will drive your customers away.

Can your bank provide a "total payment option?" That means they'll also process your checks if a customer prefers to pay that way. Although you could use two banks to handle this, it will be much simpler for you if you only have to work with one financial services provider.

How soon after you submit your application should you be able to use it? (Longer than a month is too long! Three weeks is about average.)

What percentage of internet and mail order businesses that apply for merchant accounts at this bank are approved?

The answers to these questions will provide you with the information you need to make the choice that's best for your business.

Who should you talk to about getting a merchant account? We suggest that you start with your local bank because you should already know them. However, a lot of local banks still don't know what to do with their online business opportunities. Or they may charge too much because they're new at this. There are a lot of companies listed in the major search engines that can provide these services. Here, in no particular order, are some of them. VentureConsult.com does not endorse any of these providers and the URLs are simply provided as a service to save our readers time.

Absolute Merchant Account Systems: http://www.absolutemerchant.com/merchant.htm

AIS Merchant Account Services http://www.totalmerchant.com/

Want to try selling on the Internet without making the upfront investment? CCNOW offers you the opportunity to sell through them for a 9% commission. While expensive, it is one way to test the waters and see if online credit card sales make sense for your business. Find them at http://www.ccnow.com/

EZ Merchant Accounts says that they are designed for the small or home-based business and offer services that don't lock you into long contracts. Find them at http://www.ezmerchantaccounts.com/

-Cindy Nemeth-Johannes