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Merchant Account Insider Secrets - Accept Credit Cards Online

By William Hamilton

The process of learning how to accept payments on the Internet is similar to the course of figuring out how to launch a business. What at first seems puzzling and intimidating may be viewed as straightforward and easy to understand if one has the right guide or manual. The following serves as a brief primer for any business owner who needs to set up a system to accept credit cards online, and includes a necessary glimpse of the associated fees.

The savvy business owner who plans to accept payments on the Web must form an alliance with a payment processing company. There are a multitude of firms to choose from, and one should exercise due diligence in the selection process to avoid those that are overpriced and/or do not engage in fair-minded business practices.

Among the throngs of payment processing providers, there are two distinct entities: ones that provide merchant accounts and others that proclaim themselves as "no merchant account" providers. The latter group accepts payments on the owner's behalf and offers a rather easy set-up. Payments are taken on their site (not the owner's), and owed funds are forwarded to the owner two or three times a month.

Merchant account providers (which include financial institutions and independent sales organizations) assert that they give a more professional look to an owner's website since they enable the owner to receive payments on his/her own site. Moreover, they point out that cash flow is less of a problem since entitled funds are transmitted from customer to owner in several days, in contrast to their counterparts' record of periodic monthly payments.

Regarding the all-important issue of price, it is difficult to make any absolute determination about which group offers the overall best rates. For instance, while no merchant account providers waive many of the monthly fees, they typically charge a higher percentage of the ticket price. (All credit card providers charge a percentage of the ticket price, called the discount fee. Most add an additional charge on top of that -- a flat rate -- called a transaction fee.) As a rule of thumb, if an owner anticipates a "moderate" amount of transactions online, he/she may be better utilizing the services of a merchant account provider.

The caveat when choosing a merchant account provider is for the owner to be aware of all fees -- not just the discount and transaction rates. Because the terminology used may be different from company to company, the owner must know the quoted total start-up cost (e.g., set-up fee, application fee, etc.), and total monthly fee (e.g., statement fee, customer service fee, etc.) Among fees that are not commonly disclosed --but any astute owner should ask about -- includes the following:

AVS fee. The fee to determine if the customer's billing address provided by the customer matches the one listed on the credit card.

The non-qualified rate. The amount that the discount and transaction rate will be bumped (higher) to if certain Visa/Mastercard requirements are not met. For example, if there is no AVS match, the owner will likely be hit with a non-qualified rate. Shouldn't the owner be aware that this transpires and the fee that results?

Batch fee. This is a small daily fee charged to batch or close out transactions.

Chargeback fee. This cost is administered when someone disputes a credit card charge. It is important to note that an owner may be asked to establish a "reserve account" at the processor's bank to handle any future chargebacks, especially if an owner's credit is not very good or he/she is receiving a large volume of transactions.

Monthly minimum. The minimum amount that the owner must reach in his/her processing costs. Here is an example to determine this number. Suppose, for example, an owner had only one sale of $100 for the month. If the discount and transaction rates were respectively 2 percent and .30, the owner would pay .02 x 100 = $2.00 + .30 = $2.30. If the monthly minimum is $25, the owner still owes $25 - $2.30 or $22.70.

After all the fees are provided (preferably without an owner's prompting), the owner should use good, old-fashioned number crunching, logic and intuition, and determine who should have the privilege of helping him/her receive payments from customers. The owner is halfway to completing the mission of becoming an Internet tycoon or at least being able to receive a sale.

There are four steps left -- the order form, the secure server with certificate, the gateway, and the shopping cart, if desired. The order form, either supplied by the owner, his/her Web designer or the processing company, is simple to design. Once created, it must be on a secure server. When any customer enters his/her credit card information, it is sent in plain, unencrypted text form to the server hosting the Web site. As it is possible to intercept this data, SSL encryption (usually 128-bit) must be employed. Many merchant account providers offer this secure server with official certificate. An owner who is going to use a payment processing provider should not have to spend money on obtaining this.

The gateway component is next. Just as cars use a tunnel to get from one place to another, the gateway serves as that tunnel to transmit information from the customer to the credit card processor. At first, within seconds of the customer submitting his/her credit card information, the processor either authorizes the transaction or declines it. If an authorization code is given, the customer's account is not charged, but his/her credit limit is reduced. Subsequently, the approved customer's information becomes "captured" and the authorized amount of money is then charged to the consumer's credit card. This capture becomes part of the merchant's batch and travels through the gateway again. The processor then knows to finalize and settle the transaction, and voila, the owner is paid. So the gateway is actually the owner's gateway towards profit! But the merchant account itself is the engine that makes the car go.

Many merchant account providers offer a shopping cart that integrates with their gateway. Even if the owner already has a shopping cart, chances are good that the gateway can work in concert with it. It is best that an owner look for a merchant account provider that can serve as a "one-stop-shop," providing its own secure server with certificate, gateway and shopping cart.

After reading this information, a business owner is now armed with knowledge and a greater understanding of how the payment processing/merchant account field operates. This will empower such an owner and help in determining which company to hook on with among the ever-abundant sea of merchant account providers.

Author, William Hamilton, owns a payment processing company, IntelliCollect, and their merchant account services are listed at http://www.intelli-collect.com. His company offers tremendous assistance to new and veteran business owners -- individuals who need to understand all facets of a merchant account program.

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