BUYER S GUIDE. Credit Card Processing

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1 BUYER S GUIDE FOR Credit Card Processing Articles & Advice Credit Card Processing Introduction When Western Union first gave charge cards to their best customers in 1914, no one would have guessed that over $2.56 trillion would be charged in the U.S. alone in As ubiquitous as credit cards are, their use is still growing. The exploding world of online commerce is playing a part, as is the increasing usage of credit cards in business-to-business transactions. While some businesses could not open their doors without a credit card processing service, it is more of a question for others. The world of merchant services can be confusing, especially for small businesses who have never accepted credit cards before. This informational guide is designed to help you choose a merchant account provider for your company, as well as avoid some common bait-and-switch tactics that can cost you much more than you expect. The world of merchant services can be confusing, especially for small businesses who have never accepted credit cards before. This Buyer s Information Guide can help. Once you have all the information you need, use our free request for credit card processing price quote service to begin your service today! Is accepting credit cards worth it? If your company is successfully invoicing your customers, you may be put off by the costs of merchant services, which take a percentage of all your sales. However, avoiding potential loss from non-payment can quickly make up for the expense. Plus, you will no longer have to spend staff time issuing late invoice notices or wait 30, 60 or even 90 days for invoices to be paid. Accepting credit cards allows funds to be transferred to your bank account in less than a week. This can be a welcome relief for businesses that experience a tight cash flow.

2 If you are selling to consumers, merchant services will allow you to expand your customer base and provide a more convenient method of payment than cash or checks. And if you are interested in selling over the Internet, accepting credit card processing is a must. It's possible to accept credit cards over the Internet without establishing your own merchant account. Third party merchants like PayPal or cc: Bill can accept credit cards on your behalf, without requiring a credit check, but have several serious disadvantages for businesses. They typically batch your money into regularly scheduled payments, negating the advantage of quick turnaround. Their rates tend to be higher significantly higher, in some cases. And, they may not accept all types of transactions, potentially resulting in your legitimate transactions being frozen. Generally, they make your business seem like a small-time operation. They re really only appropriate if you process one or two transactions a month. Not every company needs to accept credit cards. If your per order cost is typically in the thousands of dollars and your customer base is stable or subject to credit checks, you may find it cheaper to continue invoicing your customers. Types of credit card processors There are several types of credit card processors you can turn to. Bank The bank you use for your business finances should be the first place you contact. Banks can be the easiest source to turn to for credit card services; many offer service packages for businesses that include merchant services. Most banks do not process credit card transactions themselves, though. Instead, they outsource the work to a third party credit card processor. It can be tough to get approved from this channel, however. Banks are likely to scrutinize your business more closely before deciding whether or not to accept your application. Third Party Processor This type of credit card processor requires no merchant account. Third party processors dedicate themselves to handling credit card processing. As such, they take care of different aspects of the transaction process such as authorization, billing, reporting, and settlement. Independent Sales Organization An independent sales organization (ISO) is essentially a registered credit card merchant broker who represents one or more third party processors. They set up and service credit card merchants, but do not do the actual processing. ISOs are less selective than banks, but that comes at a somewhat higher price.

3 They are also not strictly regulated the way banks are, so there's a wide range of ISOs out there, from reputable, established companies that provide good customer to support, to shady one-man operations that use questionable "sign -up sheets" in place of contracts. Some of these sign- up sheets even hold you responsible for terms and conditions not listed in the document! Be particularly vigilant when evaluating potential suppliers and make sure you get the full contract. Financial Service Provider MasterCard and Visa require you to establish a merchant account through an intermediary. However American Express and Discover give you the option of applying directly to them. Associations Small business and trade associations often offer credit card merchant processing at discount prices. They are a particularly good resource if companies in your industry historically have trouble attaining credit card merchant status. Offshore merchant accounts (or international merchant accounts) are an option for businesses that can t attain other types of accounts due to locations, credit history or other reasons. These services may have low processing fees, no taxes and flexible guidelines and terms, but they re not subject to the same regulations as US credit card processors and may not offer the long-term stability you re looking for. Qualifying for a Merchant Account Before giving you a merchant account, a merchant services provider will want to make sure that you are a legitimate business that will not leave them liable for fraudulent charges. They will start with a basic background check. This includes a thorough credit history review of the owners or officers listed on the application, in addition to credit references from two to three suppliers. The most important question that providers want answered is whether your business is likely to have a high incidence of charge backs. A chargeback is a reversal of a sale that was credited to your account, usually because of an error made by the cardholder's bank, a misunderstanding by the customer, or fraud. For the most part, tangible products are considered to be much safer than services. Also, businesses that deliver purchased goods immediately in exchange for payment are viewed as being less risky candidates for merchant accounts. Providers will also consider the type of credit card transactions that your company performs. As a general rule, card-present transactions that allow you to swipe the credit card and obtain a signature in person are considered to be much safer than card-absent transactions that take place by phone, by mail or over the Internet. Being a higher-risk merchant won't necessarily prevent you from getting a merchant account - but it can drive up your costs.

4 Finally, if you ve had a merchant account in the past, providers will require previous statements to better gauge your charge and chargeback volume. Some companies advertise high acceptance rates in an effort to impress you, but don t be lured: 99% acceptance rates are a common gimmick and don t really mean much. Instead of focusing on the percentage, look for providers who help you address any deficiencies in your credit score or can show a history of working with businesses like yours. Pricing for credit card services The primary fee on a merchant account is the discount rate, a small percentage the provider charges on each transaction. Banks and larger providers will base this fee on criteria including: your company's evaluated risk, average sales ticket, transaction type, and total charge volume. Because of the difference in risk, most providers have two different rates, one for card-present transactions and one for MOTO (mail order/telephone order, also includes Internet transactions)or card-absent transactions. Currently, card-present transactions usually carry a discount rate of 1.8% to 2%, while card-absent transactions are at 2.2%to 3.0%. Some credit card services set a monthly minimum fee ranging from $20 to $35 per month, so if you do a low volume of credit-card transactions, be sure to ask about this. Another processing fee charged by the merchant bank is the per transaction fee. The per transaction fee is generally $0.20to $0.30 for card-present transactions and $0.30 to $0.50 for card-absent transactions. There is also a fee to cover the cost of issuing monthly credit card service transaction summaries, usually around $10. Equipment and start-up costs For card-present transactions, the biggest up-front cost will be for the terminal, the machine used to swipe cards. Basic terminals typically go for between $195 and $300, terminals with printers are $200 to $800, and wireless terminals can run from $600 to$1400. You may want to lease a terminal instead. Leases can run as little as $25/month, although prices can vary depending on the sophistication of the terminal and the length of the lease. If you're setting up a new merchant account, it's usually best to get your terminals as part of the deal. Terminals are not required for card-absent transactions: instead, you can use your mobile phone or get software to verify transactions from your PC. These virtual terminal programs are often provided free as part of an e- commerce package or sold on their own for as little as $200. Some providers even support card verification directly over the phone.

5 Be careful with application fees. Some providers charge application fees of up to $200 and they may be nonrefundable, even if your business in turned down for an account. You may also have to pay set-up or account activation fees. Make sure you understand exactly what you will be paying for before you sign anything. STILL MORE COST? In addition to these basic fees, there are an astonishing number of fees that merchant services providers can charge: annual fees, programming fees, internet processing fees, shipping and handling, American Express setup fee, customer support fees, etc. Essentially, these are arbitrary jack-up-the-bill fees. We cannot stress this enough: make sure you have a complete understanding of all the charges you will incur before making your decision. It s also important to make sure you re not shopping on price alone. Saving a fraction of a percentage point or a few hundred dollars up-front is not worth the headaches you can wind up with if you choose a vendor who can t provide the service you need to stay up and running. Carefully review the services and policies of providers before you choose one to work with. Negotiating with merchant providers If you do not expect to charge more than a few thousand dollars of electronic payments each month, focus on lowering the set-up and monthly fees from the merchant providers you're negotiating with. Before you negotiate, compare credit card processing companies to see what they can offer your business. Also, when asked to estimate your monthly sales, be conservative. You may be asked to keep a percentage (or even a full month's estimated order total) in an account to cover fraud. For larger credit card volumes, reducing per-transaction costs is a higher priority. A particularly good area to focus on is the merchant provider's discount rate. Since your average sales ticket helps to determine your discount rate, you should be more aggressive in estimating your average sales ticket. It can also be helpful to learn what average ticket sizes you need to qualify for even lower discount rates. Some pitfalls to avoid: be wary of long-term leases with early termination fees - if you are unhappy with your provider, you should be able to switch. Also watch for a tactic borrowed from the consumer credit card industry: low introductory rates that bump up after a few months. While all merchant providers will reserve the right to raise prices (MasterCard and Visa often change the rates they charge the providers), you should not go with one that signs you up for an increase. Choosing a credit card transaction service While price is important, don't let it be the driving force behind your credit card purchasing decision. First, review the service offerings from our network of credit card transaction service providers. Then, consider other important aspects of your buying decision.

6 Customer support is the most essential - problems in credit card processing can quickly impact your bottom line. The best way to learn about a provider's level of customer service is to obtain customer referrals from current clients. Request referrals to merchants that are comparable to your company in size and industry. Then ask these important questions: do they have to wait several minutes before reaching a customer support rep? Are their needs serviced quickly? How does the provider deal with charge backs? Also ask the provider about their level of support - do they have phones staffed 24 x 7? Do they charge per incident? If your business will be selling over the Internet and you do not have a secure server that can encrypt credit card transaction information, make sure your provider can offer secure ordering through SSL (secure sockets layer, a widely-used web standard for security). Setting up your own secure site is expensive and technically challenging. Finally, if you are not using a bank or financial company you recognize, make sure you verify that the company you are investigating is legitimate - there are con artists and scammers who setup fake processing companies just to collect setup fees then vanish. Contact the Better Business Bureau to check the company s status if you are unsure and if you find a credit card transaction service provider on the Web, make sure you get a physical address and phone number. Merchant account buying tips Who can't use more merchant account buying tips? Here are a few more pointers to keep in mind as you're searching for a credit card servicing company. Learn how long it takes for funds to be transferred Providers differ on how long it takes for funds to be deposited to your account. You will want to specify whether it is a retail or MOTO transaction, since MOTO transactions usually take substantially longer to clear. Compare variable fees Check on fees that tend to vary between providers and may be negotiable. Such fees include set-up, cancellation, and monthly minimum. Get the complete picture Once you know all the fees a merchant account provider will charge you, figure out what your total cost would be based on your best and worst recent months. Read the Contract Make sure to read the contract in detail to understand all fees, minimum charges, the term of the agreement and termination clauses. Some merchant account providers will not cover every point and leave it to you to uncover the details.

7 How to Set Up a Merchant Account A merchant account is the basic requirement that allows customers to pay for their purchases with credit cards. Setting up a merchant account may take a little work, but for many businesses, it's almost a requirement for doing business. Without this type of feature, you will not be able to accept credit cards. But how hard it is to setup a merchant account? Basics of setting up merchant accounts Don't worry, it's not that hard -- it just takes a little research. First, you need to assess your needs to decide what features are most important in your merchant account. Do you process lots of small-dollar transactions or fewer high-dollar transactions? How will accepting credit cards affect your business? How many locations do you need to accept credit cards at, and how many points of sale in each? Do you need a web-based dashboard to monitor your transactions in real time? Knowing the answers to these questions will help you seek out a company that is best suited for you. After you make your purchasing decision, the merchant account company you choose should ultimately help you get set up. They'll get you started with terminals, online account access, and help you connecting your merchant account with your current financial institution. If you're not an expert in how to set up a merchant account, no problem! Choose a merchant account provider who can make these steps painless by providing telephone or support as needed. A word of caution before you get started. Before you can get a merchant account, you will have to be approved. Sometimes, this is a rather simple task; other times, it can be hard to get into a network. Basically, the lower the fees are, the harder it will be to get the account. Think of it like a credit card company -- if you have a low credit score, you have more credit options than someone with bad credit. There's how to set up a merchant account in a nut shell. It's not terribly hard work -- it's just time-consuming. If you are having difficulties assessing what's right for your business, speak with a trusted adviser such as an accountant or personal financial planner. What to look for in Merchant Account reviews Merchant accounts are important to any business that handles credit card transactions. When selecting a merchant account provider, it makes sense to search out reviews of the providers you're considering. It makes sense to search out reviews of the providers you're considering. But it's not always easy to make sure you getting accurate, unbiased information. First, it's important to seek out unsponsored reviews of merchant account services. If you find "review" sites where all the reviews recommend the same provider - watch out. Second, knowing how to read these merchant account reviews will ensure that you select the right one for you. Getting started with merchant account reviews Before you start looking over merchant account reviews, take a look at your business structure. How many credit card transactions do you think you will have each month, and how many dollars will this represent? You need to know this to compare the fee structures of different account services.

8 Customer service If you select a merchant account service provider based solely on cost, you could get left with little or no customer support. Be sure to look at merchant account reviews for indications of the level of support and services offered. Imagine the money you will lose if your system goes down and it takes you 48 hours to get in contact with someone. Look at fee structures If you are accepting only a few thousand dollars worth of credit card transactions monthly, you may be better off selecting a plan with a low setup fee and a slightly higher discount rate. On the other hand, merchants that accept tens of thousands of dollars each month should opt for a merchant service account that has a high setup fee and a low discount rate. Merchant accounts are not a one-size-fits-all application, and shouldn't be treated that way. If a merchant account service review claims that their option is best for everyone, beware. Contract terms Will a merchant account provider allow you to have a month-to-month arrangement or will it require a lengthy contract? This information should be included in a merchant account review. If you have to sign a contract, make sure you are aware of the penalties for early termination. Start-ups and those getting their feet wet in a new area may be safer sticking to a contract that allows for month-to-month coverage. When reading a merchant account reviews, look for more than just cost. Make sure that the merchant account services reviews have all the information you need to answer all of your questions. You also need to make sure that the review gives you enough information to compare the merchant account with it competition. Finally, it's important to remember that reading reviews is only part of the research. You'll have to draw your own conclusions by speaking with several providers about your particular business. A merchant service account is the best way for your business to benefit from credit card acceptance. It seems like there are millions of credit card merchants out there - how can you find the best merchant account provider? Here are a few tips. Obviously price is an important factor in choosing a merchant account provider - but it should not be the only factor you consider. There are a lot of less-than-reputable merchant services providers out there who will try to lure you in with low rates, then stick you with bad service or hidden charges. Customer support is essential - problems in credit card processing can quickly impact your bottom line. The best merchant account providers will give you multiple referrals from current clients. Request referrals to business like yours in size and industry, then ask these important questions: Do they have to wait long before reaching a customer support rep? Are their needs serviced quickly? How does the provider deal with charge backs?

9 Also ask the provider about their level of support - do they have phones staffed 24 x 7? Do they charge per incident? For online transactions, the best merchant account providers offer secure ordering through SSL (secure sockets layer, a widely-used web standard for security). Setting up your own secure site is expensive and technically challenging. Finally, if you are not using a bank or financial company you recognize, make sure you verify that the company you are investigating is legitimate. Contact the Better Business Bureau to check the merchant account providers' status if you are unsure. Even if you find them on the Web, the best merchant account providers should quickly give you a physical address (not a PO Box) and a phone number. You can also learn more about the different services and products providers offer by researching in-depth company profiles. How to accept credit cards for your business Many businesses accept credit cards to provide a quick and easy way for customers to pay for products and services. Not only do customers get proof of the transaction, they can also dispute or cancel the charge if they are charged the wrong amount or dissatisfied with the purchase. Unfortunately, this is a nightmare for your business since you have to pay chargeback fees and you lose the revenue from the transaction. When you accept credit cards payments, you do have ways to protect yourself from unnecessary charge backs. Make sure you know what the chargeback policies are for each of the major credit card processors you investigate. They should outline your rights and how to respond to claims against you. It helps to display your company's policy at the point of purchase to easily explain to customers how they can return merchandise or request credits. You can also print the policy on receipts and billing contracts to strengthen your case if charges are reversed. Businesses rely heavily on accepting payments online from credit cards when doing business over the Internet. You don't have the option of examining the signature or requesting additional information, but you can confirm the transaction by requiring customers to send proof via mail or fax that they made the purchase. You can also eliminate the confusion of accepting payments online. If the customer sees your web site address on the bill rather than just the company name, they'll know the origin of the charges. Accepting credit cards Consumers are using their credit cards more than ever, paying for everything from their daily coffee and groceries to big ticket items like large screen televisions and automobiles. If you run a business without accepting credit cards, you could be turning away a large number of potential customers. Accepting credit cards helps you expand your customer base by providing a convenient method for customers to pay for products and services. Rather than having to fish through their wallets for cash or taking the time to write checks, customers can present their credit card, sign the slip, and quickly complete the transaction.

10 In addition to the convenience factor, accepting credit cards can also lead to increased sales. Customers are more likely to spend more with credit cards because they're flexible - users can draw from credit balances or available checking account funds rather than carrying around large amounts of cash. So why isn't everyone accepting credit cards? There are a few reasons businesses may be hesitant to accept credit cards: Fraud - Some businesses fear they'll be left holding the bill if a credit card owner reports the card lost or stolen or disputes certain charges. Initial expense - In order to start accepting credit cards, businesses either have to buy a credit card terminal or special software (for mail order and Internet transactions) which can cost several hundred dollars. Ongoing fees - Businesses must pay a credit card provider a percentage of all sales processed, a fee for each transaction, and possible monthly minimums. While all of these are valid concerns, they shouldn't prevent you from accepting credit cards. First, credit card companies work closely with merchants to alert you if a card is lost or stolen, so you don't process fraudulent transactions. Also, you can reduce the chances of charge backs if you take precautions like asking to see photo ID or checking the signatures on the back of the card. The physical credit card terminals are relatively inexpensive. You can get basic terminals for $195 to $650 and wireless terminals for about $1,200. Some providers will even lease you a terminal allowing you to get a higherquality terminal while spreading your costs out over time. With a credit card terminal, you can also easily integrate programs like gift card systems which can build customer loyalty and attract new business. How much does credit card processing really cost? From retailers that simply need to accept credit cards as part of their daily activities, to business services providers that simply want a more convenient way to collect from clients, companies small and large are shopping for credit card providers. Choosing a merchant account provider is an important decision for any business - but estimating costs can be difficult. There are also many different costs to be aware of. Don't worry! We can help. Here's a look at how much you can really expect to pay for credit card processing. Sterling s user average credit card processing costs Monthly fees ($15.60) - the monthly cost for maintaining an account will vary quite a bit - if you handle a high volume of charges, you may get this fee waived; our users reported an average of a $15.60 fee, including the common "statement charge" fee. In some cases, this is an annual fee. Discount rate (2.24%) - you pay this percentage of each sale to the provider. Users report rates that vary from 1.69% to 3.5%, and those rates vary according to several factors: the perceived "risk" in your business, the amount of charge backs you're likely to face, and whether you're handling transactions in person for "cardpresent" transactions or taking orders over the phone or Internet for" card-absent" or "MOTO" transactions.

11 Transaction fee ($0.23) this flat fee per transaction is another nearly-universal charge. Buyers told us of costs that range from $0.17 to $0.30 per transaction. A good estimate of how many transactions you'll see every month will help you get a handle on this cost. These are the three main types of charges you'll see -but there are plenty of others. It's also fairly common for providers to throw in extras like free terminal or waived signup fees to try to close your business - but the cost per transaction should be the primary factor in your decision." What to Look For in a Credit Card Processor - Compare Credit Card Processing When you're ready to think about accepting credit cards, chances are you'll turn to your bank to process the transactions. It's a logical choice, but your bank may not provide the service or be willing to offer it to you if it considers your business too risky. Banks are cautious about providing merchant accounts to small businesses particularly mail order and homebased businesses for fear money won't be there to cover disputed charges or returned merchandise. They're also concerned about potential fraud and abuse. Although banks have historically provided the service, about 85 percent of credit card transactions now go through credit card processing companies, according to the Electronic Transaction Association. A credit card processor essentially stands between your business and the bank where your merchant account is located. Fees Can Vary Be warned: The prices and the types of fees charged can vary dramatically from processor to processor. The bulk of charges typically come in the form of the "discount rate" a regular percentage charged on each transaction. There may also be flat transaction fees. A processor that offers a low discount rate may look to make money elsewhere, from bloated application fees to statement fees. For instance, one processor charges $69 per month for a three-year lease of the standard credit card processing terminal. Others sell the same equipment for a one-time charge of $250. Credit Card Processing Comparison Look for companies with well-established track records and solid reputations. This is the best way to avoid scam artists trying to take advantage of the explosion of e-commerce. It's also critical to compare pricing from at least three processors before making a final choice. Be sure to compare all the fees the processor charges, not just the discount rates. Credit card processors' discount rates start as low as 1.5 percent, but they can go as high as 5 percent. Fee schedules tend to be geared toward individual merchants' average transaction figures and the number of monthly transactions. Fees can add up quickly, particularly if your business does small volumes of inexpensive items. Find out if a processor has a minimum monthly charge and make sure the additional credit card sales justify the expense.

12 Finally, find out whether the processor allows you to use your existing bank account or whether it requires you to set up a merchant account with its own bank. Most processors are willing to deposit funds to any bank. Be sure the one you select will do that. Benefits of credit card acceptance A merchant service account is the best way for your business to benefit from credit card acceptance. As popular as credit cards are already - around $2.5 trillion was charged in their use is still growing: the exploding world of online commerce and the increasing use of credit cards in business-to-business transactions will continue to drive this expansion. If your business isn't already accepting credit cards, you might be missing out. By starting credit card acceptance, businesses who currently invoice all their customers can improve cash flow: payment times go from 30, 60, and 90 days down to three to five days. You'll also reduce the hassle of sending late-payment notices. And surprisingly, in controlled scientific experiments, retails stores displaying their acceptance of credit cards saw cash sales increase by29%. Companies who thought their average transaction was too small to benefit from a merchant services account may be surprised at how many customers will whip out the plastic for a $5 sandwich, especially due to the increased use of debit cards. And if you're finding that third-party merchants like PayPal and cc: Bill aren't cutting it for your web site any more, you might be ready to move up to the big time and establish your own credit card acceptance account. Setting up to accept credit cards The terms and players involved in setting up merchant services can be confusing. And there are definitely some lower-than-dirt scam artists out there who will try to stick you with unfavorable terms and tricky contracts. Here are the players you should know: Banks - Your everyday business bank should be the first place you contact about credit card acceptance- - many banks offer small business packages that include merchant services. Banks can be picky about accepting your application, though. Independent Sales Organization -An ISO is essentially a credit card broker. They set up and service merchant service accounts so you can accept credit cards, but do not do the actual processing. ISOs are less selective than banks, but that comes at a somewhat higher price. They are also not strictly regulated the way banks are, so be particularly vigilant when evaluating potential suppliers. Financial Service Provider - MasterCard and Visa require you to establish a merchant account through an intermediary. However American Express and Discover give you the option of applying directly to them. You should also inquire at the various business associations and trade organizations you belong to - some of these groups offer good deals for small merchants through the power of bulk purchasing.

13 How much is it going to cost you? The recurring charge you'll have to pay is called the "discount rate", which is somewhat misleading since it's no discount to you: it's the percentage of each sale that goes to your provider. The rate will be set according to your expected volume, risk of charge backs, and average transaction size, but is typically 1.5% to 2% for in-person transactions, and 2.2% to 3.0% for phone and Internet transactions. In addition, a fee of $0.20 to $0.50 will be tacked on for every transaction. In addition, there are an astonishing number of other fees related to credit card acceptance: statement fees, annual fees, programming fees, Internet processing fees, customer support fees essentially a range of arbitrary jack-up-the-bill fees. We cannot stress this enough: make sure you have a complete understanding of all the one-time, monthly and per-transaction charges you will incur before making your decision. Finding the best merchant account providers Your credit card processor is important to your business - here's what to look for in a merchant account provider. If you want to receive fast payments or expand your business to more customers, it helps to accept credit card payments. Do business by mail order or over the Internet, and it becomes a necessity. While applying for a merchant account can seem cumbersome and confusing, the best merchant account providers will take the time to walk you through the process. First, make sure you talk to at least four to three providers. This way, you'll become familiar with the types of questions the best merchant account providers ask, and you'll be able to see which companies are interested in getting you the best rates and services and which just want to complete the sale. Solid customer support is the most important thing you should look for. The last thing you want is problems with processing your credit cards, and the best merchant account providers will help ensure that doesn't happen. Learn what kind of live customer service they offer, how they handle charge backs, and how quickly they respond to service calls. The best credit card processing providers also try to learn everything about your business before setting you up with an account. First, they need to investigate that you are a legitimate business - both to protect their reputation and check if you qualify for better rates. Next, they need to learn how you will use your merchant account. If it's in person, they have to make sure you have a credit card terminal. For mail order and Internet transactions, they'll need to help you securely accept credit cards. Additional characteristics of the best merchant account providers Provide all fees and charges in writing Offer references that you can contact Clean record with the Better Business Bureau Willing to lower set-up and monthly fees if your monthly volume is low Have helped businesses similar to yours secure merchant accounts Find ways to help you qualify for low discount rates Provide inexpensive or free credit card terminals

14 Ultimately, the best merchant account providers are those that treat your business like a partner, taking the time to understand your needs so they can offer a solution that you'll be happy with for many years to come. Debit cards vs credit cards Debit cards compete with credit cards as the top method of payment for everyday purchases. And in our debtconscious society, it makes perfect sense. It's an ongoing battle to become the top payment method for everyday purchases. Unlike credit cards which allow customers to pull from a reserve line of credit, debit cards withdraw the funds directly from customer checking accounts. This way, the customer can make purchases with expendable income and not worry about adding to debt. While you don't have to take sides in the debit cards vs credit cards debate, it's important to understand some differences. Debit cards vs credit cards - advantage: debit cards Banks are huge advocates for debit cards vs credit cards. After all, it puts more money in their pockets! Since you pay a small transaction fee every time a customer uses debit cards, the banks encourage their clients to use them whenever possible for every day purchases. Some banks will even encourage debit card use by offering reward points redeemable for prizes, or cash back for spending a certain amount. But even though you'll pay more in overall fees with debit cards vs credit cards, you make up for it with increased sales volume. If you plan to accept debit cards, you will need to add a PIN pad in addition to a credit card terminal to process transactions. That's a minor cost when you consider the convenience it offers your customers. They are likely to spend more using their debit card than they would with cash which will help grow your bottom line. Debit cards vs credit cards - advantage: credit cards Don't overlook the lasting popularity of credit cards vs debit cards. Credit cards are still a staple when it comes to increasing customer purchasing power, especially when customers are low on available cash. Credit cards also offer more protection than debit cards because the Fair Credit Billing Act protects consumers from liability for fraudulent charges if the card is lost or stolen. By processing credit card charges in person, you have more proof to fight chargeback threats. Debit cards are also not always opportune for larger purchases. In fact, some businesses such as the top car rental companies prefer credit cards vs. debit cards, even though debit cards feature the familiar Visa or MasterCard logos. There are two reasons for this: First of all it's easier to get a debit card by opening a bank account than it is to apply for and get credit card, so it's not an effective way to determine if the customer is a good risk. a

15 Secondly, since debit cards work the same way as a Visa or MasterCard, the business has fewer options if the customer has lack of funds or defaults on payments. About online payments If you want to sell products on your web site, one of the puzzles to solve is the merging of your merchant account and e-commerce platform. Accepting online payments is the cornerstone of conducting business through your web site. If you can sell your products or let customers book your services online, online payments are a must-have. Here's a quick look at the two essential pieces of online payments: an e-commerce web site and a merchant account. E-commerce web site To accept online payments, you need a web site that's capable of e-commerce: collecting orders, shipping and billing information, and processing credit cards. More involved e-commerce systems can include all kinds of extras for managing SKUs and inventory, reporting on sales and revenues, handling coupons, gift cards, and gift certificates, and calculating tax and shipping charges. You can get a basic store by signing up with an online provider, but for the most control and customization, it's best to hire an e-commerce developer who will work with you to create exactly the site you want. E-commerce providers can also add e-commerce functionality to your existing web site. Merchant account The second half of setting up your web site for online payments is connecting your e-commerce system to a credit card merchant account. This process varies depending on whether you already have a merchant account or not. If you already have a merchant account because you accept credit cards in your store or over the phone, it should be pretty straightforward for your e-commerce provider to use that account. Be wary of e-commerce vendors who insist that you use their merchant account provider: you won't be able to negotiate a better deal if you're tied to a single merchant account. Robust e-commerce software can work with any merchant account. If you need a merchant account, you'll have to make that part of your online payment project. Choosing a merchant account provider can be a bit of a challenge: there are some shady players in the credit card industry. Do a thorough investigation of several providers before making a final choice. Merchant account services carry several different fees. The discount rate is a small percentage of each transaction, while the per-transaction fees are a flat rate applied to every charge. The bigger your average sale, the more important the discount rate is, so if you sell big-ticket items you'll want to make sure that's as low as possible. The discount rate can vary for online payments, mail order/telephone order (MOTO) charges, and in-person transactions. Often, the rate for online payments is higher, due to a larger perceived risk of charge backs or fraud. Look for a merchant account provider with good experience handling online payments and you may be able to get a more favorable rate.

16 Ready to add online payments to your web site? Some e-commerce vendors can connect you with more than one merchant account provider, and some merchant accounts offer plug-in e-commerce modules for your web site. Often, though, you'll be better off selecting two companies who are each experts in their respective fields. Merchant Credit Card Accounts Industry Lingo Learn about the terms and phrases associated with credit card accounts. Prepare yourself before your purchase decision by learning merchant account lingo. Why Accepting Credit Cards Can Boost Your Sales Accepting credit cards is becoming a must for entrepreneurs and small businesses in today's business environment. There are numerous social, demographic and technological factors combining to make plastic the payment form of choice for increasing numbers of people. By the Numbers The average American cardholder has roughly four bank credit cards. Credit card purchase volume has been expanding about 15 percent per year for the last five years, or three times faster than the increase in overall U.S. purchases. Debit card purchases are growing even faster, at more than 50 percent per year. Credit and debit cards are expected to account for 33 percent of all purchases by next year and for 43 percent by According to one estimate, businesses forfeit up to 80 percent of consumer impulse buys if they don't accept credit cards. Why People Use Credit Cards To understand the growth in credit card use, it's important to grasp the reasons for their popularity. Consumers typically use cards because: They don't want to carry cash They want to save cash in hand They want to gain loyalty points (such as airline miles) They are making a large purchase They are looking to float money in a bank account They are making a reimbursable purchase for a company

17 Plastic on the Internet Even as credit card use grows in the real world, plastic already dominates the world of Web shopping. This breakdown of how people pay for online purchases demonstrates that accepting credit cards is key to e- commerce: Credit card online - 85% Check mailed - 10% Credit card via phone - 2% Credit card via mail - 1% Other method - 2% The Business-to-Business Opportunity It's becoming increasingly clear that credit cards are also playing a greater and greater role in businessto-business transactions. For example, Visa is bundling credit and cash management products for small businesses under the umbrella of the Visa Business Card. Larger companies are also streamlining their buying processes using so-called business cards for indirect purchasing. Each business card transaction shaves a reported $50 to $100 in purchasing costs. That's something to keep in mind if your company works with large companies. The Future of Plastic Market research indicates that consumers view credit cards as lifestyle enhancers that contribute to other areas of interest in their lives. And credit card products now in development, such as the "electronic purse" and online debit cards, promise to further extend the use of credit cards and importance of accepting credit card payments. It all ads up to bad news for checks. Paying with plastic is becoming increasingly popular for even routine bills such as gas and electricity. And younger customers' preference for plastic cards is even more pronounced. These trends are projected to cause check and paper credit use to fall from 32 percent of all non-cash transactions in 1997 to just 14 percent by The Nuts and Bolts of Credit Card Processing Consumers increasingly are turning to plastic over paper when they open their wallets. Credit and debit card spending exceeded $1 trillion in 1998, making it a critical payment option for most businesses. Yet many small businesses still don't accept credit cards. If you're one of the laggards, the entire transaction may retain the aura of a mystic ritual swipe a card, input some number sand money magically appears in the bank. In reality, though, credit card transactions involve coordination between multiple high-speed computer networks.

18 How the Process Works When a merchant makes a sale and swipes a customer's credit card, the card number, the amount and the merchant ID travel over the credit card processor's computer network. The credit card processor can either be a bank or a company that does nothing but provide credit card processing services. From the processor's network the transaction goes to a credit card computer network. If the customer is using Visa, for example, the transaction will go to Visa's network. In turn, the electronic transaction goes to the bank that actually issued the card. The bank then checks the account and verifies the customer has adequate credit to cover the purchase. The bank then sends the merchant an authorization over the network. Now the sale is complete, but the transaction is not no money has changed hands yet. At the end of the business day, the merchant sends that day's charges, as batch credit card processing, to the credit card network for processing. The transactions travel via the merchant's credit card processor. Individual transactions are then stripped out and sent back to the individual cardholders' banks. Banks then debit cardholders' accounts and make appropriate payments to the merchant's credit card processor through the Federal Reserve Bank's Automated Clearing House. The credit card processor then credits the merchant's bank account for the transaction amount, minus its fees for the transaction. Those fees also go toward paying transaction fees to the issuing bank and the credit card network. Despite the use of computers, it can take two business days before the merchant's account is credited. Opening a Merchant Account In order to accept credit cards, you must open a merchant account with a bank. However, many banks have gotten out of the credit card processing business, and those that remain are often skittish about servicing small businesses, particularly ones with limited operating histories. Many small businesses must therefore go through a specialized credit card processor or an independent sales organization, commonly referred to as an "ISO." Whether you use a bank or a credit card processor, you need a merchant account to receive credit card payments. Though businesses can contact credit card processors directly, banks unable or unwilling to process credit transactions often refer customers to an ISO to help them find a credit card processor and get the necessary equipment and training to begin accepting credit cards.

19 Tell Me More: Credit Card Processing Companies Credit card processing companies can allow you to accept credit cards for goods and services. It's not only easy for you to track, but your customers appreciate the ease and accessibility of swiping their card or providing their account number for purchases. You have several sources you can turn to open up a merchant account. Credit card processing companies range from your local bank, which is the most common option for most businesses to third party processors and trade associations. Even if you secure an account with a bank, you still might deal indirectly with a third party processor who will handle the authorization, billing, and reporting. In addition, third party processors work closely with small businesses to set up merchant accounts. To be eligible for a merchant credit card account, processing companies will investigate your business to make sure you are established. They may take photos of your office space to prove that you have an actual storefront. They will look into your credit history and check your professional references. Since credit card fraud is rampant, processing companies need to protect their investment to make sure that you are a trustworthy merchant before they can issue you an account. Credit card processing companies will determine your account rates based on how long you have been in the same business, your sales volume, and revenue. Lesser known companies that haven't established a strong financial history and industry presence may pay 2 to 5 percent above larger companies that have existed for a long time. But good personal credit and strong business practices can go a long way. If you have a history of paying your bills on time and delivering quality products and services, you can obtain an affordable merchant account.