Choosing the Right Merchant Account Provider 5 Essential Factors Every Business Owner Must Understand Before Choosing a Payment Processing Provider
5 Essential Factors Starting to accept credit cards at your business can be a challenging task. The Credit Card Processing Industry is highly competitive, with many companies offering a broad range of services it is important for any business considering Merchant Services to understand these important factors; Benefits, Equipment Costs, Rates, Types of Processing and Terms of the Agreement. What is a merchant account? A merchant account is an account that enables merchants to accept credit card payments. Any merchant who wants to take credit card orders must establish a merchant account. A merchant account can be obtained through a bank, credit card company, or the direct payment processor. Keep in mind that banks are not merchant providers; they use third parties to set up merchant accounts. Once you are set up with a merchant account you will have the ability to accept all forms of payments including credit cards, debit cards and electronic checks. 1. The many ways a merchant account will benefit your business. Boost Sales Most everyone pays with credit or debit cards. Our society is all about convenience. If you make it easy for your customers to pay they will appreciate it. Most all businesses find an immediate increase in sales after they start accepting credit cards. Receive Immediate Payment Rather than waiting for weeks or months to receive payment, funds will be deposited directly into your account in a matter of days. Money goes directly into the checking account of your choice. Reduce Staff Overhead In receiving payment via credit card your business forgoes excessive time spent in sending overdue notices and making awkward phone calls to request payment. Avoid Non-Payment Many business owners are reluctant to pay a small percentage of profits to credit card processing companies, however, most find that the service quickly pays for itself in avoiding loss from non-payment. Expanded Customer Base The modern consumer expects to be able to pay via credit card and is often without cash, check, or other means of payment. Credit Card processing is a convenience for your customers and a professional foot forward for your company. 1
Go Virtual Business has moved online. With the Internet, small and large businesses alike can have a global customer base. However, credit card processing is a requirement for effective ecommerce. Auto Charge Your Clients For customers or clients on a revolving payment schedule it is usually easier for them and for your business to simply auto charge their credit cards each cycle. According to data from the U.S. Census Bureau, there were 159 million credit cardholders in the United States in 2000, 173 million in 2006, and that number is projected to grow to 181 million Americans by 2010. (Source: Census Bureau) It is estimated that there are 10,000 payment card transactions made every second around the world. (Source: American Bankers Association, March 2009) 2. Equipment Costs Buy When you buy equipment you have complete control over the machine, but you are stuck with equipment that you have to maintain and update yourself. This also raises the start up costs tremendously. Expensive Start Up Buying equipment can be expensive. Terminals can cost up to $1,000. If you are looking for low start up costs this will not be the right option for you. Training You want to make sure that training of some form is included with your purchase. A quick introduction to using the advanced features of your terminal can help you get your money's worth. Keeping Up With Technology You don t want to get stuck with an out-dated machine. Technology is constantly changing and you want to keep up-to-date with the changes. You want to make sure the machine is compliant and can be used with the processor of your choice. 2
Lease A lease payment will often cost you far more than purchasing your equipment outright. You could be paying more than the machine is worth and usually you have to enter into some sort of contract. Make sure to read the entire contract. No Replace or Repair Most leasing companies specifically state that they have no responsibility to replace or repair your equipment should something go wrong. Many merchants enter into lease agreements thinking that they can get a warranty or service from the leasing company, and this is rarely true. Hidden Fees You should be especially aware of agreements that give the lease company authority to debit your account for additional fees for insurance at their discretion. Know the Agreement Many merchants lose track of their agreements over time and continue to pay monthly lease installments long after the lease term has expired. Don t assume that your sales person will notify you at the end of your lease term. The lease company will continue to charge you, or even worse, renew your lease for another 48 to 60 month term. Be sure and send notice of intent to cancel or buyout at least 60 days prior to your lease expiration. Locked In Can I use this equipment with any processor? Some terminals are proprietary to a specific processor or network. You could end up paying thousands of dollars for a terminal that you cannot use with any other processor should you choose to change providers. Remember, changing processors has nothing to do with that third party lease. Even if you buy new equipment, you will still be responsible for the lease terms in your agreement. Be sure and ask lots of questions when considering leasing options. Free This is probably the best option for you and your business. If a company is offering free equipment you can take advantage of the low start up fees, new equipment and training that is often offered with a high quality merchant account processor. Low start up This can be a great option if you are looking to get set up to accept cards with no expensive upfront cost. You won t have to worry about a chunk of money that is associated with buying a machine and you won t have a monthly fee for leasing the machine. 3
You don t own the machine This is similar to the cell phone industry if you sign up for the service you receive a new phone at no extra cost. Usually the company will still own the machine if you want to cancel your contract. Even with a termination fee you will still save money by taking advantage of the free use of the machine. New Equipment With a quality processor you will have the most up-to-date equipment and they will make sure that it is compliant with of the latest upgrades. This can save time and money in the long run. Did you know? You could possibly save hundreds of dollars by signing up with a merchant provider that offers free equipment. 3. Rates & Common Fees There are many different rates to consider when you are talking about credit card processing. If a processor offers you one flat rate you should look deeper into the actual contract to make sure you fully understand what the processor is charging. Make sure you have clear communication with your merchant account processor about fees and ongoing costs. Some typical fees include the following. Set up Fee: A onetime fee for starting a merchant account. Statement Fee: A fixed monthly fee that virtually all processors charge for your monthly statement provided to show how much processing you did in the previous month. Transaction Fees: Fee the merchant has to pay per transaction. Discount Rate: Flat percentage charged for every transaction Pin Based Debit: PIN Debit is a transaction in which the customer uses a debit card and enters in their PIN number. This functions essentially as an ATM transaction and the merchant pays a per item fee and PIN Network Fees for each transaction. Qualified Rate: The rate a merchant pays on a swiped transaction conducted face-to-face with a signature where the full contents of the magnetic stripe were read. Usually includes all consumer credit cards (and debit cards if a separate category for swiped Debit is not set up in the billing). These are the lowest risk transactions so they carry the lowest discount rates. 4
Mid Qualified Rate: A higher rate than Qualified which is charged to merchants for processing a hand-keyed transaction from consumers (and sometime rewards cards also cleared as a midqualified). There can be a mid-qualified rate for credit, debit, rewards cards, and more. Primarily these are consumer cards which are hand-keyed and meet all other requirements of Interchange. Non-Qualified Rate: The highest rates charged to merchants. The transactions are typically swiped or keyed for business or corporate cards. Additionally, Visa transactions where a consumer cards are hand-keyed without AVS will Downgrade to Non-Qualified. Termination Fees: If you terminate your contract early this is the fee you are charged to get out of your contract. Monthly Minimum: The minimum amount the processor needs to have in fees. As long as your credit card processing meets or exceeds the minimum amount then you will not be charged. If your monthly fees are less than the minimum then you will be charged the difference. Get it in Writing All of the above fees should be disclosed in writing at your request. Once you have a basic understanding of all the associated fees, you will have the knowledge necessary to obtain the best deal possible. Unfortunately, business owners often research only the difference in percentage rates. This is meaningless if the savings disappear in higher fees hidden elsewhere. Every account is different and you need to speak with a knowledgeable sales person who can set your business up with the proper processing solution. These fees are just the cost of doing business. The business you will gain by accepting credit cards will far exceed these small costs of getting set up and accepting credit cards. 5
4. Find the Right Processing Solution for Your Business Getting set up with the proper processing solution is very important. This alone can save you money by having the best rates for the types of cards your business accepts and through how you will be accepting the card. Retail Solutions For most retail businesses, including stores, hotels, restaurants, etc., the most suitable option for credit card processing is a simple landline terminal. This traditional point of sale system is set up phone line or IP. For face to face transactions, this is the best option for your business. Wireless Solutions If your business is mobile, and being tied to a storefront or landline is not an option, then wireless solutions may be what you need. The wireless terminal can process credit and debit cards wherever there is an available cell phone signal. Internet Solutions The fastest growing segment within the credit card processing industry is in online transactions. There are many different types of online gateways that will help your business begin accepting credit cards via the internet. Through web access and a secure website, you will be able to manually process credit card transactions from orders received offline, issue credits, void transactions, and view your online list of transactions, from any internet connection in the world. 5. Terms of Agreement Every merchant account provider is going to require some type of contract. This is going to be a very important factor in choosing a merchant account provider. You want to make sure you read the entire contract including all of the fine print to make sure you understand the entire offer. Ask for the offer in writing You need to have a copy of the agreement before you start a merchant. If you speak to someone on the phone ask them to email or fax you the application to make sure you have all the information. Rate Disclosure Make sure all of the rates are disclosed in the contract. Be very cautious when the rates are not listed, because you may run into some hidden fees. Termination Policy How long does the contract last? How much is the termination fee? Some companies offer a trial period and most all companies have a termination fee, similar to cell phone contracts. 6
Sales Representative Can your sales representative explain the contract? You want to make sure you are dealing with an experienced representative; this alone can save you money. Ask relevant questions to make sure they are helpful and can set your account up properly. Conclusion When you are ready to accept credit cards and you are researching merchant account providers, make sure you keep all of the following factors in mind. Benefits Equipment Costs Rates Types of Processing Terms of the Agreement If you decide to start a merchant account Total Merchant Services is the leading merchant account provider in the industry. We offer the best value in the industry by giving our customers free equipment, low rate guarantee, 24/7 customer service. Established in 1996 we offer proven expertise. To get a free rate quote, find more information or to speak to a sales representative, visit www.tmsmerchantaccount.com or call 1-800-281-7210 or email info@tmsmerchantaccount.com. 7