When I first needed information on setting up a merchant account for my business, all I could find were ads. So I learned all I could, and even became a merchant account reseller. The information provided here will be relevant to any service provider you choose.
Definition of Terms
What the heck do all these things mean?
Navigating the terms around merchant accounts can be confusing. Here's what they mean.
- Annual Fee: This fee is charged once per year, usually in conjunction with free equipment. Remember - nothing is ever really free.
- Batch Fee: This fee is charged every time you sumit a batch of transactions -- usually once per day.
- Chargeback fees: A fee is usually charged when a cardholder initiates a chargeback for a transaction you made.
- Discount Rate: This is the percentage amount you will pay, based on the total sale amount. Usually, there is also a transaction fee in addition to the discount rate.
- Monthly Minimum: This is the amount of fees that will be charged to you each month, regardless of whether you use it or not. If your fees are over this amount, nothing happens. If you operate a seasonal business --I work with a few tax preparers -- many merchant account providers will let you go inactive.
- MOTO: This stands for Mail Order - Telephone Order. I went weeks without knowingg what this meant. This is a classification of business used to determine the discount rate. MOTO merchants will encounter a slightly higher rate, because there is more risk of chargebacks when people are not present with the card. If yout business does a mix of retail and MOTO, you will have an opportunity to enter the percentage of your business that applies to each. This is the correct category if you are an internet business.
- Statement Fee: This fee is charged every month. It covers account maintenance.
- Transaction Fee: This fee is charged, along with the discount rate, on every transaction.
- Gateway: If you want to accept credit cards online, you will need to access an internet gateway that is compatible with your shopping cart software. There are a TON of different options out there, but the main player is Authorize.NET. Many of the internet gateways are compatible now with Authorize.NET's protocols, so you can use them with any software that Supports Authorize.NET. I use a company calles ParaData. They're compatible with Authorize.NET, but cheaper and with much better service.
- MSP/ISO: A MSP is a Merchant Service Provider, usually a large bank, who actually clears transaction. In ISO is an Independent Service Organization, who resells an MSPs services and provides suppport. Many banks are also ISOs.
Links
- Accept Credit Cards by tomorrow.
- This is my website, where you can apply online. Retail discount rate of 2% and MOTO discount rate of 2.35%.
- ParaData Internet Gateway
- ParaData was acquired in January by an online payments company in order to broaden their offerings. Same great gateway, now with new features!
- Nick Davis
- My personal website and blog.
- iNDi Business Solutions
- My business website and blog.
Merchant Account vs. Paypal
Deciding which to use
So, you've been accepting some payments lately with PayPal, and you've interested in comparing PayPal with your own merchant account. Here's what I think (and I've used both, for quite a while):PayPal: The beauty of PayPal is that it's easy to set up. Within minutes, you can accept payments online. The upsides:
-Easy to Set up
-No minimum monthly fees
Merchant Accounts:
-More flexibility: You can take payments over the phone, or in person, without the buyer having a PayPal account.
-Cheaper: Depending on your sales volume, a merchant account can be much cheaper than PayPal.
-Direct Deposit: With a merchant account, your funds can be available as early as the next day, right in your bank account. You don't need a special debit card to access your money, nor a 5 day wait for a bank transfer.
Back to that point - Why does PayPal take so long to transfer to my bank account? They take money out within minutes, but deposits take significantly longer. Obviously, they're trying to hold your money longer.
-Acceptability: Many people are very wary of PayPal. If you do any significan amount of PayPal transactions with people that are not internet gurus, you will find many people that refuse to you PayPal. They will want to send you a check. A check is an ancient form of money transfer....
Overall recommendation: Do the math with all the fees. A merchant account may be cheaper, plus all the other benefits. If the PayPal account comes out cheaper, weigh the additional merchant benefits to see if they are woth the cost. Or shoot me an email, I can help you decide.
