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How to Compare
Merchant Accounts

It's time to look at how you should compare merchant accounts, so you can optimize your chances of selecting a merchant account service whom you can work well with for many years.

This part of The Nine Minute Tutorial involves a discussion of the specific issues you should address when you begin to compare merchant accounts. You can then determine which providers to whom to submit an application. Advice on how to compare Merchant Accounts

What to Look For When You Compare Merchant Accounts

The overriding principle involved when selecting your merchant account service is to be thorough. Lack of proper investigation prior to signing on with a provider can result in subsequent unexpected costs and hassle. You really don't want to find yourself spending a whole day on the phone with your provider trying to resolve a dispute over chargebacks or other unexpected fees. 

The issues that you need to address when you start to compare merchant accounts fall into 5 main areas: 

1. Fees Charged: Initially at least, most businesses seeking a credit card processing service focus exclusively on the fees they will be charged. 

But be wary! When you compare merchant accounts, you'll find that some providers attempt to lure new merchants with unusually low discount rates. If it looks too good to be true..... 

Keep in mind that VISA, MasterCard and the other card issuers charge their standard discount rates to the merchant account providers. The merchant account provider is responsible for paying this amount to the card issuing company. It then charges you, the merchant, a higher discount rate, with some profit built in for itself - as it should. After all, it is in business to make a profit. 

So when you compare merchant accounts, if you see unusually low discount rates being offered, be on your guard. Remember that what looks like a super deal to begin with may end up costing you in the long run, through unexpected fees, poor service, etc

As we discussed earlier, you'll likely be paying some sort of upfront fee (whether specifically called that, or whether identified as a payment for software or equipment), or a monthly lease payment, together with the discount rate charge on your sales, the per-transaction fee and some monthly service and/or gateway fees. 

Some merchant account providers will set high start-up costs, but low per-transaction fees. Others will have high monthly minimums and high discount rates, but low start-up costs. 

So how do you actually compare merchant accounts, as far as costs are concerned, and sort out which may be worthwhile pursuing? 

The best answer that can be given is: evaluate them based on what your business model is - and don't be over persuaded by small differences in the costs they'll be charging you.

Here's a simple example where we compare merchant accounts offered by two providers. 

1. Provider A offers a start-up fee of $300; a discount rate of 2.40%, with a minimum monthly charge of $20; a per-transaction charge of 20 cents; a monthly gateway fee of $20 and a monthly statement fee of $10. 

Meanwhile, Provider B offers a start-up fee of $100; a discount rate of 2.20%, with a minimum monthly charge of $25; a per-transaction charge of 30 cents; a monthly gateway fee of $15 and a monthly statement fee of $15. 

Now let's suppose your business sells CD's for $20 each, and since you're just getting started, you expect to sell about 50 CD's each month ($1,000 per month in sales). Let's compare merchant accounts. If you choose Provider A, you'll pay $24 for the discount rate fee, $0 for the minimum monthly fee, $10 for per-transaction charges, and monthly gateway and statement fees totaling $30. The grand monthly total: $64. 

With Provider "B", your total would be $70, comprised of $22 for the discount rate fee, $3 for the minimum monthly fee, $15 for per-transaction charges, and monthly gateway and statement fees totaling $30. 

So you can see that with this business model, except for the higher start-up costs charged by Provider A, there really is little to choose between the two providers, as far as pricing goes ($6 per month). 

2. Now let's compare merchant account fees using a different business model. Let's assume you sell high-end computers, at $2,000 a piece, and that you anticipate selling 50 each month ($100,000 in monthly sales). 

Provider A would charge you $2,400 for the discount rate fee, $0 for the minimum monthly fee, $10 for per-transaction charges, and monthly gateway and statement fees totaling $30. The grand monthly total: $2,440. 

On the other hand, with Provider B you would pay a monthly total of $2,245, comprised of $2,200 for the discount rate fee, $0 for the minimum monthly fee, $15 for per-transaction charges, and monthly gateway and statement fees totaling $30. 

That's still only a difference of $195 per month. However, over the course of a full year, all other things being equal, the annual saving of about $2,400 may swing you towards going with Provider B. 

The lessons: When you compare merchant accounts, of course you should examine each provider's costs carefully, using reasonable assumptions for your business model, and see what the bottom line is. But unless the costs differ significantly overall, you'll likely be best off selecting a provider based upon some of the other factors we'll be discussing.

2. Technical Compatibility: Two issues here. First, different merchant account providers use different gateways for online processing. Make sure you won't have to make modifications to your website to accommodate the gateway - and that your site will work effectively with the provider's processing system. 

Second, and this is a related issue, if you have a shopping cart within your website, make sure that it is compatible. If you don't yet have shopping cart functionality but you think you need it, you may wish to consider a provider that offers an integrated system, including a merchant account, card processing service and shopping cart. If so, review The Merchant Account Advisor's section on shopping carts. 

Click the link to compare merchant accounts as they relate to online shopping carts.

3. Service Issues: To fully compare merchant accounts, you must check out the support and customer service each provider offers. Do they have a toll-free number you can call when you have a question or problem? Does a real live person answer, or do just get asked to leave a message? 

When speaking with a representative before signing on, find out how long it will take for the sales proceeds from your transactions to be deposited to your checking account. Ask for the names and phone numbers for a few of their customers - see what this sampling of their customers says about their service. 

4. Examine Their Websites: As you compare merchant accounts, take a good hard look at their websites. Make a determination from the website as to whether the company appears credible and forthcoming with the information they present. Does the site say how long the company has been in business? Website review is an efficient and effective way to compare merchant account providers and weed out those that may be fly-by-night operations.

5. Contractual Issues: In order to compare merchant accounts properly, you absolutely must carefully read each provider's contract before you sign. 

Explore each of the following contractual issues:

what are the grounds for their terminating your merchant account?

do they assign you a transaction limit, so that if your monthly sales exceed that figure, your fees can be raised?

what is their chargeback policy?

do they, or can they, require that you maintain a minimum reserve with them? If so, on what terms?

if you have excessive chargebacks, do they have the right to withdraw or withhold funds from your merchant account? 

do they have the right to raise the discount rate - or any other charges - without notifying you?

if so, can you get out of the contract or are you tied in for a lengthy period?

does their service allow you to process international orders?

does the contract allow them to take a security interest over the funds in your merchant account?

The basic advice when you compare merchant accounts:

Do Your Homework Before You Sign On With Any Provider!

And be sure to check out our recommendations for the top internet merchant accounts, phone & mail merchant accounts and retail merchant accounts.

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