When starting an online store, one of the first things you'll require is a online merchant account. A merchant account, at its most basic, is an account that you hold with a merchant processor which allows you to accept payments from customers online. Obtaining a merchant account is usually a fairly simple process, but it's not a decision that should be taken lightly. While the fees charged by a merchant processor may seem low, they do add up. Your decision regarding which merchant processor to use for your merchant account may affect your revenue for a long time to come.
What is a merchant account, and how does it work?
A merchant account is the account that you hold with a merchant payment processor. Credit cards are the major method by which most people purchase items online today, but you can't simply ask your customers for a credit card number and run these transactions on your own. Credit cards need to be processed through specific merchant processors. Here is how it works: Your website sends the merchant processor the credit card information, the merchant processor communicates with the banks involved and then transfers the funds to your business account.
When acquiring a merchant account, you need to agree to the merchant processor's fees and sometimes a contract. This contract sets your rates, which usually drop after a certain period of time. As an example, your merchant processor might sign you up for a two-year contract that starts at 5 percent for the first six months and then drops to 2 percent for the remainder.
What are common merchant processors?
There are various merchant payment processors available today, but the one you choose will highly depend on your current needs and credit rating. For beginners, Intuit offers credit card processing that integrates directly into Quicken and QuickBooks. For business owners who maintain their own bookkeeping, this can be a valuable time saver.
Chase also runs credit card processing, e-commerce and merchant support services. The benefit of getting started with a larger company such as Chase is that you will have more resources available to you in the event that you have issues. However, your business and you may have to have a rather high credit rating to quality.
PayPal and Google Wallet are not conventional merchant payment processors, because they don't integrate directly into an e-commerce portal. Instead, they act as a third-party intermediary that collects payments on your behalf and then distributes them. While they are not an ideal solution as a primary merchant payment processor, it's a good idea to offer them as alternate payment methods. Keep in mind that most but e-commerce systems do accept them as alternative payments.
Merchant Processor Fees: Flat Fees vs. Percentage Fees
Merchant processors will usually charge two types of fees: A flat fee and a percentage fee. The flat fee will be attached to every transaction while the percentage fee will be an amount on every transaction. One merchant may charge $0.25 per transaction and 3 percent of the total sales price, while another merchant may charge $0.50 per transaction and 2.5 percent of the total sales price. The fee schedule that is best suited to you depends on the cost of the items you are selling.
If you're selling many small items, you'll want to get a merchant processor that charges you the lowest possible flat rates. If you're selling more expensive items, such as luxury goods, you want the merchant processor that will charge you the smallest percentage of your sales. Don't forget that you can negotiate with a merchant processor regarding their fees: The fees are not set in stone, and many merchants will lower their fees to remain competitive.
In conclusion, do your research before you commit to a merchant processing company, and contact as many processing companies as you can about their rates. Even a single percentage point in fees can make a tremendous difference if your profit margins are slim. If you have an e-commerce cart, make sure to speak with you web agency to ensure that the merchant account has services to connect with your e-commerce store.
