Accepting Credit Cards 3

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Reprinted with permission from Janet Attard* Copyright 2004. All rights reserved.
     
Why is there such a large discrepancy in fees?

Independent sales organizations have to order and pay for credit reports on applicants and have to pay employees to review applications and credit reports. Thus, they may charge an application fee to cover these costs and to discourage applications from people who have little real interest in achieving merchant status or who know they are unlikely to get merchant status because they have many delinquent accounts or have defaulted on loans.

However, since an ISO's actual costs to process an application should be well under $100, fees much over $100 are likely to include a fair amount of "profit" being made on the application process itself. Much of that profit is likely to go to the independent sales agent, rather than to the company the sales agent represents.

Sales agents also make a commission on the sale or lease of terminals or software. They make considerably more money when you lease equipment or software than they do if you purchase it outright. Thus many encourage leasing even though it is very expensive over the long term.

Besides the application fee and the cost of the terminal or software to process the cards, and Internet shopping cart fees if I sell on the web, what other fees will I have to pay?

You generally have to pay several fees. Typically they include some or all of the following: A "discount" fee. A percentage of the selling price of the goods purchased, usually 2.5 to 3.5 percent for mail order transactions, but some providers were charging 5 percent or more. The fee for in-person retail sales may be under 2 percent. A per-transaction fee. The amount varies from as little as 10 cents a transaction to as much as 56 cents or more. It is always in addition to the discount rate or fee. Monthly minimum. The minimum amount of processing fees you have to pay each month. Typical amounts for this minimum run from $10 to $25. Statement fee. Yes, that's right. Some merchant account providers charge you for the "privilege" of seeing a statement each month showing what you've bought or sold. The fee runs $10 and up. Gateway fee. If you are selling on the Internet and want incoming orders to be processed in real time (immediately processed from the information entered by the customer), you usually have to pay either a gateway fee each month or extra fees for each transaction. The gateway fees vary, sometimes by the sales rep from whom you get your merchant account. Sometimes, too, a company may offer you a low or free gateway fee, and then jack up the per-transaction fee

These fees are all in addition to any fees you have to pay for a web site or for online shopping carts (online order-taking software). Between fees such as these and the cost of noncancellable licenses, some business owners find it cost them a minimum of $60 to $70 a month or more to accept credit cards even if they make few sales. So, shop around and get rates from several providers before signing on the dotted line.

How do I get paid?

With most merchant accounts you have to give the provider access to your bank account. The way most work is that they transfer money from transactions to your account about two or three days after each sale. They can also transfer money out of your account if necessary to cover monthly minimum fees and any chargebacks.

Is it ever worth paying much higher than normal fees?

Certain kinds of businesses find it particularly difficult to get merchant status because of the nature of the product or service they sell. One merchant account provider mentioned not dealing with limousine services, escort services, or companies selling "adult" products. Another mentioned not accepting multilevel marketing companies and certain kinds of telemarketing services because they tended to either disappear or have a high customer dissatisfaction rate, and therefore a high charge back rate. In addition, many merchant account providers won't grant merchant status to a small business if the owner has a poor personal credit history. If you fall into any of these categories you may have to pay high rates to find a third-party processor willing to take on the risk of your business. However, you shouldn't be willing to do so until you have first approached several other sources for merchant status. What one company won't accept, another may. Additionally, what your bank considers a poor credit history may not be considered "that bad" (as one ISO representative put it) to a third-party processor.

Couldn't I avoid all these hassles by having a friend process my charges for me with his number and giving him a percent of each sale?

No. This practice is forbidden by credit card companies because of the potential for fraud. Even though your operation may be totally legal, if the credit card company discovers what's going on, your friend could lose merchant status.

Generally only two kinds of companies want to have their cards processed this way: (1) those that can't qualify for merchant status on their own because their business is risky and (2) fraudulent businesses. The way the latter type operates is that a con artist will pose as a new merchant and will make contact with existing merchants in town, saying how difficult it is to get merchant status, and offer the other merchants a percentage of each charged sale. The con artist will then submit phony orders, duplicate orders, or advertise some kind of bargain and have the calls go to the established merchants. He or she collects the money from the merchant, then skips town before the scam is discovered. The result: the helpful merchant has to make good on all the chargebacks to his or her merchant account.

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