Credit Card Processing Buyer's Guide

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In this article...

Introduction
Accepting credit cards
Types of processors
Qualifying
Pricing
Negotiating with providers
Choosing a service
Buying tips

Pricing

The primary fee on a merchant account is the discount rate, a small percentage the provider charges on each transaction. Banks and larger providers will base this fee on criteria that include your company's evaluated risk, average sales ticket, transaction type, and total charge volume.

Because of the difference in risk, most providers have two different rates, one for card-present transactions and one for MOTO (mail order/telephone order; this also includes Internet transactions) or card-absent transactions. Currently, card-present transactions usually carry a discount rate of 1.5 percent to 2 percent, while card-absent transactions are at 2.2 percent to 3 percent. Some companies set a monthly minimum fee ranging from $20 to $35 per month; so if you do a low volume of credit card transactions, be sure to ask about this.

Another processing fee charged by the merchant bank is the per transaction fee. The per transaction fee is generally $0.20 to $0.30 for card-present transactions and $0.30 to $0.50 for card-absent transactions.

There is also a fee to cover the cost of issuing monthly credit card transaction summaries; it's usually around $10.

Equipment and startup costs  For card-present transactions, the biggest up-front cost will be for the terminal, the machine used to swipe cards. Basic terminals typically go for between $150 and $300, while terminals with printers run $200 to $600, and wireless terminals can run from $600 to $1,000. You may want to lease a terminal instead. Leases can be as little as $35 a month, although prices can vary depending on the sophistication of the terminal and the length of the lease. Are you just looking for a credit card terminal? BuyerZone can help you find one by matching you to several top vendors in the industry.

Terminals are not required for card-absent transactions. Instead, you can get software to verify transactions from your PC for as little as $150. Some providers even support card verification directly over the phone. However, these rock-bottom prices can be an indication of less-than-adequate customer service.

Be careful with application fees. Some providers charge application fees of up to $200, and they may be nonrefundable, even if your business is turned down for an account. You may also have to pay setup or account activation fees. Make sure you understand exactly what you will be paying for before you sign anything.

Still more costs?   In addition to these basic fees, there are an astonishing number of fees that merchant services providers can charge: annual fees, programming fees, Internet processing fees, shipping and handling, American Express setup fee, customer support fees, etc. Essentially, these are arbitrary-jack-up-the-bill fees. We cannot stress this enough: Make sure you have a complete understanding of all the charges you will incur before making your decision.

It's also important to make sure you're not shopping on price alone. Saving a fraction of a percentage point or a few hundred dollars up-front is not worth the headaches you can wind up with if you choose a vendor who can't provide the service you need to stay up and running.

Introduction

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