As you already know, appearance is important when it comes to running an online store. That includes everything from your logo and your store's name to the payment systems you use. Simply using PayPal or Google Payments to accept money from customers is fine if you're just starting out or if you only sell occasionally. But many sellers who are especially active are moving up to a merchant credit card account.
A merchant account (as I'll call it here) enables a business to accept credit cards directly from customers, either by recording an actual swipe of a credit card in person using a point-of-sale terminal, or by typing the card information into a "virtual" terminal. In either case, you deal directly with customers, in contrast to PayPal or Google Payments, which act as go-betweens.
With a merchant account, you still use a transaction service, however. And you still pay fees to that service. What, then, is the advantage of moving up to a merchant account? Sellers and merchant account providers can list plenty of plusses. The first is appearance: being able to accept credit card information directly, and having your own business name appear on your customer credit card statements instead of PayPal, makes you look more professional.
Online seller Charlie Walden of FoxtrotGifts.com used PayPal as his only payment option until two years ago, when he signed up for credit card processing through Elavon, a service provided by Costco to its members. About a year ago, he quit PayPal without any drop in business.
"I made this decision based solely on the savings," says Charlie. "However, if I had waited to decide, PayPal's recent policy changes would have forced my hand anyway," citing "the risk that PayPal's generous return policies will override your own return/refund policies."
Phil Davies, President of the online antiques marketplace TIAS.com, lists another advantage: lower rates are the big reason for moving up to a merchant account, he says.
Merchant Account Fees - Read the Fine Print
Currently, PayPal charges 2.9 percent and a 30-cent fee for each transaction up to $3,000, (and for Website Payments Pro merchant account packages, there is a $30 monthly charge.) Above $3,000, the fees go down, but you have to fill out an application to apply for these lower merchant rates. Rates are higher for PayPal Virtual Terminals.
Davies uses North American Credit Card Association (NACCA) for credit card processing for all of TIAS.com's merchants. NACCA charges merchants "Interchange" pricing, which it says eliminates the opportunity to overcharge for downgraded transactions, but also makes the pricing more complex. NACCA explains the fee structure in detail on its FAQs, and provides some typical rates based on what type of merchant you are. (For eCommerce / Mail Order merchants, Key Entered Debit rates are typically 1.89% plus 27 cents, and Key Entered Consumer Credit rates are typically 2.09% plus 22 cents, depending on volume and ticket size.)
With Costco's merchant credit card processing service Elavon, if you are a Costco Executive Member and the buyer's card is "qualified" (see below), you pay 1.99 percent plus a 27-cent per-transaction fee for virtual (keyed in as opposed to card swipe transactions). There are monthly statement fees and a one-time $25 application fee, which is waived for Executive Members. There are also similar merchant services available from Sam's Club and many other credit card service providers.
You have to read the "fine print" closely when you sign up for a merchant account. The same rates don't apply to all cards or under all circumstances. Generally, you pay lower rates if you physically swipe a customer's credit card as opposed to taking the credit card information over the phone or online. And "qualified" transactions get lower rates as well. To be "qualified," the credit cards used must not be tied to any sort of rewards program, such as frequent-flyer-miles or hotel-guest-points, etc.
NACCA, for its part, does not charge an application fee or a yearly fee to maintain the account. Merchants need to complete a basic merchant application, have a reasonable credit score and a business checking account, unless they are a sole proprietor, according to Michael Baron, Regional Director of NACCA.
Factor in PCI Compliance
There's also the question of PCI DSS compliance. PCI DSS stands for Payment Card Industry Data Security Standard, a set of requirements governing credit card transactions. Either you or your credit card transaction processor needs to maintain the security procedures that ensure the protection of credit card holders' personal data, and this can be quite costly.
The good news is that if you sign up with a marketplace like TIAS.com, you "inherit" their PCI compliance so you don't have to worry about this. But depending on the merchant or the processor, you might be charged an extra fee for PCI compliance. Be sure to ask about this before you sign up so you don't get "sticker shock." The same applies to shopping carts and hosting services, so make sure you know if you are covered for PCI compliance and any fees for being covered before you sign up. You can learn more about PCI compliance here.
When Is It Time to Explore a Merchant Account?
At what point should a small business consider obtaining a merchant account? Baron gave these recommendations:
- If you do any retail business directly with the public.
- If you don't want your customers to see the PayPal logo as well as your logo on their statements.
- If some of your customers don't have PayPal accounts.
- If you process at least from $750 -$1000 worth of sales per month.
If you decide to shop around for merchant accounts, keep in mind all the various fees that may apply in addition to the average rate and transaction fee, including application fees, annual fees, gateway fees, statement fees, PCI compliance fees, and address verification fees.
Many merchant account providers also assess a monthly minimum charge that applies when qualified transaction fees and per-item charges are less than a certain amount - in the case of Elavon, there is a minimum $20 per month charge.
If you're looking for the cost benefits and the added professionalism of a merchant account without the effort of making sure you are PCI compliant and going through the application process, the easiest option is to find a hosting service with a payment gateway that is already PCI compliant.
As Davies says of the TIAS.com gateway, "It saves our merchants both money and the hassle of dealing with PCI compliance."
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