The following is a portion of a response to one of our customers regarding obtaining a merchant account for their business. We thought we'd pass it on ...
In order to accept credit cards you will need what is called a merchant account. As you noted, there are a number of costs involved ... but if you shop around you can find a pretty good deal. I know that "a good deal" is a relative term. First off, almost all the credit card processors will require that you have a business account (checking or savings) with a bank. This account will be used for depositing your sales from the credit card transactions. Check out the rates in your area. Doing a little homework can save you some money in fees. Many banks offer special small business starter packages that can include free checks and processing fees. While your visiting the banks, ask them for any information about credit card merchant accounts that they might offer. If nothing else, you'll learn a bit more about them and maybe come across a good deal as a new customer.
Now some things to know about merchant accounts ...
I would advise to stay away from "real-time" processing. The potential of getting "bad cards" is very high and since the charge is made right away, you'll have to go through the time and possible expense of clearing the order.
Most of the sites that you find offering merchant accounts are working from a commission through a bank. They make most of their money from the application fees and any equipment that you might need. After that you'll find the other fees (discount rates, transaction fees, etc), pretty much the same.
In getting started, you usually fill out a pre-application about your business. You'll need to include the business (checking or saving) account mentioned earlier. If the company decides to go ahead with your application (and they usually do!) they will send you additional forms to fill out. There are a lot of them, but the company rep. will usually walk you through them and include full instructions. Sometimes they even fill in most of the information that they received from your pre-application.
With the application, some companies require an application fee (the one you mentioned in your email did not). This fee can be anywhere from $50 to $250. Any company that requires more than $75 should be avoided. Also avoid any company that will not refund your money if your application is declined.
When you fill out the application, you'll need to indicate how you will be processing credit card sales ... in other words the equipment you will use. You'll want PC based software to process your charges. We use "PC-Charge" and there are other programs that are similar. You do not need any type of imprint or keypad machines. The software loads onto your computer and allows you to enter the cards/amount of sale, track customers, and print records. As stated earlier, avoid any system that is "real-time web based." The purchase price of the software can be high. We've seen it advertised as high as $900. Ours is listed at $550. To off-set this cost, look for a lease to own option. We lease ours at $35/month for 24 months. It was also available at $21/month for 48 months. With a business, this expense is tax-deductible.
You'll see information about certain fees that are charged after you get your merchant account. Here is a brief explanation:
Discount fees - these are the percentages that the credit card company charges for the amount of a sale. They are lower for retail (stores where you walk in a buy something and your card is swiped) ... around 1.59% to 3.50% and higher for mail, telephone and internet (banks consider this higher risk since you never physically handle the card) ... around 2.09% to 3.50%.
Transaction fees - these are per transaction. You should look for something around $0.20 to $0.30.
Monthly Statement Fee - As you guessed, the fee for getting a monthly statement of your sales. Cost ranges are around $10 - $25 per month
Monthly Minimum Fee - Some companies require you to incur at least a total of $20 in transaction fees a month. If not, they will charge $20 (or the difference between the $20 and your actual charges). Try to find a company that does not do this, if possible.
Avoid any company that charges the following fees:
o AVS - address verification
o Daily Batchout fee - when you close out all the sales you made that day
o American Express Application Fee - for accepting American Express cards. You don't have to accept them, but if you decide to apply, it shouldn't cost you anything.
o Annual Fee - this is an added charge you shouldn't have to pay
Now that you have ALL this information, where do you go to find a merchant account? Well the one you sent us looked like a pretty good deal. You might want to verify their rates and see if they have any of the additional fees we noted above.
I suggest you also visit: www.onlineorders.net ... This is an excellent source of information and includes a directory of Merchant Account Providers. From the list you can compare prices. The site is a wealth of information.
The bottom line ...
A merchant account will cost you about $35-$50 a month to maintain. This cost is based on the software lease and statement fees. The discount and transaction fees would then be offset by your sales.