Where's the Money?
© Charlie Page
You've heard it before and will hear it again. You MUST accept credit cards to succeed online.
While there have been many attempts to find a payment method other than credit cards, the fact is that paying by credit card is what people want.
People love to use their credit card on the Web for the same reason they buy overpriced gallons of milk at a corner store when a real market is only blocks away ... convenience.
As sellers we MUST make the buying process as quick and easy as possible in order to capture the most sales. The fact is that 95% or more of visitors won't buy the first time, so it's vital that we make it easy for the small percentage who want to buy now.
Let's take a look at the basics of what you need to know to choose a good merchant account and get a better view of the options available to you. There is a *lot* to cover so I'll keep it as brief as possible.
Here is the free resource page we prepared to help you decide. No affiliate links, just information.
http://www.directoryofezines.com/merchant.html
LEARNING A NEW LANGUAGE
The first thing to do is understand the lingo. Here are four terms you must understand.
1. The term "Merchant Account" can be used strictly (to mean the actual bank) or broadly (to mean the entire process).
2. The word "points" is used instead of interest rate (when they say you pay two points, they mean 2%).
3. The word "discount" is actually a fee you pay them for collecting your money.
4. The "Merchant Account Provider" you choose will not be the bank you are doing business with, but a sales organization (read affiliate) of that bank and many other banks as well.
So when a Merchant Account Provider says "We'll set you up with a discount of two points," he or she really means that they will deduct 2% of every dollar as a fee. And you thought a discount meant you *saved* money. ;)
Here are some various terms you will need to know.
FIRST THINGS FIRST There are merchant accounts and there are third-party payment processors. PayPal and Clickbank fall in the latter category.
While third party processors are super-convenient, offering no credit check, monthly fees, etc, they can be very costly if you aren't careful.
For example, let's say you sell $10,000 a month worth of products that sell for $10 each. That's 1000 transactions. You'll pay huge fees to use a third-party provider who imposes a one dollar per-transaction fee.
And $10,000 is your gross sales, not your net sales. Just because you sell $10,000 doesn't mean you keep $10,000. It's all about how much you keep!
Also, many people assume that payment processors like PayPal are banks, which they are not.
While I have used some of these third-party processors myself, it pays for you to know the facts. Be sure to do the math that is appropriate for *your* situation.
The rest of this article deals with merchant accounts, not third party payment processors.
MERCHANT ACCOUNT PROVIDER The people who set up your account (the salespeople) and provide you the software (a virtual terminal as defined below) in order to process sales manually if you need to.
MERCHANT ACCOUNT This is a *bank* account with a bank you will probably never see. This bank collects the money when you make sales and sends it to your bank, usually 48 hours later. Be VERY careful about how long you wait to get paid. This can vary from 24 hours to six weeks! Your merchant account provider will know how long it takes.
PAYMENT PROCESSOR The people who process the payment. They verify that the card is good and authorize the transaction. Authorize.net is the biggest player in this game.
VIRTUAL TERMINAL You know those machines they swipe your card through when you shop at your favorite store or dine out? This is the software version of that machine. You will usually *lease* this from the merchant account provider for a few years or buy it for several hundred dollars up front. Be careful, prices WILL vary.
WATCH THOSE FEES! Ah, the fees. Don't forget that credit card companies and banks make billions of dollars a year on fees. Here are some you need to nail down. Be sure to ask if there any other fees since the sales person could forget to mention them.
GATEWAY FEE To the best of my understanding, this is a fee you pay for the bank and the payment processor to communicate with each other. No one has ever explained this to my satisfaction. I think it's a fee they charge because they can.
DISCOUNT As mentioned above, this is *not* a discount you get, it's a discount you pay. The discount is a percentage you pay for having your payments processed and monies deposited in your account.
I've seen "discounts" at low as 1.2% and as high as 6%. Shop hard here, but don't let this be the *only* factor in your decision.
TRANSACTION FEE This is a fee you pay per transaction in *addition* to the discount. This will usually be around 35 cents, but can go up to $2 if you are using a third party billing company.
MINIMUM SALES FEE This is a fee you pay if your sales fall below a certain minimum in a month. This can vary and some don't charge it. It's usually about $25, but you don't pay it if your discount exceeds this amount.
CONGRATULATIONS ... YOU'RE IN THE MAIL ORDER BUSINESS! Don't be surprised if your Merchant Account Provider tells you that you are a "mail order" type of business. This only means that the credit card companies and banks haven't come up with a good label for Net businesses.
They say mail order because we, like mail order companies, don't see the customer face-to-face.
WHEN DO I GET PAID? This one is *huge*. It can range from 24 hours to six weeks, depending on whom you choose. Be careful and ask questions here. "Usually within" is not a good way for them to answer.
You also need to understand something about when they SETTLE (pay you) and when they BATCH, which is when they count up the sales for the day and tell you via email how much your sales were.
HOW ARE YOUR RESERVES? Since there is so much fraud in the world (not just on the Net) a merchant account provider will often require a reserve. That's a certain amount of money that they hold in "reserve" against refunds so you don't go to Jamaica with all your money and leave them holding the bag.
This can be a percentage of sales or a fixed dollar amount. They usually hold this money back from your sales a small percentage at a time so it doesn't put you out of business.
Be *very* careful about companies that take a percentage with no ceiling. Five percent may sound small, but 5% over a one year period can be huge bucks.
Last but not least ....
REFUNDS AND CHARGEBACKS You know all about this from the consumer side already. If you don't like a product you contact the merchant. If they don't give you satisfaction you call the card company and like magic the charge goes away.
When you are the merchant and a customer returns an item, that is a REFUND. All merchants give refunds from time to time.
When a customer calls the credit card company instead of you, that is a charegback. Chargebacks usually cost $25 plus the money you refund. Having a clearly stated guarantee will avoid almost all chargebacks.
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Wow. That's a lot of information to digest at one time.
Did I make it sound like it's complicated and not worth the effort?
If so, nothing is farther from the truth. As a seller, one of your most important responsibilities is to be easy to buy from. If you can increase sales by only 2% by becoming easier to buy from, the impact on your bottom line will be huge.
Just remember this. YOU are the customer when you buy a merchant account, so ask questions until you are satisfied. As you will see on our resource page, there are many providers to choose from, so take your time and be careful. This is one of the most important relationships you will have in your business.
If you are serious about your Internet business it's wise to look into a merchant account. The easier you make the buying process for the customer, the more sales you will make.
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Charlie Page is a copywriter who owns the Directory of Ezines and the Directory of Marketing. If you want to sell more online, visit Charlie today at
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