Merchant Account
Warning
Free merchant
account
Free merchant accounts simply
do not exist (unless your a
non-profit or charity type organization). Don't be dismayed though.
While some merchant account providers do make claims of a free merchant
account, they are just trying to lure you in. There will always be an upfront
cost when you purchase a merchant account for your business. However, the
upfront setup/purchase prices for Internet-based businesses has dropped quite
a bit. Upfront costs will range from $99 and up. It is understandable that a
new business start-up can't afford to lay out too much money on a merchant
account, it's important you purchase from the right company.
ECHO, Inc. offers some of
the lowest rates for a merchant account.
Just be aware that any company
who claims to offer a free merchant account is making up their loss in another
rate or fee. It's also a good idea to work with a merchant account provider
who will not charge you a cancellation fee should you decide to move providers
later on. This will save you headaches down the road.
Warning! Read this before signing up for a
merchant account.
Many payment processing companies make themselves look extremely large on
the Internet, yet are really just big advertisers and high pressure sales
people who are not really a payment processing company at all. They sell
processing for whoever pays them the most commission and it is always the
merchant who ends up paying for it, usually in the first few months and in
startup costs.
It is a known fact within the processing industry that more than 75% of new
Internet businesses have a slow start or fail altogether. Avoid companies
who's high monthly fees will drain your resources. Remember that many of them
are depending on those monthly fees to compensate their sales and marketing
efforts.
Since most sales people in the merchant account business are never going to
tell you that there are better deals for you out there, we have compiled a
list of things to watch out for.
Merchant Account Hidden Fees
Find out if there are any fees whatsoever that aren't disclosed. Here is a
list of some of the garbage fees that merchants pay because they are not aware
of a better solution:
- Chargeback fees
- Retrieval fees
- Gateway fee
- Termination fee
- Hidden setup charges
- Non-refundable setup charges
- Batch fees
- Cancellation fee
- Minimum fees
- Pass-through fees (these vary)
- Software fees
- Licensing fees
- Annual fee
- Amex/Discover setup fees
- Statement fees (more for more services)
Merchant Account Misleading Ads
Be wary about advertisements that are misleading or are flat out
dishonest. If they lie on their ads then most likely they will not care about
you later on. Watch out for blurbs like:
Instant Activation - These types of accounts are a gimmick and
have severe limitations.
Instant Merchant Account - This is a gimmick; ask them when you
can receive your funds.
No Merchant Account Needed - Do you really want someone else to
handle your money for you and pay you when they want to? Technically you are
under their umbrella, even though they issue you a merchant ID number.
MasterCard and Visa do not allow multiple parties to share the same merchant
account and will eventually shut these companies down.
99% of all Applications Approved - This one is probably untrue,
any credit card processing company with a 99% approval ratio is going to be
out of business with all the risk they assume.
24-Hour Customer Service - Are they really providing it or do
they pay an outside answering service? Try it out before you sign on the
dotted line.
24/7 Technical Support - Are they really providing it because a
reseller must depend on someone else. Also, if you have multiple services,
you may be calling many different support lines.
We Offer Credit Card Processing - Find out if they are really
just a sales office with no data center. If they are, they're at the mercy of
a bank that may not live up to the sales office promises.
We Offer Merchant Accounts - Most credit card processing and
merchant account companies are really just sales people selling for someone
else.
Accept Credit Cards and Checks - Is it one company processing
many services or a reseller selling multiple services from multiple companies
for the most profit? Remember that the merchant will always pay for the
higher commission that the sales people are paid.
We Offer International Merchant Accounts - This is usually a
gimmick. What they often mean is that they process payments from anywhere.
Anyone who accepts Visa payments can accept them internationally.
No On-Site Pictures Required - Find out exactly what they mean
by this statement because this is a bank requirement.
No Business License or Tax Returns Required - If this is really
happening then the bank providing the merchant account is in a lot of hot
water.
Remember that Visa and MasterCard regulations require that a company
disclose who their sponsoring bank is if they mention Visa and MasterCard
anywhere on their website or advertisement.
Point-of-Sale (POS) Hardware Scams
Don't assume that low priced hardware comes with the best processing because
it usually doesn't.
Don't buy hardware that you can't take with you to any other processor.
Watch out for lease terms, this can be like buying a car. It is sometimes
irrevocable and you have to pay a high percentage rate like 15-20% because it
is not in-house.
Some processors secretly lock their terminals with a code that one their
system can unlock.
Always ask about the total startup cost, hardware pricing, software license
fess and be sure to shop around.
You Don't Have Full Use of Your Funds
If you are a non face-to-face business (non-retail) be careful because many
processors will freeze your funds once you start to show any processing
growth. This has put many companies out of business because their case flow
was frozen by their processor. Most processors only want businesses that do
less than $10,000/month and once a business passes that amount they become a
high risk business.
Lack of Integrity
Verify their integrity! Do a background check and see if the company is
known for doing business with companies like yours. Did they become
successful by supporting online gambling casinos and adult porn sites? These
two industries bring in huge revenue:
"We felt the traffic on our site might be interested in the gaming world,"
said Gary Kremen, CEO of Sex.com. "It seems that the value of gaming is
higher than adult sites."
Partnering with gambling and porn companies will bring legal issues with
your processing company, and possibly even you. Lou Hirsh of
E-Commerce Times in his article
for NewsFactor called, Is Porn
Still the Hidden King of E-commerce? said, "Experts noted that even as the
porn industry as a whole rakes in dollars, it must also deal with legal
limitations because of it taboo nature."
"Some companies, however, have decided that casino money isn't worth the
risk given gambling's dubious legal status in the United States and the
attempts by some state and federal officials to crack down.
Just this week, PayPal (Nasdaq: PYPL) of Mountain View was subpoenaed by
the New York Attorney General's office, which is investigating online
gambling."
NewsFactor July 15, 2002
Chargeback Management Issues
Many processors assume that the merchant is wrong and don't process the
chargeback in a timely fashion which robs the merchant of an opportunity to
respond and avoid the chargeback.
Fees for chargebacks vary but most processors consider chargebacks to be a
huge source of revenue and therefore have no desire to limit chargeback fees
and help the merchant to minimize chargebacks to begin with.
Discount Rate Not Refunded
Most processors keep the discount rate whenever a credit is given. What
this means is that if your business gives a lot of credits to keep customers
happy, you can make a lot more money by working with a processor who returns
the discount rate originally charged with every credit you give.
Big Bank Outsourcing
Don't assume a big bank is either better, or more ethical or has less
costs. Most big banks outsource all of their services and leave the merchant
paying the high fees.
Merchant Account Contracts
Be careful of signing a contract too hastily. Read the application
carefully because some contracts carry a non-cancellation clause or penalty.
If a company will not leave an application with you overnight, they are
probably trying to use "high pressure" tactics so that you don't really know
what your signing.
Good Advice
If you really want to get as close as possible to the truth about credit
card processing companies visit the
Google Groups and follow these instructions:
1. Type in the name of the company that you are considering signing up
with and add one of these keywords to it: "scam" "fraud" "lawsuit" "ripoff"
"sucks" "dishonest" "illegal" without the quotes.
2. Find out what people are saying and see who has the best reputation.
Be sure to check the dates.
I was amazed to find out how many companies were either suing their own
customers for an unpaid cancellation fee or would not issue a refund to an
unhappy customer. Remember that many companies try to cloak their dishonest
practices by selling out to a bigger company when the going gets tough. These
problems will not just go away so do your homework and find out what the
history of the company you are considering signing up with.
Article by:
Steven Santos
of Infomerchant.net
No portion of this article may be reproduced without
prior permission from the author |