Merchant Account Factors

FACTORS TO CONSIDER WHEN SELECTING A MERCHANT ACCOUNT PROVIDER

When you are considering opening a merchant account, it is always prudent to shop for a merchant account provider before actually settling for one. One of the important factors to look into is the rate offered by the financial institution. The rates and fees should be reasonable, although they may differ depending on your kind of business and the method by which the credit card transaction is done. Rates are usually higher for online businesses or those that accept credit card information over the phone compared to businesses allowing swiped transactions. Here's a list of typical fees associated with a merchant account:

• Transaction fee - This is a fixed rate that you pay for every transaction that you make.
• Discount rate - This is the percentage of the transaction amount that will be charged to you. Usually, larger orders result to lower discount rates. Typical discount rates range from 1.69% to 3.49% of the transaction amount.
• Reserve cost/Chargeback rate - This is the amount held by the merchant account provider on a rolling basis to cover for a repudiated transaction. The amount is determined by the chargeback rate, which is usually a percentage of your total monthly sales. The fraction is determined by several factors such as the risk associated with your kind of business, your credit rating and chargeback history.
• Chargeback fee - Some account providers charge you with an additional chargeback fee for every chargeback you acquire. This could be a pitfall for businesses that receive a large number of chargeback – imagine paying for a chargeback fee and a reserve fee so many times in a month!

So many merchants are lured by the ultra-low discount rates and other fees promised by some merchant account providers. Such assurances should be eyed with suspicion rather than being approached with gusto. Believing such promises may even cost you the money that you were trying to save somehow by going for the low rates – and may be more. Every merchant should realize that merchant account providers have to earn money somehow. So how do they do that with such super-low rates? By charging you with "hidden fees" (fees that were not disclosed from the very beginning) and probably very high chargeback fees. Such merchant account providers may also offer you substandard services. So the key here is to evaluate your needs, your projected income and number of sales for a month and your short and long-term goals and find a provider that will fill your needs and support, not sabotage your business.

More than the rates however, merchants should assess the reliability of the merchant account provider. You can check the Better Business Bureau report of the provider you're considering. Numerous complaints against the provider is a red flag – go and consider another one with a proven track record of integrity. You must also consider the length of time the provider has been in business, their technical expertise and their availability.

Make sure that you have researched long and hard before finally signing up with a merchant account provider. Remember that your business is at stake so learn to choose well.