To accept credit cards, you must establish a merchant account -- a special bank account for handling the revenue (and fees) from credit card transactions. Your merchant account provider (MAP), a bank or other institution that processes online credit card transactions, will verify the credit card, process the transaction, and deposit the results into your account, usually within two to four days.
If you operate a brick-and-mortar store and use a merchant account, the same vendor may be able to process your online transactions directly through a commerce-enabled Web site with Web-based credit card processing software. Charge.com and CyberCash are examples of Web-based payment processors that that enable credit card and other forms of electronic payment transactions.
Special Challenges for Online Merchants Some MAPs will not allow a large volume of purchases to be made when a card is not physically present; for example, for charges made over the Internet, or by phone, fax, or mail. If you have such an MAP, you will need to obtain a separate merchant account to process your online transactions. This situation arises because financial institutions and the Visa/MasterCard card associations have different criteria for evaluating the potential risks of credit card transactions when a card is not present. A variety of fees and other expenses are associated with online merchant accounts.
Setup Fees Your MAP will charge some combination of fees to get started. Most charge an application fee, which is seldom refunded if your application is denied. When you open an account, you may be charged software licensing fees, if applicable, and you may be required to purchase hardware or equipment, such as a point of sale (POS) terminal.
Shop around for the best value on application and setup fees. As competition among providers increases, these fees are being reduced or waived. Application fees typically run from no charge to an industry standard of around $300 (U.S.). Some MAPs refund this fee if an application is denied, while others consider the application fee non-refundable.
Software Software requirements also vary widely, from using Web-based applications hosted on your provider's server free of charge, to purchasing and installing software that may cost from $500 to $1,200 or more. In some cases, all that's required is a personal computer with Internet access, but depending on your business needs, a POS terminal may be necessary. POS terminals are the devices you see in most retail locations, used for processing credit card transactions. These terminals come in a variety of models -- from bare-bones versions to fully loaded editions with integrated printers and real-time processing capabilities. Purchase prices range from about $550 to $1,600, and lease prices range from $15 to $50 per month.
Transaction Fees A transaction fee is a flat fee charged for each transaction. Credit card transaction fees may be assessed by the financial institution that handles your merchant account, the Internet payment service (such as CyberCash) that enables the merchant to accept online payments from their customers and securely processes these payments, or both. You may be able to receive separate invoices from your financial institution and the Internet payment service; but in many cases, this fee is presented to merchants in one invoice from your financial institution and ranges from $0.20 to $0.50 per transaction. The transaction fee is based on the financial institution and the risks associated with the merchant, including:
The type of products and services being sold. The market segment in which the merchant competes. The method in which products and services are being sold and delivered. The prices of the products and services offered. The expected sales volume of transactions. The merchant's credit history.
Discount Rates Discount rates are percentages taken from each order. Expect to pay discount rates from 1.75% to 3.95%.
Other Fees Beyond these fees, many MAPs have also established minimum annual revenue requirements, sometimes as high as $1 million and as low as $25. Some MAPS also require security deposits or revolving accounts to ensure that you'll pay for any charges contested by a customer. Like transaction fees, these amounts are usually based on the type of product you're selling and the price of your goods and services, your credit history, and the length of time you've been in business. Each MAP offers a different mix of fees. Regardless of the MAP, however, these costs can add up quickly.
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If you're involved in marketing information products on-line then there's no disputing the need for you to accept credit cards in order to increase your overall sales. Typically in a retail environment your sales will increase anywhere from 15 to 40% when you have the ability to accept credit cards. This article is part 1 in a series of what information marketers should know about merchant accounts.
Visa and MasterCard account for over 90% of all credit card transactions, so the acceptance of those two card types is mandatory. Amex and Discover are the other two significant players, but account for only 5-7% of the market. If you're selling higher priced information products acceptance of Amex is highly recommended.
There are four primary components involved in the processing of credit cards. The first is the actual card issuing entity, be it Visa, MasterCard, or other. The second is the company that sets you up to be able to accept credit cards, which is called the Merchant Account Provider. The third component needed for online processing of cards is a payment gateway, such as Authorize.net or Plug ?n Pay. And the fourth is your online shopping cart system. All are required to do business on the Internet.
When a new information marketer applies for a merchant account the primary thing the merchant account provider is looking at is the personal credit of the requestor. The underwriters for the company will be looking to see if you pay your bills on time first and foremost. Then they'll be looking to see if you own real estate. In the processing industry, owning real estate and having decent credit says to them this is a stable merchant.
Another big component of the underwriting process is your refund warranty policy. What type of refund policy are you giving? From the viewpoint of the merchant account provider the longer the guarantee period the less desirable it is. Why? Because it stretches out the risk of a refund even longer. The greater the length of potential liability the increased chances there are for a chargeback of the sale.
There can be many different reasons for a chargeback, but the bottom line is the customer is saying they don't agree with something regarding that transaction. It could range from the product not being received to the wrong product received, to the product not being as described to any number of other reasons.
Chargebacks can typically be made anytime from six months up to a year. In fact, on international sales there are some regions that may allow customers up to a year and a half to request a chargeback on a purchase. Next Month ? Part 2 of What Information Marketers Should Know About Merchant Accounts.
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