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Establishing a Merchant Account for Your Web Business

By David Johnson
Jun 15, 1999 12:00 AM PT

Many online businesses have had difficulty establishing a "merchant account" - a special type of bank account that holds the proceeds from credit card transactions.

Establishing a Merchant Account for Your Web Business

Without a merchant account, web businesses can't accept credit cards and may miss out on more than 60% of their sales opportunities. Here are three of the first steps in establishing a merchant account for your web business.

Determine Your Needs

Before shopping for a "merchant account provider" (MAP), take the time to determine which merchant account features and services you'll need. Two important examples are:

Real-time processing. Some ecommerce systems offer automated transaction processing while the customer waits. Others offer manual processing, which collects payment information for later processing by hand. Real-time processing is more expensive and typically only required in high volume systems or for products distributed electronically, such as documents or software downloads.

Technical compatibilities. Many MAPs offer an entire ecommerce system as part of their service (charging higher fees in return). This system may be incompatible with your current or planned hosting software or other ecommerce applications. Check with each MAP to ensure its software is compatible with your ecommerce system.

Understand Merchant Account Costs

Some MAPs make quite a killing out of unexpected costs, contingency fees, and penalties. Here's a list of the common fees and costs you can expect to pay from any MAP:

Internet discount rate. An Internet discount rate is a fixed percentage taken from every online transaction, usually two to three percent. The Internet rate will generally be higher than card-swipe rates, the rate charged when the merchant can swipe the customer's card through a traditional point-of-sale (POS) terminal.

Transaction fee. MAPs typically have fixed charges, usually between $0.25 and $0.70 per transaction. If you are going to sell many low-priced items through your site, high transaction costs can be devastating.

Monthly fees and minimums. This is a variety of charges levied on a monthly basis, including statement fees, monthly minimums for total charges, excess usage fees, and others.

Holdbacks and chargebacks. Your MAP may holdback, or reserve, a percentage of your transaction receipts to cover any contested charges. The MAP may also apply chargeback fees against your account when transactions are successfully contested.

Setup and equipment. Setup fees are often only a small portion of total setup costs. Ask about required hardware or software purchases, installation fees, programming costs, and other setup expenses.

Research Merchant Account Providers

Don't rush into any MAP service contract without gathering at least five price quotes from prospective MAPs. You can find a free, impartial listing of MAPs and their primary rates and fees at MerchantWorkz.com.

Also, keep in mind that rates and fees are often negotiable: don't hesitate to push MAPs into a bidding war. Merchant accounts should not be an obstacle to setting up shop on the Internet. With a little research and planning, acquiring a merchant account can be painless and inexpensive. It can also shield you from less-reputable providers seeking to profit from novice web merchants.


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