Merchant Account Essentials – A to Z
Before we rush into anything, let’s take a step back and remember that we don’t know what we don’t know yet… and, just like my favorite childhood game, there’s no point climbing up the ladders if you end up sliding straight back down again on the snakes.
Save yourself some time and money in the long run by taking it slow at the beginning.
With that in mind, let’s start with the basics:
A merchant account is a type of bank account that allows businesses like yours to accept credit card payments from your customers.
During the sales process most providers will understandably paint a perfect picture full of shiny bells and whistles that may lead you to believe that their option is the best suited to your business.
But you know from your years in business that things are rarely that easy, right?
The dirty little secret your bank rep won’t tell you
Getting a merchant account is just one of many tasks you must complete as your business starts and continues to grow.
Sometimes you’ll hear that the safest bet is to apply for your merchant account through the bank, as they’ve got the experience and the infrastructure to make sure you’re always supported.
What you don’t usually hear is that very few banks actually provide merchant accounts themselves. Instead, they partner up with a merchant account provider and resell the service to you.
So what does that mean for you? It could mean any number of things but at the top of the list is the question of customer service as the lines are very quickly blurred as to who is actually responsible for servicing your account.
Is it the bank, or the provider?
By all means, if you have a great relationship with your bank, and really want to go with them, do so, but make sure you get all the facts first.
Brick & Mortar or Online – What type of account is right for you?
Do you have a “brick and mortar” business or are you running a purely online enterprise? Do you accept payments over the phone or are your customers always standing in front of you when they are ready to pay?
There are many types of merchant account providers with many kinds of fee structures and you need to make sure that you are looking at providers that are going to suit your style of business.
A merchant account that has been set up purely as an e-commerce solution won’t effectively solve your needs if you run a retail business. The rates, fees, equipment, and PCI compliance requirements will be very different compared to a retail merchant account.
This will not only cost your business money, but may also deny you the facilities that your business requires for the processing of day-to-day payments.
Likewise, a purely retail merchant account will not be the ideal choice when it comes to a business that operates exclusively online.
It is vitally important that your merchant account is not set up for anything other than the exact specifications your business needs.
As the market matures, a growing number of merchant account providers are able to provide all types of accounts, but it’s still best to research to make sure that you pick a provider that understands your business well enough to be able to set your account up properly.
Are you swinging at everything, or just the good ones?
Just like in baseball, you don’t want to swing at every pitch, only the fat ones that come straight in over the plate.
And likewise, you should only be getting in contact with merchant account providers that are able to meet your needs. Otherwise you’re just wasting your time.
So before you go out and start contacting every merchant account provider that you can, you need to step back, take your hands off the iPhone and do a little strategy first.
Ask yourself what your requirements are.
Do you need a physical terminal to be wired up to a physical location or can you get by with a smart phone reader? Are you an e-commerce store that needs a particular solution, or are you a hybrid of both online and offline?
What sort of fees can you afford to pay? Do you know the margins on your products and how a merchant account is going to affect them?
What sort of customer service requirements do you have? Will it seriously affect your business if your merchant account has downtime (site failure, faulty terminal etc) or is that not really a critical factor for you?
There will be many circumstances that are particular to your business and you should try to think and plan for them before you start calling merchant account providers.
After all, gathering too many proposals from various providers will just create more work for you in deciphering the different rate structures.
At the very least it will save you time by making sure that you only call certain providers that fit your criteria.
Check out: 7 Questions You Might Want To Ask Your Provider.
Why apples don’t look like oranges, but everything seems to taste the same
Have you tried to buy a mobile phone plan lately? All the major providers seem to have come up with a plan that is completely different to every other company.
One offers free minutes if you’re on the same network, and one offers less minutes, but to all networks. Another offers you free texting but is light on data. Another gives you a stack of data but no call time.
Each one tries to highlight the area they shine in while “closing the door” to the sections they want to hide.
Why are there so many merchant account offers out there that seem so different? Why not just keep it simple?
Well, just like mobile phones, there are many merchant account providers out there who want your business. And they’re going to try to differentiate their product as much as possible in order to stand out from the pack.
One might offer very low transaction fees, but slug you with statement costs. Another might offer you a “lowest rate guarantee” that makes you feel warm and fuzzy, but in pr
actice is almost impossible to claim. Ask simple questions to ensure that you are getting the best deal possible if you don’t have the benefit or relying on trusted advice from someone you know.
The aim of the game is to make it seem as though you’re getting a great deal, while still charging you roughly the same amount, or even more.
But there is a way through the confusion. You’re gonna love it. It’s simple, doesn’t require any major math skills and it’s impossible for a provider to hide.
Grab your calculator and move on.
The one simple calculation that makes it all easy
Let’s go back to basics for a moment and simplify things.
At the end of the day, you’re going to process a certain volume of transactions through your credit card terminal, whether it’s $1,000 a month or $100,000 per month.
For simple math let’s say this month you processed $100,000 through your merchant account.
So you refer to your monthly statement and locate the summary page. Look for the “total fees” section.
In this case let’s say that number is $2,560.00 for the month.
Take that $2560 and divide it by $10000 and you can see that you paid 2.56% in merchant account fees this month.
This is called your effective rate and should be the most important calculation that you make each month.
Don’t worry so much about the details of each transaction fee or percentage rate just look at the end of the month fee and volume.
Look for social proof
The merchant account provider that you go with will have long term ramifications for your business, and if you pick the wrong one, the costs can be problematic, especially if you get locked in to a bad contract.
Ask for social proof and pay particular attention to whether the testimonials are believable or not.
Reviewing customer testimonials is one method of analyzing whether the company you’re about to work with is reputable and honest.
Do they treat customers with respect and professionalism? Can you count on them in time of need?
How to avoid the $4,600 mistake
Okay, I’m going to keep this simple. Don’t lease a terminal. It’ll cost you an arm and a leg, and there’s no need for it.
A terminal should cost you anywhere from $150 – $400 to buy.
A lease may well cost you up to $130 per month over 36 months.
Total cost? $4680, or approximately 31.2 times more than you should have paid. That’s 3000% which in anyone’s terms is a pretty good mark up.
The best option is terminal placement programs.
Renting is generally a month to month contract which you can cancel at any time, and from the better vendors you’ll get free receipt paper as well.
In all cases however, you should do a cost benefit analysis to decide on which option is for you.
Find out the details behind terminal leasing by reading this article.
Finding the needle in the haystack
You have to make sure that the after-sales service is going to be as good as it was during the courting process. A salesperson is highly incentivized to gain your business as a client, but not so much for the outlays that fulfilling best-of-class customer service requires.
Find out if you’re going to have a dedicated rep or are you just going to get shunted off to a call center in India.
What happens in a crisis, such as you’re in the middle of a sale and your terminals go down? Getting service from a company that provides reputable customer service is like getting health insurance. You don’t need it until you REALLY need it.
Problems WILL arise and in the time of need you need to know who you can call.
This can’t be overstated, and service guarantees are something that you may well want to pay a bit more for.
The devil is in the detail
Remember that negotiation is a two way street and also that once you’ve signed on the dotted line, you’re effectively locked into the contract without possibility of amendments.
So make sure that you’ve nailed everything down and that you feel comfortable with what you’re signing up for.
Are you happy with the contract length, or would you prefer shorter? Will it affect the contract if you decide to buy a new POS system or change equipment?
Are there any back out clauses for either you or the provider? And if so, are they reasonable to you?
Do you have a clear idea of the rates schedule? Is the provider allowed to raise the rates without your consent? Will a rate hike allow you to leave the contract early?
What about guarantees? Are they giving you guarantees that are based in the real world, or are they so full of loopholes that you would never have a reasonable chance of succeeding in a claim?
Remember, the devil really is in the detail and before you sign anything you want to make sure that all of your bases are covered, and that you’re totally happy with the agreement.
By all means, if you have access to one, get your solicitor to check it over to make sure that you are not being disadvantaged.
There’s no such thing as a free merchant account.
The important stuff that’ll cost you money if you ignore it
Payment Card Industry or PCI compliance, while not a particularly exciting subject, is still a something you have to factor in when choosing a provider.
PCI compliance is mainly based around data security and ensures that both you and your merchant account provider and maintaining best of standard practices around storing customer data and that proper security measures are followed.
Most reputable providers use a third party who will do your compliance with you, generally online via a 20 minute questionnaire once per year.
Failure to maintain PCI compliance can result in monthly penalties being charged, or in extreme cases, having your account shut down.
Find out the basics of PCI compliance here.
So you’re thinking there’s got to be a short cut, right?
Well you’re right. There is a short cut.
All you need to do is download this step by step guide on exactly what you need to do to navigate the merchant account swamp safely.
It is literally a complete guide that will take you by the hand through every step of the buying process from figuring out which providers fit your business profile, all the way to getting a great deal on your monthly fees.
It’s free and you can Get It Here.
Want someone to do all of this for you?
You know what? At the end of the day getting a merchant account is not the biggest decision that you’re going to have to make for your business. Heck, it’s probably not even the biggest decision you’ll make this week!
You don’t need to get all kung-fu on the topic and learn everything, because ultimately getting a merchant account is a relatively small part of your business. If you get it wrong though, it can cost a fair bit of money.
So why not let me do everything for you?
You’ve read this article and hopefully you can see that I know what I’m talking about. If you’ve read my profile then you know that I have a strong background in merchant account banking with many testimonials and that customer service is the bedrock upon which my business rests.
I’ll tell you what? Why not click the button below and we’ll go through a couple of basic questions to see whether my service would be a fit for you? At the bottom of the next page you can fill out a form to request a one on one consultation.
If not, that’s fine, you’ll still be armed with a lot more information than you had before, and will now be able to wrangle a great deal for yourself on a merchant account.