What to Know When Opening a Merchant Account
Most merchants like to think they are savvy when it comes to shopping for a merchant account. I mean how hard can it be, you just look at the rate, find the cheapest one and sign up, right? It is no wonder that many merchants feel taken advantage of by their processor and angry with their sales representative. Many sales agents are not educated on what to ask merchant service providers, and it may be up to you to provide them with the appropriate questions.
Here are some tips to ensure your account is set up correctly:
Does Your Payment Gateway Measure Up?
Online shopping is at an all time high. According to The Nielsen Report, over 875 million consumers have shopped online. This is up 40% in the last two years. The most purchased items are books, clothes, accessories, video games, airline tickets and electronic equipment. While 2008 holiday purchases at retail locations were down 5 percent, shopping on the internet was up 15 percent, on Cyber Monday alone. If your business is not online you are missing out on huge potential profits.
Once your business is online and your shopping cart has been built, you have to select a payment gateway. Many merchants select their payment gateway based on what their merchant services provider tells them. There are hundreds of payment gateway options out there, and not all of them measure up.
A gateway facilitates your online payments by connecting your secure order from your merchant account to a processing bank. Something as important as the transfer of money should take some research. When selecting a gateway, consider available features, reliability, and support.
Are You Getting Taken Advantage Of By Credit Card Processors?
I would say that the merchant services industry is competitive, and even cut throat in some cases. Many merchants have been taken advantage of by processors’ ads of low teaser rates and costly equipment. I was working on a very large merchant account this past week and felt that the proposal we put together was honest, fair, and was beneficial to the merchant. I got a call from the prospective merchant saying that they had a quote from another processor that doubled their savings. With the small margin in the account, the savings they promised seemed too good to be true. After reviewing the quote I noticed that the processor offered the same rates as I did. So how did they get double the savings?
I then noticed the sales agent wrote, “We will save you X amount of dollars by educating you on how to make your non-qualified EIRF (Electronic Interchange Reimbursement Fee) qualified.” What they did was take the non-qualified transactions and told her they would be qualified, so she would pay less Interchange fees on those transactions.
This situation happens often, and merchants are not always aware of what to look for or who to trust. There is no way this merchant services provider could guarantee what interchange category each card will fall into.
Here are some tips to ensure you are being treated fairly:
Is Your Merchant Account Considered High Risk?
Our economy is in a downturn and many financial institutions are tightening up guidelines and raising fees. These days even acquiring banks are cracking down on various business types. No company wants to take on a possible financial loss. There are merchant services providers out there that specialize in high risk business, but you have to be prepared to provide all the information that is requested.
Merchants may be required to provide the following:
- Two years of tax returns for the guarantor
- Six months of processing statements. If you have not processed before, you will be required to provide six months of bank statements
- If you are an internet based account, you will need to make sure you have a clearly visible return policy
- It helps to have a tangible product – I once had a loan restructuring company create a package with a welcome letter and question kit to send to all his customers once they purchased his services.
How Rising Interchange Rates Can Affect Your Business
There are many third party processors out there that benefit when the Bank Card Associations (Visa and MasterCard) raise their rates. They look at this as an opportunity to make an additional profit from their merchants. Merchant services providers get to decide how they will pass the various increases and decreases through to the merchant. More often it is the increases that get passed on, and not the decreases. New Visa Interchange rates, MasterCard Interchange rates, and other processor Interchange rate schedules are typically published by the Bank Card Associations in April and October.
Since there are many different processing categories for Interchange rates, they can be confusing to most merchants. Merchants pay higher or lower rates depending on, but not limited to, whether or not it was a rewards card, purchase card, or debit card. Rates can also be assessed based on your SIC code and how often you batch your terminal.
