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Title: Enter the middleman: alternative onlin… More >>

Enter the middleman: alternative online payment options take the pain out of e-merchant accounts.: An article from: Black Enterprise

How it works: Credit Card Payment Flow

Customer enters payment information into our secure site (aka Shopping Cart/Checkout).

The payment details are sent to the Payment Gateway for approval. Gateway forwards the transaction to our Merchant Bank. Our Merchant Bank forwards the transaction to the Credit Card Issuing Bank for verification. Credit card bank verifies transaction and sends response code (Approve, Deny) back to our Merchant Bank. Our Merchant Bank forwards the response to the payment gateway. Payment gateway stores the results and response back to our online store. Payment information is displayed to the customer; i.e. “credit card was charged”, “credit card was denied”, etc.

This process happens in a matter of seconds.

Where Do We Get a Merchant Account?

Banks. Most banks use First Data Corporation network for their credit card payment process. FDC network clears about 80% of all credit card transaction. Here’s a list of banks that are FDC Alliance Partners.

Merchant Service Providers (MSPs). I refer to them as Vendors in this article. Advantages of MSP over Banks:

MSP have many bank affiliates and third-party account database, which mean higher approval rates (especially if your business is considered high risk). MSP will make recommendation on the best suited solutions or packages. Banks are limited on options. Better chances of negotiating lowers rates and contract terms with vendors than at a bank.

What are the requirements?
Requirements vary depending on the provider and the amount of risk they are willing take. Three vendors told me they only needed a Tax ID or SS#, business checking account, and an address (which is not completely accurate). I later found out that the vendor submits our application to the underwriter and the underwriter will request additional information for approval. Most underwriters will ask for both application and website information as follow:

The Applicant & Business Info:

Applicant must be a principal owner of the business Business License (Tax ID) or DBA (SS#) Checking Account Address Driver’s License and Contact Info of Principal Credit check – for new business, the personal credit history is a influential element

On the Website:

Must be a live site Company name or DBA name on the site Shows Product and Price Terms of Service Return/Refund Policy Shipping Methods Privacy Policy Contact info for support (email, form, etc.) Working Shopping Cart/Check out page Secure

Alternatives Service Providers
Alternative payment service such as PayPal, Google Checkout and Amazon FPS are becoming more and more popular with new small businesses. These companies provide packages that fit most business model, they are simple to implement, low cost, and you can get started almost immediately.

RATING AND RATES

Read the Tiny Print
Vendors use the same pool of financial institutions and gateways. It is a very competitive and lucrative market. They make money from markups to the fees, and additional service charges. In my talks with vendors, only if asked, did a few of the reps disclose the additional costs. One rep told me to read the contract carefully, but he can’t give me the contract or discuss rates until he has my application.

Varying fees and rates can be applied to specific card type (MC, Visa, AMEX, Discover, personal, business, and rewards card). The industry term for this is Qualified vs. Unqualified cards (unqualified having the higher unadvertised rates of course). Read your contracts carefully, especially the footnotes.

What’s important?
Keep in mind rates are not fixed, most companies can change the rate with 30 days notice. Finding a service provider with a solid reputation, flexible policy, provides good customer service, and 24/7 technical support is more important than the fees. An indicator of a good vendor is transparency into their company and if they ask in-depth questions about your business.

New Business Recommendation
For new a business with unknown sales volume, the per transaction rates may not make a difference early on. I might go with PayPal or Google Checkout for a few months just to collect some information around sales. Because there is no start-up cost, no monthly fees, an immediate sign up and use process, and low development time, there is very little risk and out-of-pocket cost. The only disadvantages are that customers will be redirected from your site during the transaction and the possible perception of not being as ‘professional’. That said, until you understand your volume, the flexibility and ease are the way to go.

Generally, when you see a card processing rate that is substantially lower than the rest on the list, you will be well advised to read the fine print notes that are likely to accompany the add. In the above example, a 1.59% processing rate will apply to debit card transactions which make up a small percentage of the overall card volume. What you really need to know is what the credit card payment processing rate is. Here the rates will be above 2% and I am yet to see one lower than 2.15%. You will need to make sure that your merchant processing provider does provide separate rates for debit and credit cards, in order to take advantage of the lower debit card acceptance cost.

Keep in mind that the payment card processing rate is just one component of the processing cost, although the most important one. Also be advised that your pricing model may provide for different processing rates for the different types of credit cards. Some types of business-to-business, commercial and rewards credit cards will be processed at substantially higher rates.There are a host of other fees and charges and you will need to be aware what all of them are and make sure that the low card rates are not offset by high charges elsewhere. There are tools available out there to help you estimate the overall cost of credit card processing for business.

Basically, merchant account solution is a kind of service offered by nine banks, which are better known as acquiring banks. Besides this, there are online processors that offer you Internet merchant accounts facility. It is better if your existing bank deals in providing the merchant account services, nevertheless you can seek the help of others’ banks to avail the same service as well.

How to Establish an Online Merchant Account?

If you want to establish an online merchant account, you have to get an approval from the acquiring bank. In order to get the approval, a business entity has to submit certain information including the history of the business, performance, other accounts of the business, financial status details, estimated transaction values, frequency of transaction, nature of the business, supplier details and many other such information.

After providing the above mentioned details, an acquiring bank will collect the relevant facts and verification of the collected data takes place after that. The setting up of a merchant account usually takes between one to four weeks. Sometimes, the time period can extend due to some unavoidable reasons.

However, it is always better to check the processing details of the merchant account solution so that your business does not have to suffer a lot. This is simple because of the fact that some merchant accounts providers make false promise to their potential customers to setup their accounts within one day and businesses have to face financial loss. Search carefully so as to choose the best option and to avoid any kind of misleading offer.