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Tips for Selecting the Best Merchant Account Provider

By: Chris Martin, Fri Dec 25th, 2009

As a business owner, you know that you are obliged to accept credit card payments in order to be competitive in your industry. But perhaps you are intimidated by the number of choices and the sheer amount of information that you must wade through to make a selection. And you’re worried that if you make the wrong choice, your efficiency will deteriorate and your business will suffer. While choosing a merchant services provider is indeed a major decision, there are some guidelines you can follow in order to figure out which company or method is right for your business.

The first step is to spell out what your merchant services needs are. Do most of your customers pay you in person, or do they use the phone or Internet? How large or small is each transaction? Does your business conduct a large number of transactions in a given day, or just a handful? How many of your employees do you feel comfortable with entrusting the processing of credit card payments? Will your credit card transactions be handled at your home office or out in the field? The answers to these questions will give you a better idea of the type of merchant account you will need.

For instance, if you operate a traditional storefront business, then you’ll most likely want to buy or lease retail swipe terminals for your cash registers. These allow your cashiers, clerks, salespeople, or customers to swipe credit cards as part of face-to-face transactions. On the other hand, if you own an Internet-based business, then you will need a real-time processing system. This allows buyers to enter their credit card information online and receive authentication in seconds.

Or perhaps you are a service provider who performs work at a customer’s location, such as a window cleaner or a tree trimmer. In this case, you would probably opt for a wireless processing system, which allows you or your employees to accept and process credit card payments on site using a mobile phone, laptop, or portable terminal. But if your business involves mostly mail, email, fax, or telephone orders, then a Mail Order Telephone Order system might be the best fit for you. A MOTO system lets you enter in credit card information and receive near-instant authentication using a phone line and a modem.

Once you have determined your merchant services needs, start looking into costs and fee structures. The first piece of data you should examine is the discount rate attached to the merchant services plan. This rate is the percentage of each transaction amount that will be paid to your credit card processing company. In addition, many plans assess transaction fees, which you incur whenever you process a payment no matter how big or small it is. The important thing is not to choose a plan simply because either the discount rate or the transaction fee is lower than that found in a competing plan.

For instance, let’s say Plan A comes with a discount rate of 1.6% and a transaction fee of 25 cents, while plan B has a discount rate of 2.8% and a transaction fee of 5 cents. Choosing which plan is best suited for your needs may depend on the nature of your business. As an example, let’s say that your company’s average credit card charge by a customer is $50. Based on costs alone, the smart choice would be Plan A, where you would pay an average of $1.05 (1.6% of $50 is 80 cents, plus a fee of 25 cents) as opposed to $1.45 (2.8% of $50 is $1.40, plus a fee of 5 cents). However, let’s pretend your business sells more inexpensive items, and your average customer charge would be just $5. Then fiscal prudence would dictate that you choose Plan B (2.8% of $5 is 14 cents, plus a fee of 5 cents equals an average cost of 19 cents) over Plan A (1.6% of $5 is 8 cents, plus a fee of 25 cents equals an average cost of 33 cents). So neither plan is innately more cost-effective than the other – it is the types of transactions conducted by your business that will determine which one is better for your company.

There are also other costs to consider when choosing a merchant services provider. You will have to buy or lease equipment to facilitate credit card processing activity; these costs could run into the hundreds or thousands of dollars for even small businesses. Again, you must ask yourself certain questions about your business, such as: do I need to buy a lot of retail swipe terminals for my store, or just a few? Should I buy a portable terminal for each salesperson, or just keep a smaller number of them in the office until they are needed? Is a fancy real-time processing arrangement more cost-effective for my business than a simple MOTO package? These answers will influence how much you spend on a credit card processing system.

Finally, there are other fees associated with how you use whichever merchant services system you purchase. As an example, you may be assessed a monthly fee if your transaction volume falls below a specific level. Or your discount rate may increase if you incur a large number of chargebacks, or instances where customers dispute your company’s charges on their credit card bills. Make sure to get these and other “hidden” charges in writing and know what fee structure you are committing to when you sign the agreement.

Doing a little research and figuring out your business needs will help you select the merchant services provider that is best suited for your company. Then you can concentrate on running your business, positioning yourself in the marketplace, and crushing your competition!