Your small business can earn significantly more revenue if you accept credit cards from your customers. Though taking credit card payments increases your ability to accept payment from customers or clients, it also means paying a premium for the convenience. What are the considerations you should keep in mind when opting to set up a credit card merchant account?
First, what is a merchant account? Having a merchant account requires you to work with a credit card processor who handles the actual gateway between your customers’ credit card, your bank, and Visa & MasterCard (and Discover and American Express, if you so choose).
Conduct Your Processor Research
The first thing to consider before making a final decision on a merchant account is do plenty of research. Compare different credit card processors, especially on the basis of the other considerations noted below. Since you may be required to sign a term contract, you certainly want to be sure you’re getting the best deal.
Check the Fees
Ultimately, you want to keep as much money as you can through a credit card transaction. Knowing the fees you must pay, as well as your average transaction amount, will help you determine the best deal.
For instance, you will almost always be required to pay a percentage fee, or interchange fee, that goes directly to Visa, MC, or other credit card company. Generally, the interchange fees range from about 1.9% to 3% based on your total monthly sales. In addition, you will pay a set per-transaction fee directly to the processor, generally around $0.25 to $0.30 per transaction. This is the best pricing structure.
However, beware of other processing companies that charge ‘hidden’ fees like downgrade fees, address verification fees, statement fees, gateway fees, and other fees that reduce your total net revenue.
Also, avoid if possible any processor that keeps you on a term contract and charges you an outrageous “cancellation fee” of hundreds to thousands of dollars because you simply dropped them as your processor.
Should You Process through PayPal?
Many small businesses do very good credit card business through PayPal. Their commercial merchant accounts allow businesses to accept credit cards over the internet through an online store, over the phone, in person. In many instances like online payments, it is a hands free process for you. PayPal handles the transaction and procures the payment information from your customer. Alternatively, you can take accept credit cards from your customer and enter it manually through the PayPal online processing gateway.
Their fees are reasonable ($0.30 per transaction, plus 2.2% to 2.9% of total monthly sales), but they do charge an additional $30 per month to take advantage of their system. If you do a considerable amount of credit card transactions each month, then this could be a good system for your small business.
