Business Internet Service Provider
Internet Merchant Account:
Get down to a search engine and you will have a few million results for the search term internet merchant account. The choices are limitless when it comes to accepting credit card payments for your web based business. But before you proceed you need to analyze a lot of different components of credit card processing over the internet. There are several features and facilities that you must look for in an internet merchant account provider.
The working:
You require multiple components to start accepting credit cards on your website. Looking at it closely there are three layers that exist between the paying customer and your bank account.
1. Payment gateway: this is the program that transmits the order placed by the customer to the merchant account provider. With the use of this program your website can accept the billing information of the customer such as the credit card number, type, expiry date of the card and the amount of payment to be processed. Apart from this the program also carries out validation steps before a credit card can be billed.
2. Internet merchant account: a merchant account is essentially an account that the business holds with a bank or a financial institution which allows him to accept credit card payments from its customers. The payment gateway will transmit the billing information of the customer to the merchant account provider. But sadly most of the local banks do not have the facility of an internet merchant account. This is because the manner in which the transactions are conducted over the net is fairly different from a physical transaction which requires the cardholders signature to authorize the purchase. As online transactions are not supported by the cardholders signature they are quite prone to frauds, accordingly fraud protection should be a crucial consideration while choosing an internet merchant account provider.
3. Your website: an extremely important requirement is the possibility of integration of your website with whatever merchant account provider or gateway service you plan to use. Most of the merchant account providers and the gateway services provide the website owner with detailed instructions on integration. Before you decide on a particular service provider you must check how compatible it is with your website design.
The cost issues:
Comprehension of the total costs of a merchant account provider is a must and it can often be very tricky. With an innumerable list of alternatives available research and questions play the prime role. The more questions you ask, the better it is for you. Here are some types of costs that you will encounter for setting up an internet merchant account:
1. Application fees: Most of the merchant account providers ask for an up front application fees to cover up the costs of processing your application. The fee is payable irrespective of whether you actually open a merchant account with the specific account provider or not. In many cases the providers may wave off these fees but it is still advisable to proceed with providers who do not have any kind of upfront fees.
2. Fixed ongoing fee: most of the internet merchant providers have the policy of taking a monthly fixed fee which is often termed as statement fees. It might be a very difficult task to find a provider who does not charge a monthly fixed fee. However, dont go in for internet merchant account providers who require more than $10.00 to be paid as a monthly fix fee. Apart from this certain merchant account providers may have a minimum monthly requirement of $25.00 or more apart from the monthly statements fees, to maintain your merchant account if your monthly volume of revenue is too low.
3. Discount rate: generally the discount rate is set within two percent to four percent. This is essentially the sales commission that the provider charges on each and every transaction, for instance at the rate of two percent on the sale of $400.00, the merchant account provider will deduct $8.00 as his commission.
4. Fixed Transaction fees: apart from the discount rate a fixed transaction fees may be charged for every transaction. This fee is normally in the range of $0.20 to $0.50 and is charged for each credit card transaction irrespective of the amount that is transacted.
5. Charge back fees: some of the merchant account providers may also impose a charge back fee for any charge backs that take place by the credit card holder.
6. Termination fees: most of the internet merchant account providers will charge a termination fee if you plan to close your merchant account before the minimum required term which is usually one year. You must watch out as some merchant account providers can even ask for a three year commitment.
7. Certain miscellaneous fees: there may be certain other fees which will vary from provider to provider.
Working out the fees:
Now that youve got a good understanding of the different fees that can apply to an internet merchant account lets have a look at what all this may mean a monthly basis.
The total monthly charges can be calculated by adding up the following fees:
• Statements fee
• Transaction fee, which can be calculated by multiplying the average sale amount with the discount rate and adding it to the fixed transaction fee, the sum that is thus arrived at should be multiplied by the number of transactions that took place in the month.
• Chargeback fees, which can be calculated by multiplying the number of charge backs in a month with the fixed charge back fee.
For instance let us assume the following and see how the calculations work:
1. The number of monthly sales is 200
2. The average sale value is $20.00
3. Three people request for the charge back
4. the discount rate is three percent
5. The statement fee is $15.00
6. The fix transaction fee is $0.40
7. The charge back fee is $20.00
According to this the total charges will come to:
15 + 200 (20 x .03 + .4) + (3x20) = $275
If you compare this amount with your monthly sales it would mean that approximately seven percent of your sales revenue will go into paying for the merchant account.
Towards the end, we will once again emphasize that before you decide on a particular internet merchant account provider you must understand and calculate the costs involved and for this projection on sales can be made using the current sales data.
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