6 keys to finding the right merchant account

6 keys to finding the right merchant account for you

Businesses must consider more than just low fees, costs

Businesses that don't accept MasterCard, Visa, Discover or American Express are probably making less money than those that do. After all, studies show that consumers spend more with plastic than when paying with cash. But whether you're looking to accept plastic for the first time or just revisiting your current arrangement, the move can be daunting, and it's vital to do your homework.

Choosing a merchant account is similar to selecting a consumer credit card for your business or personal use: There are myriad choices when it comes to fees -- both one-time and ongoing -- and account limits. The first step is to learn how merchant accounts work because within each account is a variety of fees levied according to the amount of the charge, whether the card is swiped through a terminal or sent through a Web site and even the kind of card the customer uses.

Tip 1: Know thy fees
If you're applying for a merchant account for the first time, you may be tempted to sign on the dotted line at the first one that comes your way, but in the long run, it pays to take your time.

Many businesspeople primarily look at the merchant account's discount rate -- the percentage a bank charges for each transaction, which can range from just over 1 percent to 5 percent or more. According to Dion Simmons of Aadion Services, a company that specializes in payment processing solutions for small businesses, that's a mistake. "You should look at all the fees associated with the agreement, not just the rate," he says.  

Indeed, those fees can add up quickly. Those could include:

• The discount rate, which can vary depending upon the type of card a customer uses. (For example, American Express charges merchants a discount rate that's at least 1 percent higher than Visa or MasterCard.)
• A fixed per-transaction fee.
• A monthly service fee.
• A fee if the credit card number is typed in instead of swiped through a terminal.
• An initial charge to set up the account.

The fees can vary depending upon the type of business you run. The riskier the venture -- such as an online-only store or a weight-loss or get-rich-quick scheme -- the higher the fees. Retail storefronts are considered less of a risk since the customer -- and the card -- is physically present.

Some merchant companies can be cagey about providing prospective customer with a list of fees. For that reason, Brian Morgan of Merchant Processing Solutions, a merchant services company in Fort Lauderdale, Fla., maintains that businesspeople should be vigilant. "Look for a full-disclosure company that will show you all of the charges and fees associated with a merchant account," he says.

Tip 2: Get the right equipment
There's more to think about than just fees. You'll likely need hardware and software to match your company's needs, and you can acquire them through merchant account providers, though you'll need to know which is right for you.

If you run a brick-and-mortar business, you'll need a point-of-sale terminal to swipe the cards. There are two options: one that transmits data across telephone lines, or a wireless terminal, which is becoming increasingly common at restaurants where waiters can swipe cards tableside. You can lease a terminal or buy it outright, though many consultants advise against leasing. "The prices for credit card terminals have come way down," says Ralph Golson, salesperson for merchant providers Capital Bankcard and Electronic Payments Inc. A credit-card terminal costs as little as $200, while a monthly lease payment can range from $29 to $89.

If all or part of your business is online, you'll need shopping-cart software that's tied in to your merchant account where customers can securely pay online with a credit or debit card.

Tip 3: Make sure help's available
Regardless of which format you choose, a rep from the merchant company should walk you through setup and a sample transaction so that you become familiar with the process. They should also provide service and backup during the hours when you're most likely to need it.

Tip 4: Speak with other businesspeople
With the plethora of merchant providers doing business, how do you find one that's best for your business? As with shopping for any new service or product for your business, you have to do your homework. D'Arcy Arpke, co-owner of Euphemia Haye Restaurant in Longboat Key, Fla., has been in business for 28 years and suggests new entrepreneurs ask successful area business owners for the names of merchant companies that they use. She also recommends checking out BuyerZone.com as a way to see how wide the range of credit-card processing fees can be.

Tip 5: Take advantage of online resources
Go online to research different providers and ask several for a quote. Dion Simmons suggests getting at least a couple of quotes from banks and online companies in order to conduct an adequate comparison. "While cost obviously plays a role, in the end, you have to go with your gut and ask yourself the following questions: How do I feel about doing business with the person? Did we build a rapport? And most importantly, do I like this person? This will give you a feel for what it will be like to deal with this organization in the future," he says.

Once you find a company you like, make sure the merchant is a legitimate business. You can find out by checking references, looking at the company's rating with the Better Business Bureau and doing some research online via entrepreneurial forums and search engines to check for complaints.

Tip 6: Consider alternatives
One often-overlooked avenue includes affinity programs that -- through a national business group or trade association -- offer merchant accounts as a benefit of membership. The rates tend to be better than if you go it alone because the merchant processor makes up in volume what he loses with lower rates. "Our association offers an extremely low credit-card processing rate to all of our members," says John Kaufeld of the Game Manufacturers Association. "Many of our retail members saved hundreds of dollars annually after switching to our program."

In the end, it's up to you to decide whether signing up for a merchant account makes sense for your business. However, for many entrepreneurs, accepting credit cards may mean the difference between merely staying afloat -- indeed, staying in business at all -- and thriving.

Updated: April 8,2023