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Editor's Note - 05.28.02 |
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In the news...John Zuccarini of Pennsylvania is one of those online
citizens who pollute the digital air. After buying up over 5,500 addresses of
misspellings of popular sites, he sold gambling and porno ads in them. Some even
played toward kids by using close misspellings of the Cartoon Network (15 variations)
and Britney Spears(41 variations). He sites were created using "mousetrappings"
so that once you clicked on it, several popups would come up with ads for his
porno and gambling affiliates. You can't get away from it because as soon as you
close one down another is created. Some have as many as 32 windows popping up
one right after the other. He has been making close to one million US dollars
a year from his pop up practices.
The Federal Trade Commission checked Mr. Zuccarini's file and found that he had
been sued 63 times in the last two years, lost 53 cases and had to return nearly
200 domain names to the rightful owner of the domain copyright.
THe good news is that yesterday he was slapped with a two million dollar fine!
Now back to the article...
Today's informative article, by Mr. Jim Conley II, the CEO/Founder of MerchantSeek,
is about understanding merchant account rates.
I hope that you enjoy it.
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Demystifying
Merchant Account Rates and Fees
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By: Jim Conley II, MerchantSeek
Many new business owners are confused about rates and fees for merchant accounts,
and rightfully so. In order to get many of your questions answered you have to
spend hours searching the Internet. The purpose of this article is to help demystify
some of the confusing questions you may have about credit card rates and fees.
When it comes to choosing which Merchant Account Provider you wish to deal with
(there are many of them out there) the one factor that influences most people
is the cost. Accepting credit cards can be expensive, so make sure when you're
searching around you compare different providers to get the best deal. Read all
the fine print also, as you may find some "hidden" charges not mentioned elsewhere
like cancellation fees for example.
Here's an outline of the approximate rates and fees associated with maintaining
a merchant account:
Application/Setup: $0 - $100+ (one time fee)
All providers have an application fee. Some charge it right out at the beginning,
while others add it into the solution purchase/lease costs.
Hardware/Software: Purchase: $99 and up Lease: $20/month and up
One important note worth mentioning here, stay away from leases if all possible.
It's always better to purchase from the beginning than pay a lease for the next
12, 24, 36 or 48 months. Why? With a lease you'll end up paying sometimes 3 times
or more then if you would of just purchased the solution outright from the beginning.
While a $29.95 monthly lease for 48 months sounds good in reality it isn't. Leases
are very hard to get out of once started. If your business goes under before the
48 months are up, you still have to pay on the hardware/software costs until the
last penny has been received by the leasing company. Also, the lease fee you see
does not include your state sales tax or the amount charged for the damage/loss
waiver. If you do go for the lease, always determine the lease's buyout clause,
end of lease terms, and especially beware of clauses that allow the lease company
to continue charging you even after the 48 months have passed (they say that you
should contact them in writing one month prior to the end of the lease, or you
can just let them keep charging you).
Programming: $0 - $100+ (one time fee)
This usually only applies to retail merchants who have changed from one provider
to another. The programming process isn't difficult but watch out for the cost,
some providers may nickel and dime you on programming fees. Why do they charge
this fee if you use your own equipment? It's used to somewhat make up for the
loss of not selling or leasing you their equipment.
Discount Rate: 1.49% - 4% per transaction
This is the fixed percentage amount that is deducted from the purchase cost. The
lower discount rates are for retail establishments while the higher are for Mail
Order/Telephone Order (MOTO) and Internet-based businesses. Why the lower cost
for retail? The instances of credit card fraud are much lower so banks are able
to charge lesser percentages for these types of businesses. A typical discount
rate for US business is right around 2.49%, perhaps a little higher or a little
lower. Non-US businesses will pay a higher discount rates closer to the 3% to
4% range.
Don't let a few tenths of a percentage point be the deciding factor between two
providers. For example, if Provider "A" charges 2.29% and Provider "B" charges
2.49% you'll only save $0.20 for every $100 processed through your merchant account.
Transaction: $0.20 - $0.50 per transaction
In addition to the discount rate a transaction fee is also deducted from the purchase
cost. Also, just as with discount rates, transaction fees are lower for retail
businesses while slightly higher amounts are charged for MOTO and Internet establishments.
Address Verification (AVS) may either cost an additional fee, or may be included
in the base transaction fee. The typical transaction fee for US businesses is
right around $0.30 while the higher end of this fee is sometimes the case for
Non-US businesses.
Monthly Minimum: $20 - $25 per month
The fee is based on your transaction and discount rate fees from your credit card
sales each month. For instance, say your bank charged $25 as a monthly minimum,
the transaction and discount rate fees collected by the bank must equal or go
over $25 each month. If this is the case no monthly minimum will be charged. However,
if the fees collected for that month do not meet the $25 minimum, you will then
be charged the difference. Not all processors have a monthly minimum fee, however
most do.
Gateway Access: $0 - $25+ per month
Since in most cases, the Secure Payment Gateway provider (e.g. Authorize.Net,
VeriSign, etc.) is a separate company from the Merchant Processor, they charge
extra fees. For every month that you are on their system, you pay an access fee.
The usual fee to pay for gateway access is around $10.
Statement: $10 - $15 per month
The statement fee is charged because at the end of each month you will receive
a statement from your processing bank that will list all the transactions that
went through for that particular month. It's very much like your credit card or
telephone bills.
Daily Close-Out: $0 - $0.15 each day
Associated with software and terminal processing solutions where at the end of
every business day you close-out all your transactions. Most providers no longer
charge this fee.
Address Verification System (AVS): $0 - $0.05 per transaction
The AVS service checks to see that the billing address given by the customer matches
the credit card. If you opt not to use AVS, VISA and MasterCard will not support
your transactions and will charge you an additional 0.17% to 1.25% on those sales.
Most merchant accounts come with AVS at no extra charge. If there is a charge,
it is combined in with the per transaction fee in most cases. The AVS service
works only with US credit card holders. Currently, there is no AVS service in
place for non-US credit card holders.
Chargeback: $5 - $25 per instance
A chargeback occurs when the cardholder disputes a charge that they found on their
monthly credit card statement. A large number of chargebacks can cause your merchant
account to be dropped totally and leave you in a bind when trying to get another
merchant account for your business. If this is the case you may not be able to
get another merchant account for several years. As a merchant it is important
that you take the necessary steps to reduce and potentially eliminate the instances
of chargebacks.
Reserve: Varies, ask the provider for details
Some providers will require you to have a reserve account where the amount is
determined by your businesses estimated sales receipts. Usually a reserve is almost
always charged to a Non-US based merchant who is trying to obtain a merchant account.
Also, businesses that do a high volume of sales each month may be charged a reserve
fee. Otherwise, there usually isn't a charge.
In most cases, the reserve fee is used to cover for any chargebacks on the merchants
account.
For the most part the rates and fees listed above are what most providers fall
in between. You may find a few companies that will charge lower in one fee, but
beware they may make up the loss elsewhere in another fee.
So there you have it. Hopefully I've been able to explain most of the rates and
fees you will experience when operating your own merchant account. The ticket
to not being surprised by those "hidden" fees is to always ask questions up front.
If somewhere in the conversation with a representative you have a funny feeling
that something isn't right, go with your instincts and look for another merchant
account provider. It just may save you some unwanted surprises in the end when
your merchant account is issued and you get your first monthly statement in the
mail.
About the Author:
Jim Conley II is the CEO/Founder
of MerchantSeek. MerchantSeek allows merchants to search FREE for a Merchant Account
Provider that best fits their businesses needs and budget. Visit us at http://www.merchantseek.com
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