Sales & Marketing Articles

Case Study: Choosing a Merchant Account Provider
By Aaron Spitzer, Contributing Author

Editor’s Note: Choosing a merchant account provider through the Internet is tough going. Tom Dowling, co-proprietor of Infinity Graphics, recently went through the process of establishing a merchant account so that his firm could accept credit card payments on its Web site. He agreed to share some of his experiences in an e-mail interview:

Q. Why did you establish a merchant account? Did you try to make due without one first?

A. We established a merchant account to try and bring our business to the “next level,” so to speak. We started our business officially back in April of 1996. We are screenprinters, signmakers, and now have diversified into custom imprinting, such as mousepads, mugs, decals, clipboards, and promotional items.

Since our meager beginnings, we accepted cash and checks. It didn’t seem like too much of a restriction at first. We had the opportunity to get involved in fundraising activities for a local sports organization. We decided to market certain teamwear and giftware items specific to this group. We began by selling directly to the league, then marketing the items retail, with a percentage going back to the organization. Soon, it seemed as if every customer asked the same question: “What credit cards do you accept?” When we stated we only accepted cash and checks, we got the universal response “Don’t have much cash on me, I’ll only take this one item.”

Q. How did you go about finding a merchant account provider? Did the provider(s) you spoke with have any qualms about working with an Internet business?

A. At first I looked to my local bank. I figured I would stay local. Well, it was pretty clear from their response that a merchant account was not forthcoming. I wasn’t established long enough, didn’t have a storefront, worked out of the house. They viewed us as a part-time business (couldn’t tell by the 75+ hours I put in it each week), and I wanted to sell on the INTERNET. As far as the bank manager was concerned, that was an eight-letter curse word. At that point I figured we weren’t ready to get a merchant account.

Reading the trade journals and magazines, such as “Internet Business” and “Entrepreneur”, is how I spend what very little I have in the way of free time. I made a couple of contacts initially with a few companies who advertised they could provide merchant accounts to home businesses. One company, which was typical, sent me 20 pages of contracts to sign, and tons of promises to go along with them. I was tempted to sign up. The main thing that kept me away was the fact that they were going to hold my money for 30 to 45 days before depositing it in my account. This was in case there were any customer chargebacks. They also told me they had their share of fraud with “fly-by-night” home businesses and considered them to be a risk. Again, I swore off accepting plastic.

Well, this past summer I again started to look into accepting cards. This time I figured I would concentrate my research on companies that specialized in getting accounts for online businesses. I read a few articles in the trades, along with some horror stories written by merchants who got burnt. I looked at sites that accepted credit cards online. Trying out their shopping carts to see how they were processing transactions was a good lead. I started to notice the URLs that I was winding up on during the actual credit card processing, and then I looked up these URLs to find the authorization and processing companies. I started to check out these Web sites, along with those companies advertising merchant accounts, comparing the offerings.

One thing I realized right away was that I didn’t want my business to be grouped with companies offering adult online services! Not so much from a moral standpoint, but from a financial one. The rates and holdback are a killer.

Q. What fees and percentages were you quoted? Did provider(s) want additional fees or percentages to handle Internet orders?

A. Well, fees varied greatly. From 5% down to 1.65% of the gross sale, along with anywhere from $0.10 to $0.40 per transaction, plus batch and statement fees, were typical. The holdback (how long a provider holds your funds before depositing them in your account) ranged from as little as 2-3 days to more than a month and a half in some cases.

I found that the lower online rates are slightly higher than those offered by the local banks because of the perceived risk inherent with the Internet. All the media hype about the risks of credit card info being stolen hasn’t helped this situation. Instead, it has become an opportunity for merchant account providers to charge higher rates for their services.

Q. What issues influenced your choice of provider?

A. I think one of the most important issues was reputation and customer satisfaction. I know in my business I can’t compete with the lowball artists out there strictly on price. I have to provide value-added services to get and keep my customers. I have found that most customers don’t mind paying a little more for service and support. I felt the same was true with the merchant account provider I chose. I wanted support and I wanted customer service to be concerned about my well-being, especially since this was all new to me. I wanted to know that when I called because funds didn’t get processed or credited, someone would actually help me sort it out and not just give me lip service.

I also wanted an account that could grow with my business and be flexible to my processing needs. My account allows me to accept automated online orders. It also allows me to process telephone orders and retail orders via a virtual terminal that I can log into online, securing authorization within a minute or two. It also allows me to accept checks online, by phone, or by fax. My customers like the payment options. Lots of folks have credit cards, and even more have checking accounts.

Q. Has the merchant account paid off? Have you taken many credit card orders?

A. The account executive, when setting up my merchant account, asked what my average ticket was, along with how much I planned to process per month. I though $50 a ticket (per sale) was reasonable. I was not sure about the monthly limit, though, so she suggested $5,000 per month. She said it would be adjusted as time progressed.

Well, within the first two months I had far surpassed the average ticket, with most of my sales doubling or tripling that amount. I even accepted an order online from a customer for more than $2,000 in custom printed shirts and jackets for his staff members. Needless to say, I also surpassed the monthly limit. In fact, I noticed one day that funds had not been credited to my account in a few days, so I called my merchant account provider. When I spoke with them they told me my account had been assigned to the risk division of their customer service department. Within minutes I was talking to a risk agent who asked me to fax her copies of a few invoices for products I had sold. I complied with her request and within a day the funds held where credited to my account. The customer service rep that assisted me explained that my average ticket and monthly limit had been exceeded and she was going to call me that same day to verify the details. She then helped me by adjusting those amounts to prevent the problem from reoccurring in the future.

I find that customers usually spend 30-50% more when paying with a credit card. And giving customers an opportunity to spend money is what it’s all about. Isn’t it?

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