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Accepting Credit Cards Online by Establishing your own Merchant Account

The business landscape is changing every day. What was once 'standard operating procedure' is now an outmoded business method. Or worse, a detrimental practice that will rob your organization of it's competitive edge.

The first question you should ask yourself is:

"Do I Need to Accept Credit Cards On Line?" Actually, you should have answered this question sometime before you began to read this article. For the majority of people doing business or planning to do business on line, the answer is a resounding YES.

However, if you are still in doubt, here are a few guidelines for you to consider. You may want to accept credit cards on line if:

The total price of an individual transaction is likely to be within the credit limit of most credit cards.
Credit card limits are typically between $250 and $1,500. Sales of large ticket items such as cars, boats or real estate probably will not benefit as much from on line credit card processing.

You are not equipped for handling customer accounts, or you want to eliminate Accounts Receivable from your business model.
More and more companies are turning to the credit card to handle their on account customers. The fees involved are often far less of a burden than covering thousands of dollars in customer debt. Not to mention the effort required to process, track and collect on these debts.

You want to take advantage of impulse buying.
Many businesses, from retail stores to fast food outlets, have found that accepting credit and debit cards has increased their total sales.

You want the speed and flexibility to compete in the on line market.
Speed is the key. People shop on line partly because they want the product now. If it's ordered today, they want it to arrive, or at least be well on it's way, by tomorrow. An on line site that requires days for a check to clear or credit to be established will not get a lot of return visitors.

So, you have determined that your on line business effort will benefit from on line credit card processing, what next?
The traditional route is to go to the bank and establish a merchant account. This is a formal arrangement between your company and a bank or other financial institution that will allow you to process credit cards.

The process to get the account will vary among providers, as will the services provided. You should evaluate the merchant account provider based on the following:

Application and Approval:

Just like any business relationship, you must prove to the institution providing this account that you are a legitimate and viable business. The requirements will vary but often include the following:
Valid checking account.
Up to date articles of incorporation.
Business credit check.
Businesses are springing up on the Internet daily that advertise merchant accounts in one day with little no application requirements.

Many of these offers are legitimate, but you should be careful. The 'Tough' institutions with the credit checks and application process usually are doing this for a reason. They want to weed out potentially bad business partners.

It is much like with insurance companies. The healthy help pay for the victims disease and accidents. The cost of a merchant account relationship that goes sour will ultimately be borne by the remaining successful companies in the merchant account provider's fold.

Which credit cards you can process:

Just because you have a merchant account does not mean that it is set up for all cards. This goes double for international orders. If your business is based in the US, but much of your market is based in Europe, you may need a merchant account that can process the European regional cards like JCB.

Fees and charges:

Basically, there are three types of fees for an on line merchant account:
Discount Rate:
This is a percentage of each sale that the bank will deduct from you transaction before completing the deposit. The range for this fee is usually from 2.5% to 5.0%.
Higher rates may apply to business that do not meet certain qualifications. These can include things like providing Address Verification as part of your electronic checkout process. Also, different credit cards may have a higher discount rate due to processing issues.

Transaction Fees:
A fee for each transaction, usually less than $0.50.

Monthly Fees:
These are special processing fees and will be charged regardless of your credit card processing volume.

Why would I want my own merchant account?

While is it true that there are many third part merchant account providers that will handle the entire payment process for you, there are advantages to your own account:
When you use third party processing, your customer is usually whisked off to another web site for processing. In many cases, you will be required to set up your 'virtual store' entirely on provider's site with their software.
By handling the transaction yourself, you are in control of the look and feel from start to finish. The customer never leaves your site.
Also, when you use a third party provider, they often make sure that your customer knows about it. Your customer may not be impressed by being sent to PayPal to complete the sale. This is especially true of business to business transactions.


While many third party merchant account vendors advertise low fees, the truth is that they are just another mouth to feed in the transaction chain. They have to get their profit from your transaction on top of what they pay their own merchant account provider. Depending on your financial status and sales volume, eliminating the intermediary company can allow you to maximize margin on each sale.

So, Where do I go to get a merchant account:

Many banks and other financial institutions will provide you with the needed account. There are advantages to getting a merchant account through the same bank that handles your other types of financial transactions. If you have a good relationship with the bank and you like their service, consider them as your provider. You may also be eligible for fee discounts and special promotions based on the other business you do with the bank.

Many specialized companies are springing up to handle the surge in on line credit card processing. Too many to catalog in this article. They are easy to find, but check them out beforehand.
Make sure that your choice of merchant account provider can handle the range of credit cards you want to accept on line.

Look for articles and forums on the web that may indicate good or bad experiences with a particular vendor.

Check out reliable consumer magazines or web sites that give unbiased reviews of service and costs.

Check with your local business bureau.

Ask your fellows in the business community. This is where networking, in the human sense, can really work for you.
Check with your software provider. They will often have a relationship with a provider that will simplify matters.
Intuit, the makers of the popular Quick Books financial package, are themselves a provider of merchant accounts.

How to I integrate this with my Web Page:

This will be a matter for your web developers, whether an outside firm, your IT Department, or you in your spare time.

There are many tools available to help in this area. The most common tool is know as the Shopping Cart.

This is an application or a routine that allows your customers to fill a virtual 'shopping cart' while moving through your web site.

At the end of the visit, the customer 'checks out'. The shopping cart software will:

Total the bill, including shipping, handling, and applicable tax.
Accept the credit card information.
Verify the card electronically. (This often requires a separate service.)
Confirm or deny the sale.
Report the required information to your software for processing and storage.
So these are the advantages
What are the downsides?
Software Costs:
We have discussed this at length above. You will almost certainly have a larger commitment to software selection and development than if you go with a third party merchant account vendor.

Record Keeping:

Since you will be handling most of the data processing on your web site, you will also need to capture and store more of the data. This includes:
Customer Information, including Name & Address.
Credit Card Information, including Card Type, Number, and Confirmation Number.
Sales tax information.
This must be maintained in a data base. The exact content and length of time it must be retained will vary depending on your location and the type of transactions you process.

Credit Card Fraud:

Although you will be using a card validation service, the opportunity for credit card fraud still exists. And since you are processing the data yourself, a larger portion of the liability for this fraud rests on your shoulders.
To lessen the risk, or at least the liability, you can:
Make sure that your software can support AVS or Address Verification System:
This will use a mailing address supplied by the customer to match against the address of record for the card being used.
This helps insure that the person with the card number actually owns the card. Due to the increased risk of fraud, many card companies will charge extra to process transactions without this information.

Take advantage of the CVCC or CVV2 number on the back of the card:
This is usually a 4 digit number, similar to the PIN number used at an ATM. It helps make sure that the person using the card number is in possession of the card itself.

Use secured data transfer technologies:

When setting up your web site, make sure that any sensitive information is sent encrypted or through a secured Internet channel. This includes both information sent between the customer and your site, as well as between your site and the Credit Card Verification service.

Setting up your own merchant account is a big step, but it can be the right step if you take the proper precautions and do your homework. Having your own merchant account and handling your own transactions can allow you to:
Increase revenue.
Maintain control over image and customer service.
Allow you to position your business as a solid member of the vendor community.


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