Merchant Account Tutorial
by Peter Cooper
Merchant Account Pitfalls
As with any business, those in the merchant service
providing business want to sell as much as possible and make as
much as possible. While the fierce competition in this market can
prove beneficial to consumers, there are a number of tricks and
pitfalls that you should try to avoid when choosing your provider.
Get the Information
Most providers will provide most of the information
you require on their Web site since this is one of their main sales
channels. If they don't list their rates on the site, be wary. They
may be trying to trick you into calling their sales department who
may prove to be high-pressure salesmen.
How They Make Their Money
The majority of providers charge a sizable application
fee for you to be able to use their services. They also make a good
deal of money on selling virtual terminal software, or by leasing
terminal equipment. This means that a lot of their profit is made
on the initial sale, and so they may be pushing you to join up with
Many providers will also take a percentage of your
monthly transactions as a commission for themselves. This is rarely
more than a few percent, but it's worthwhile getting the figures
before you sign up. You may discover that if your sales are under
a certain figure per month, they may take a larger percentage. You
need to consider this when doing your figures.
The important thing to remember is to get the low-down
on a provider before you sign up. Of course, you shouldn't spend
unnecessary amounts of time doing this, but at least be sure that
there aren't any peculiar clauses in their contracts which could
get you into trouble further on down the line.
The Things You Might Not Be Told
In their haste to get you signed up with their services,
some providers may make you sign a contract, and then suddenly unleash
odd charges upon you. You may find that the bank fees cannot be
waived, and these will be payable immediately. They may also forget
to mention how their commission system works, as explained in the
last section. You may also have a minimum processing fee forced
They may also be international issues as well. If
a card from a country not covered by your processor is processed,
an extra fee will usually be charged, nearly 4% of the total amount.
If you expect to be accepting a lot of cards from other countries
then ask your processor what the situation is. They may be a large
company who can process in multiple currencies. You need to find
One of the most important points to cover is the "reserve".
The reserve is a fee which the processor will keep back as 'insurance'
against chargebacks and other problems. You will either have to
pay the reserve (similar to a deposit) directly, or you will have
a share of your transactions taken, on top of your commission.
Remember to ask your potential provider how they deal
with the reserve issue. It's important to ask, since after taking
their commission, their reserve, and possibly their international
handling charges as well as their monthly processing fee, you may
end up with only 50% of every transaction! It's important that you
get all the facts and know what to expect. This can then help you
price your goods and services more reasonably.
You may also find that if you take in more sales than
you expected for the first few months after becoming a merchant,
the bank may want to keep back some of your funds, so be optimistic
about your projected income, and try to discover what you and your
processor can do in varying scenarios, from good to bad.
When you apply for your merchant account, and processor,
you will be asked a series of questions about your projected sales,
current business situation and various other matters. The answers
you give to these questions may affect the rates and monthly fees
that you are charged. However, once your credit status is checked
by the company, you may find that your charges go up, especially
if you have tried to disguise the truth in the first case.
In conclusion, you should be ready to get out there,
become a merchant, and start raking in some serious dollars! However,
you need to remain cautious of the pitfalls and tricks of the industry.
If you're not sure of something that a company says to you, ask
and investigate. You also need to uncover as many of the hidden
costs as possible, and factor them into your budget.
We hope you don't get caught by any of the tricks,
but if you do see them, we hope you manage to avoid them! Enjoy
the pleasure of becoming a merchant.