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Merchant Account Tutorial

Merchant Account Tutorial

by Peter Cooper


Chapter 5
Doing It Without a Merchant

By now you've probably read a few of our articles about getting a merchant account. However, without two years of accounts for your business and a clear credit history you're probably going to hit major problems.

You may be able to convince a bank manager who you've been banking with for many years, to apply for an account on behalf of your new company, but without any real weight behind you you're going to be hitting some barriers. You can get around these, but there are certain cases where this will not be possible.

Oh woe! What can I do?

What's the answer to your merchant account woes, if you can't actually get a merchant account? Well, there are a number of companies providing a service whereby they will take the credit card orders from your site, process them, and then pay you by check at a later date. Sounds ideal, doesn't it? Well, there are many pros and cons to using these services. This article is all about these companies, and their systems.

What does this cost?

The services vary so much that it's hard to give a general figure. Commission charges can vary between about 10% to 20% of each transaction. You may also have to pay a membership fee per month, and possibly a fee for every new product you wish to sell through the service.

The Pros

The advantages of using these services are obvious. For a start, it cuts out the lengthy process of applying for and then obtaining a merchant account. This could easily take up to several weeks, time in which you could have been selling goods! The other advantage is that without these services, you may not have been able to sell your goods in the first place, since you're probably not eligible to get a merchant account anyway. However, these services are not without their disadvantages either..

The Cons

The disadvantages may be as blindingly obvious to you as the advantages were. You may find that certain types of goods aren't allowed, such as Adult materials, firearms, and the like. If you happen to be selling these sort of goods, then you'll be hitting a barrier once again.

The price is also a con. While getting a full merchant account system isn't particularly cheap, the savings add up once you receive barrages of orders. With a non merchant-account based system, you're left with paying a high commission on every order, plus probably paying fees for new products and amendments. As you can tell, it isn't the most flexible solution, which may leave some enthusiastic Web shopkeepers pulling their hair out.

You will also find that most providers keep back a percentage of your fees (over a certain amount) each month, say 50%, for safe keeping against chargebacks. Since they are technically the people selling the goods, they are responsible for any chargebacks by customers. As such, they keep back a percentage as a kind of deposit. You will be paid any held back fees after a predefined period of time, varying between vendor to vendor.

So, can I use this method?

After looking at several different providers of these merchant-less services, it appears that they primarily deal with companies who are selling tangible goods, or those selling software. The reasons for this are twofold. Firstly, they can keep a better track of actual goods, as opposed to 'services' and the like. Secondly, because they are officially the 'vendor' of your goods, they are responsibility for whatever happens. As such, they want to cover their backs wherever they can, and with tangible goods this is much easier. However, two of our featured providers do offer the intangible service.

However, you will see that there are providers who will allow you to sell intangible services through their systems, despite the majority dealing with tangible goods. They are always worth a try, especially if you have no other options available.

Who provides these services?

Digibuy provide an immensely unique service to those wishing to sell software over the Internet. They take a 13.9% commission of each order, and charge either $29.99 or $199.99 for setup of your account, including one product. The higher fee of $199.99 allows you to use customizable order forms. You are then charged $9.99 per extra product you wish to add to the service.

No fees are held back by Digibuy, except their 13.9% commission, which makes this service appear to be fast, professional and worthy.

A defined leader in the market, iBill can provide a variety of services to you. They offer a plethora of options, from those who wish to sell intangible services (such as Web hosting etc.), to those with tangible goods. iBill do specify specific limits on transaction values, depending on your scenario. They also take between 11 and 15 per cent of each sale, which makes them a good deal.

If you're selling intangible goods, these are one of the few companies who'll let you do it without a merchant account. They're one of the big names, they try and look professional at all times, and they're definitely worth a try.

ABanx provide a very similar service to IBill, providing services to retailers of both tangible and intangible goods. Within the first three months it appears as if ABanx will hold back any sales over $500, to protect against chargebacks, although it will pay the remaining sum to you later. ABanx charge a 14% commission, which may prove to be a cheap option for you if your volume is small.

The only thing to look out for with ABanx is that some of their services are still in beta-testing. If you're not sure about anything, remember to ask.


At this point, you're probably going to be facing a number of key decisions, and the most relevant to us is.. Do we get a merchant account, or allow someone else to process our orders? If you're planning on throwing in your full time job to set up a site selling products over the Internet, and you're destined to become big, perhaps it'd be better to try and go for a merchant account and persuading your bank manager to help you along the way.

If, however, you merely want to 'give it a go', and perhaps sell a low volume of goods, then a non merchant-account based system would probably do the trick, especially if selling arts and crafts or your own software packages.

Chapter 4






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