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Merchant Service Basics: How A Merchant Account Can Improve Your Online Business

Author : Oscar Alejo

Submitted : 2010-10-12 21:36:42    Word Count : 885    Popularity:   71

Tags:   merchant services

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Online sales of goods and services have increased every year since the advent of the Internet. In 2009, e-commerce grew by a healthy 10.8 percent as consumers continue to grow more comfortable with virtual shopping. According to a recent survey, 63 percent of US consumers say they shop online. Most of these purchases, about 55 percent, are made with a credit card. †The rest are made with debit cards, checks, money orders, or online payment services like PayPal or Google Checkout.

Which is best?

Credit and debit cards are easily the most popular method of payment on the Internet, and for good reason. Each of the other methods suffers from a fatal flaw or flaws. Accepting payments in the form of checks and money orders is not only slow, but is it also unreliable.

No, not because of the post office; they do a great job. But because customers sometimes change their minds and decide they no longer want an item that they have ordered.

Then they simply neglect to send a check or money order. Payment services like the aforementioned PayPal or Google Checkout are every bit as fast and reliable as using credit or debit cards. But to process these transactions, both the seller and the user have to be registered members of the service provider, and only a small percentage of Internet users have valid accounts.

Now, compare that with credit and debit cardholders. At last count, the average American had a total of eight credit and debit cards in his wallet. Believe it or not, consumers now pay with plastic about sixty percent of the time in stores and more than ninety percent of the time online. In short, a business simply cannot complete in the ultra competitive virtual marketplace if they do not accept credit or debit card payments.

Merchant Service Accounts

Why do some businesses still refuse to accept credit and debit card payments? For starters, it isnít cheap. Also, the rules are quite rigid. Every business that accepts plastic must have a merchant service account. There are no exceptions.

These accounts are issued by banks and other financial institutions. It is their job as the provider to either accept or decline each credit or debit card transaction. If the sale is approved, the service provider will send a bill to the customerís credit card company. Once payment is received, the provider will transfer the funds to the merchant less a transaction fee.

The transaction fee is typically a percentage of the final sale price. As you might expect, this fee differs from business to business. The larger and more established a business is, the more leverage they have to negotiate a lower transaction fee, while most small businesses are often told to take it or leave it.

Should you take it, or should you leave it?

Because credit and debit card payments are the lifeblood of most online businesses, the merchant service providers are in an obvious and undeniable position of power. They have what companies need to compete on the Internet, pure and simple. Letís take a moment to discuss the many different fees.
The basic fee that all online merchants are charged when a transaction is approved is the interchange fee. This fee is determined by the credit card companies and the banks. It includes a percentage of the final sales price plus a small transaction fee. The larger the credit card company, the higher the interchange fee. At present, Visa and Master Card have the highest rates because they issue more cards and process more transactions than any other companies.

When a small business applies for a merchant service account, they are seldom told about interchange fees and all of the different factors and unknown variables that are used to determine them. Rather, they are quoted a base rate known as the discount rate, which includes the interchange rate and any other fees the service provider chooses to charge.

But this does not mean that you should take whatever they offer you. It means that the onus is one you to do the research and compare several different merchant service providers. Ask them to explain all of the various fees in laymanís terms. If they cannot, or if you feel that their contract is intentionally abstruse, it is probably best to move on.


One of the most common mistakes new online merchants make is that they focus solely on the discount rate. If you have ever been in a convenience store when their point of sale terminal (card reader) breaks down, then you know how it can affect their business. Well, it is twice as bad online where ninety to one hundred percent of sales are made with credit or debit cards.

Therefore, it is critical that you find a merchant service provider that has a dedicated and experienced customer service team. Donít take the salesmanís word for it either! Call them up on your own and make sure you can reach a live person.

Though finding the right service provider for you can be a bit of a delicate process, merchant accounts are simply essential for online businesses. Find the right plan for your business today.

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Oscar Alejo is a freelance writer who writes about a range of topics including merchant services .

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