Cheap Merchant Account - What to look for

Over the years the merchant processing industry has done a phenomenal job training merchants to look at insignificant details when they compare merchant accounts. Even on an otherwise transparent pricing structure like interchange plus, providers are able to squeeze substantial profits from an account that appears on the surface to be inexpensive.

The biggest distraction when you're comparing merchant accounts is the qualified discount rate on a tiered pricing structure. A tiered pricing model is often the most expensive way to process credit cards. It's also the most widely used form of pricing because it offers the greatest profit margins for providers and is easiest to sell.

The reason for the inflated profits and ease of sale stem from the tiered pricing structure and the qualified discount rate. The qualified rate is the lowest, least expensive tier. Merchant account salespeople expect to a merchant to ask, "What's your rate?" Think about your own encounters with salespeople. Have you ever asked this question or a version of it? If so, you're not asking the right questions.

The qualified rate is only responsible for a portion of overall processing costs. More often than not, mid and non-qualified surcharges, transaction fees and monthly fees combine to make up the majority of processing expenses.

Inconsistent buckets make it even easier for providers to conceal the true cost of credit card processing on a tiered pricing model. Inconsistent buckets is the term used to describe a provider's ability to dictate into which tier underlying interchange categories will qualify. The specifics of how this works are beyond the scope of this article, but you can take a look over at MerchantCouncil for more on this topic.

Focusing on a single rate can be detrimental even when comparing more the more transparent interchange plus pricing model. There are many different ways that providers can extract profit from a merchant account. If you're distracted by the interchange mark up rate, you're opening yourself up to higher, expensive junk fees.

When comparing merchant accounts it's important to look at the big picture. Consider an account as a whole, and don't get distracted by a single or a few rates and fees - even if they seem to be the most important. Effective rate is the term used in the credit card processing industry to describe to overall cost a business pays to process credit cards.

The effective rate is expressed as the percentage of processing charges paid over gross credit card sales. This figure is the only singular piece of information that should be used to compare merchant accounts. The account with the lowest effective rate will always be the least expensive.