Top 10 questions to ask when getting a merchant account
We've put together the following ten questions to ask prospective merchant service providers to help you avoid some of the largest pitfalls that face businesses as they're in the market to get a merchant account.
What is interchange and where can I view the categories, rates and fees?
Don't start shopping for a merchant account until you know about interchange fees. Interchange charges make up the bulk of the credit card processing charges that you will pay, and the rates are the same for all merchant service providers. Think of interchange as wholesale processing rates.
Complete interchange fee schedules are available at Visa and MasterCard's Web sites. Be sure to study these fee schedules and get a basic understanding of interchange before you start comparing rates and fees.
What type of price structure does this merchant account use?
Merchant service providers use a few different price models that act upon interchange fees differently. The main types of pricing are tiered, interchange plus and enhanced recover reduced (ERR). Of these three, interchange plus has the potential to be the least expensive (so long as the rates are competitive) and it's also the most direct. CardFellow is helpful for getting competitive interchange plus pricing quotes.
What do I have to do to get the best interchange rate once I begin processing?
Getting low rates is only half the battle. Ensuring that you're transactions are qualifying to the lowest possible interchange category as often as possible is the other half. Interchange charges make up the majority of the fees that you pay to process credit cards, not the markup from your merchant service provider. Ask your provider how they're going to help ensure that you're able to achieve the lowest interchange charges once you're up and running.
Will this merchant account have daily or monthly settlement?
In the case of daily settlement, merchant account charges are deducted from gross processing volume prior to you receiving funds. For example, if you charged a customer's credit card $100, you will receive $97.50 at the end of the day. This is the gross charge less any fees for processing. (We estimated 2.5% for this example)
With monthly settlement, gross deposits are made to your account throughout the month and charges are taken in one lump sum at the end.
For obvious reasons, monthly settlement is much better for cash flow because you hold on to your money for longer.
Is this a lease or will I own the equipment?
Don't lease credit card equipment. Most credit card machines can be purchased brand new for $300 or less. Leases will lock you into to an agreement of four years or longer and carry outrageous markups in excess of 1,500% or more.
Is the equipment that you're recommending proprietary?
Some credit card machines are proprietary and will only work with a particular processor. Merchant service providers will recommend proprietary equipment because it makes it harder for you to switch to a different processor in the future if you're offered better rates and fees.
Is there a cancellation fee?
There is no benefit to your signing a merchant account contract with a cancellation fee. Cancellation fees benefit the provider because it virtually guarantees that you will stay processing with them for the length of the contract. Examine merchant account applications carefully for a cancellation fee and insist that it be waived.
What is the monthly minimum?
A monthly minimum is not actually a fee; it's more like a benchmark. The monthly minimum guarantees that the provider will make a certain amount of money on your account each month. In months where you're total fees don't meet the minimum amount, you will be charged the remainder out of pocket. Don't settle for high monthly minimums. Tell your salesperson that you would like the fee lowered or waived.
Is there an annual fee?
Many merchant accounts have an annual fee. There's no benefit to you for paying a hefty annual fee to your merchant account provider. Ask your merchant account salesperson if their account has an annual fee. If so, insist that it be waived.
Do you charge a PCI compliance fee?
The Payment Card Industry (PCI) Data Security Standard (DSS) is serious business, and all merchants should take it seriously and strive to become compliant. However, Visa and MasterCard don't charge a fee to ensure that merchants have done so.
Sales agents and independent sales offices (ISO) go to great lengths to make sure that their merchants get and remain compliant, and there are costs involved in this process. Many merchant service providers have developed monthly or annual PCI compliance fees to cover this added expense, but it's arguably just a cost of doing business.
Insist that any PCI compliance fees be lowered or waived if a salesperson would like to earn your business.
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More information about how to get a cheap merchant account by asking the right merchant account questions is available at MerchantCouncil.