Forum Moderators: buckworks
Back when we started our manufacturer/ecommerce company, we wanted a merchant account which provided no/low monthly fees as we had no idea whether we'd be successful and were willing to pay high transaction costs rather than saddle ourselves with monthly commitments that might outlast our business.
As we started to see some success and grow, we began to start looking for ways to reduce our credit card fees. I thought that I would post some of what we've learned in the process.
1. Make of model of your sales over the course of a month. You need to determine what your average sale will be (called "average ticket"), and how many of those average sales you will make. You will need to plug in the discount and transaction rates in to see what the true monthly variable costs will be. (You'll then need to add in the various gateway and other monthly fees you are quoted.) Do NOT just assume that the lowest discount rate offer is the lowest price offer.
2. Realize that the discount rate generally quoted is the "mid qualified rate" which means the lowest possible rate. The requirements to get that vary, but generally require consumer credit cards, based in the US, that pass Address Verification Testing on both the street address and zip code, and have less than 5 business days between the time of the authorization and time of the capture. If any of these things are not true, you will get bumped into a higher discount rate class. It is CRITICAL that you know what the next higher rate classes are before you sign a merchant account agreement. A significant portion of your charges can fail the mid-qual tests and merchant account providers often pad their income by bumping up the non-qual rates. I have seen rate differences of 1.5% to 2% amongst vendors that have very similar mid-qual rates.
3. Generally, the merchant account provider will not refund the discount and transaction fees when you refund a credit card unless you ask. In my experience, most will begrudgingly refund the fees if you ask them to make that part of your account. If you are in an industry that has a high return rate, this can be a significant amount of money.
4. Most merchant account providers will attempt to lock you into a multi-year agreement. If you do sign a long-term agreement, make certain that you understand the penalties for breaking it. Some will merely charge you the monthly fees. Others, however, will charge you the monthly fees or a percentage of your previous average transaction volume - whichever is higher. If you sign an agreement along the lines of the latter, realize that you have just lost most/all of your ability to renegotiate later.
5. The rates you will receive are based on your volume and the perceived risk that your business represents to the merchant account provider. If you are low volume in a high risk business, you will not have nearly as much negotiating leverage as if you are high volume, low risk.
6. It is important to realize that as your business grows, you should be able to renegotiate for better rates. Periodically, it is a good idea to send request for proposals to a few merchant account providers to see what the best offers are. Merchant accounts are a commodity, with little differentiating them other than cost. However, switching providers is not without risk to you. A new merchant account provider does not have a history of transactions with you to take a look it. An existing provider will generally be more willing to increase your credit limits without reserve accounts than a new provider. If your business is growing quickly, this can be a serious issue. The good news is that your existing merchant account provider will not want to lose you to a lower rate competitor. Generally, if you provide them with a documented offer from a competitor, they will match it.
Most of this applies just to your Visa/MC transactions. Amex handles all their own processing and really aren't big on the whole negotiating things. Its more of a take-it-or-leave it with then.
To me, they have to beat the competitor. The "offer" should be something less than what the competitor is actually offering. Otherwise, go with the competitor.
I've come to realize many merchant account sales reps are slimeballs and they will say anything to get your business. But once it is down on paper, it can be very different from what you hear. Read everything that you agree to on paper and online agreements.
My point in saying all is that I strongly suggest that anyone looking for merchant accounts get a referral from a trusted friend rather than a random web search or promotional mailer.
what you guys need to understand is that merchant account companies need to make money too.
The merchant account processors don't need me to look after their interests - they can do that on their own.
My interest is to get the absolute maximum value from all my vendors.
