E-Commerce Tools: Merchant Accounts

Since e-commerce is usually at the heart of an online business, let's go into some more detail about the tools required to make it happen. Basically, if you want to sell products and collect payment electronically, you're going to have to have:
  1. a merchant account -- an account that lets you collect payment via credit card
  2. software to collect information -- shopping cart programs
  3. software to process the transaction and send information to all of the involved parties (your bank, their bank, etc.)
  4. a secure server -- SSL (secure socket layer) will encrypt the data and send it to a secure server where it can't be intercepted by a third party.

Merchant Accounts
A Merchant Account allows you to accept and process credit card payments either manually by "swiping" or "keying in" a card number, or through your Web site. There are many charges associated with accepting credit cards including:

  1. a "discount rate" -- usually a 1-4 percent charge based on the sale amount (although online rates can be much higher)
  2. a transaction charge -- a $.20-$.40 charge per transaction
  3. a monthly minimum charge -- a flat rate that is charged if the minimum is not met
  4. a "statement fee" -- a monthly fee charged regardless of the amount of charges in a month
  5. setup fees
  6. application fees
  7. batch header fees -- fees that are charged for a batch of transactions, usually every time a terminal is closed out. Some systems automatically "batch out" at the end of the day and you may be charged whether you had any transactions or not!
  8. and... there are also a few fees for special circumstances.

If you don't plan on accepting credit cards then you don't have to worry about a merchant account. On one hand, with the increase in credit card fraud you may be saving yourself a lot of headaches by not accepting credit cards. On the other hand, some statistics say that you will be turning away 80 percent of your sales by not accepting credit cards. It really comes down to what you're selling and how you're delivering it. If it is a service that must be delivered then you may do just as well (and save money) by invoicing and requesting payment by check, wire transfer, or money order. If you're selling products directly on-line then you probably need to go the merchant account route.

If you have had problems getting a merchant account, you can also try going through an Independent Sales Organization (ISO) for electronic funds processing. These firms usually provide many options for transactions both electronically and in-person. Concord EFS is one vendor, but many others exist.