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Before the Auction: Considering a Merchant Account continued ...

The ISO, bank, and credit card company are assuming greater risk on an unsigned, non-swipe transaction and thus charge more. Why? Unsigned transactions are not binding. Customers can ask their credit card company to "charge back" the transaction. In this situation, the credit card company will charge back the sale to the ISO and bank, and you will have to cover the charge and a service fee. Also of note, if a merchant has a 1 to 2 percent charge-back rate the bank will likely terminate its client's merchant account. The merchant might also be included on Visa or Mastercard's Terminate Merchant File (TMF). Once you are listed, the likelihood of obtaining another merchant account is slim to none.

What to Look For
If you do decide to sign up with an online ISO or MSP to obtain a merchant account, be aware that prices vary from provider to provider. Understand the setup costs and reoccurring monthly fees. Also, be wary of leases on "virtual terminal" setup fees. (Currently, the market low on setup is $400.) These leases look reasonable on the surface, but feature outrageous terms, such as $29.95 for 48 months. Also in regard to fees, make sure the ISO or MSP does not charge obscene charge-back rates, daily closeout/batch fees, monthly statement fees, and more. In essence, shop around and do some price comparison.

Moreover, make sure the site has real content, such as tutorials and service overviews, not just a simple splash page with seemingly attractive rates. Along the same lines, be sure there is a contact name and phone number so that you can talk to a representative. Finally, check if the company is a member of the Better Business Bureau. That's always a reassuring extra.

Competing Solutions
Another way to go is to use a third-party credit card processor, such as Billpoint, Amazon.com Payments, CCNow, and iBill. Essentially, they allow you to piggyback on their merchant accounts. They authorize and process payments from your customers, take a commission from the sale, and then pay you in lump sums on a bimonthly or monthly basis.

There are some trade-offs, though. First, the name of your business won't appear on your customers' credit card statement, which can cause confusion. Also, your sales revenue goes to a third party before it goes to your bank account. Moreover, the money will arrive slower, at least two weeks after a sale. Finally, the percentage you pay per transaction will be higher--from nearly 5 to 10 percent. Of course, there is no setup fee with a third-party processor. For more information on third-party processors, see our tip on accepting credit cards.

Accepting Credit Cards
Getting Licensed
Buying for Resale