Free Merchant Account Mania...Is it all a SCAM?

Well, I just started working in the merchant accounts business and I must say... WOW! If I were a consumer I wouldn't no where to begin to shop for a good deal.

Everyone is offering free this and free that with unbelievably low rates. I'm going to make this simple for those of you who are confused about how to shop for a merchant account.

When shopping for a merchant account, you need to understand what an unqualified rate is.

Watch the merchant salespeople hem and haw and try to beat around the bush on this one, but here's why this is important. I promise to keep it simple stupid!

Anything below 1.55% (with a $.10 cent transaction fee) which is what Visa and MasterCard charge any merchant account provider (it's called the Interchange fee for all you geeks and it changes so this is an average rate based on the available information as of today) has to be made up for somewhere. Read my lips. If a merchant account provider quotes you a rate lower than 1.55% (for a qualifed credit card transaction), then they will make up their profits somewhere. Only Wal-Mart gets away with paying Interchange less (Don't start...that's for another blog).

That's just simple business. Obviously they can't operate their businesses at a loss forever. And therein is how you, the business owner who just wants to be able to accept credit cards, gets sucked in...

Heck, merchant account providers will even quote rates of 1.16% to pique your interest. That is a true rate, but only on a qualified debit card with pin purchase. I'll explain what that means later.

Here's the reason why the merchant accounts business is like this. Listen, you're dealing with the banking industry here and banks work on risk assessment. Your merchant account provider comes up with rates based in part on how risky the transaction is.

Essentially, your merchant account provider is fronting you the money your customer charges until the charge actually goes through. Let's use some examples here.

If I call you over the phone and pay with my charge card, there is a risk that I might be using someone else's charge card because you have no way of actually verifying if I am who I say I am. That money could be charged back in a scenario like this so you're going to pay an unqualified rate which is going to be higher due to the risk factor. That's why telephone order rates are usually around the 2.23% percent range.

Now let's say you go into a place of business and use your debit card and enter your pin number... In this scenario there is very little risk of a charge back or insufficient funds. In this case, usually you might just get charged a flat per transaction fee of $.35 or a low percentage of let's say 1.16%.

Although the merchant accounts business is very competitive (making it great for you the business owner), most companies know that the general public really doesn't understand the fees associated.

A good way of knowing how much you'll pay is to take your average ticket price and then run the numbers with all of the fees and charges assessed. Let's say your average ticket price is $200 and two different merchant providers are competing for your business.

Let's say the majority of your transactions are qualified, meaning that the card will be present to be swiped into your machine. Let's say Merchant Bank 1 charges you a fee of 1.59% and 22 cents per transaction and Merchant Bank 2 is 1.64% and 18 cents per transaction.

With Merchant Bank 1, $3.40 will charged out of your $200. With Merchant Bank 2, it will be $3.46. Now let's say that Merchant Bank 1 has a statement fee of $15 and Merchant Bank 2 has a statement fee of $5. Hopefully you're starting to see my point here without me going into further detail.

Simply because a merchant account provider advertises a low rate doesn't mean that you'll actually be paying less when it's all said and done. I might be oversimplifying it all, but honestly I think I have armed you with enough information to be able to make an intelligent decision about who you choose to let process your credit/debit accounts.

If all else fails, just remember to ask them about qualified/non-qualified rates and fees. We'll discuss some other things you need to know in a later post.

Oh, and give me a call if you're serious about doing business and don't mind dealing with someone who won't beat around the bush. Call my cell nationwide - I'll call you back so you won't have to pay long distance. The number is 678-247-5596. If you want to email, do so at recodante(at)gmail(dot)com.