Tuesday, October 20, 2009


Do You Need a Merchant Account For Your Site?

Not Really, Though It Might Help

When first-time, online entrepreneurs start to put together a budget they often overlook what will almost certainly be a significant expense – the cost of a merchant account. A merchant account is simply an account with a credit card company or companies that allows you to accept credit card orders. Without a merchant account, no credit cards please.

Now, credit cards are the most popular way to pay for items or on-line services, but check out some of the merchant account providers – resellers of merchant accounts that assume some of the risk of granting you credit. (In effect, that’s what a merchant account does. It grants you, the site owner, credit which you then pass on to your buying customers.)

These merchant account resellers often require you to sign a one- or two-year contract that means you’re going to pay a monthly fee of $30 or more for 24 months even if your site closes after two months. And that monthly ‘service charge’ never goes away. Not a problem for active, profitable sites, but a $30 bite each month might actually mean the difference between success and failure for a pushcart, start-up site selling a single ebook download and hoping to generate AdWords revenues to put the kids through college.

You’ll also get dinged a ‘per transaction fee’ (anywhere from 25 cents to 75 cents) and pay the merchant account provider a percentage of each sale on a sliding scale. Those online commercial sites that process thousands of orders daily pay the least – maybe 0.5% of each transaction. Online businesses that only process a few orders each day may pay as much as 3% of each order’s total.

So add it up. Monthly fee = $30 minimum. 25-75 cents per transaction. Plus 0.5 – 3% of the total order. Those fees, expenses and percentages are certainly going to nibble away at your bottom line, even though they don’t sound too bad. But let’s say you’re operating at a 24% margin on a small number of monthly sales. Merchant account fees can decrease your margins by as much as 20%, and that’s a big hit when you’re just starting out.

Don’t forget to add merchant account cost to your line item site budget.

And one more thing: no matter how much the merchant account reseller charges, you still may not be able to get an account – especially if you have a less-than-stellar credit history. Also, even though the merchant account will be set up in the name of your online business, you are personally responsible for all business activities and payments, whether you make a single sale or not. You pay.

It actually might make sense to skip the merchant account altogether, at least for the first few months until you start to see actual incoming revenue.

But then, how is the buyer going to pay for services rendered or goods shipped without a credit card?

Alternative Payment Methods

There are, of course, alternatives to the credit card and, with some creative copywriting on your part you can turn a negative into a positive using these alternative payment methods.

Let’s start with good, old-fashioned snail mail. Mail in a check for the order amount (six business days), wait for the check to clear (three business days) and snail mail order delivery (add another seven business days to account for handling at the warehouse). You could easily forget the order before it even arrives it takes so long to get to you. Especially in this age of one-click shopping and free overnight delivery. Using snail mail is one possibility, but you won’t get rich depending on your letter carrier’s daily visit.

However, there are web-based payment gateways that most knowledgeable web users recognize and accept. And if you construct your checkout to “highlight” the benefits of these alternative payment methods, you might actually convince a few buyers to make that first purchase.

One alternative payment method is 2checkout. Low fees, no long term contracts and available to even those whose credit records look like a disaster in the making. 2checkout, like other gateways, doesn’t actually extend credit to you or your buyer. It is simply a processing service for individuals who already have credit cards. So, because the risk is lessened, so, too, are the costs.

Another option is payQuake, another order processing service with more merchant account features that 2checkout. payQuake offers tiered services depending on the size of your online enterprise – from lite (perfect for small established sites and start-ups) all the way up to the PRO version, perfect for online businesses that process lots of orders and generate a pile of revenue. payQuake, as its website states, “[provides] merchant controlled payment processing solutions…[payQuake] is a Real Merchant Account.”

payQuake offers complete ecommerce accounts, swiped card accounts for brick and mortar outlets, international accounts, specialty merchant accounts for high risk (read high end) transactions and electronic checking.

Finally, you’ll want to open a www.PayPal.com account. PayPal, which is owned by eBay, enables buyers to charge purchases on their own credit cards or to pay by direct transfer from their checking or saving accounts. PayPal is the most recognized name in cash transferal services – one most buyers will recognize immediately. And one that most buyers will have confidence in.

Turning a Negative Into a Positive


Now that’ll grab a lot of eyeballs. Since when do e-tailors NOT want credit card numbers. When they want to protect the sensitive data of their customers or clients.

Make a point to remind customers about online credit card fraud and the risks they take whenever they give out a credit card number online. You don’t want to put your valuable customers at risk so you don’t accept credit card information directly – only through processing services like payQuake and PayPal.

Further, point out that buyers can eliminate credit card charges and over-limit fees by using PayPal to electronically transfer funds directly from the buyer’s checking or savings account into your business account. No numbers exchange hands. Just the payment. Many people prefer this method of purchase. It doesn’t run up large credit card bills and actually prevents the buyer from over-spending because, if the money isn’t in the account, the transaction won’t be made.

In other words, describe the benefits of using PayPal, payQuake and 2checkout. Lower costs (We pass the savings on to you!) and less likelihood of credit card fraud because the buyer’s credit card numbers are all stored in one place instead of dozens of big and small online sites. Buyers have confidence in PayPal and similar services because of their amazing, trouble-free histories.

So, skip the merchant account until you determine that (1) you need one and (2) that you can afford one. As a start up, every entrepreneurial penny should go into building an attractive site and promoting that site. Keep cash close at hand and hold on to every cent until you see whether this thing is actually going to fly.

You may someday decide to get a merchant account. You’ve heard many pundits state that the more payment gateways you offer, the more sales you generate. That may be true – at some point. But on the day you launch your site you may not see a single visitor. They don’t know you’re there yet. So why pay $30 a month to accept a Visa purchase that never takes place.

Wait to see how things go. You’ll know soon enough whether a merchant account is something you want or need. And, if you go with a web host that’s established and reliable, you may be able to get a break on some of those merchant account charges through your web host (and merchant account reseller, but one that actually cares that your site be successful.)

Ready to launch? Drop me a line or give me a call before you do. Don't screw this up.

Later, young entrepreneurs,


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