How to accept Credit Cards online?
As I web developer, most of the time I deal with creating websites and ecommerce stores. As many people know the ecommerce solutions have the abilities to create products, categories, add products to the shopping cart, but they are totally useless when question comes to charging the customer money for the products. This is where online merchants come in play.
Do you need a virtual terminal for online or brick store transactions? How to setup one and with so many companies on the market how do know that you selected the right tier pricing system for your business?
After a lot of research and speaking with company representatives, here's how it all works:
To be able to accept credit cards, you need to deal with two entities: The Virtual Terminal and the Merchant Service Provider (Merchants) (who in turn is dealing with the Credit Card Companies).
The Virtual Terminal is basically a software company that has come up with a super efficient way to accept credit cards. However they don't deal at all with credit card companies themselves. This is where the Merchant Service Providers come in. The Virtual Terminals license their software to the Merchants, who combine the software with actual processing of credit cards so you can accept credit cards.
The rates that the Merchants must charge are dependent on the rates quoted by the Credit Card Companies.
The credit card companies charge all Merchants the same complex set of rates per cards. (There are over 300 different credit cards, and depending on the level of risk, e.g. government, international and the level of rewards e.g. mileage, the rate the credit card companies charge varies between around 1.6% and 2.5 %.)
However the variation in rates that you see advertised by different Merchants is due to the Merchant rate surcharges and other various monthly fees and start-up costs.
The rate systems that the Merchants have set up come in two forms in most cases: A 3-tier system and an Interchange Pricing system.
The Interchange Pricing system is superior. Here are the reasons why:
The rates that they quote you only actually apply to the top-tier cards. This "qualified discount rate" is only applicable to certain cards. Anybody using a business, rewards, government, or international card does not qualify for the top tier rate, and so the rate you get charged is actually higher than the quoted (top-tier) rate. In addition, if their address can't be verified or it takes longer than a day for the transaction to process, you get downgraded and in turn get charged a higher rate by the Merchant.
The other system is the Interchange Pricing. This rate price is the sum of (1) The rate quoted by the credit card company; (2) the Merchant rate surcharge; and (3) the Merchant flat rate transaction fee. You can't get downgraded to a different tier, and you always know what rate you will be charged given the type of card it is. When I asked one company what the difference was between the two systems, he said that honestly on the interchange plus pricing system they don't turn a profit, and so they don't offer it to customers unless it's expressly asked for. (Implying that they DO turn a profit on the tiered system, meaning you're paying unnecessarily higher rates for the exact same service.)
Monthly Fees: All Merchants charge at least two monthly fees: The gateway fee, and the Merchant Account Fee. The gateway fee is paid to the third party Virtual Terminal, and the Merchant Account Fee is the cost of using the Merchant services, including customer service.
Start Up Costs: The highest rated Merchants don't have start-up costs or contracts. The lower rated Merchants charge a set up fee, an application fee, and in some cases even a purchase fee they also have 2-year contracts and pricey cancellation fees.
Other Standard Fees: All Merchants also charge the following fees: (1) Chargeback fees (around $15-25). If a customer disputes a charge and demands that the credit card company reimburse them the money, and you cannot prove that you provided a service to them that would disprove their claims, then you are charged this chargeback fee. (2) Voice Authorization Fee (around $1.00). If you need to input a credit card, and you don't want to do it online, you can call in to the company and do it over the phone for a fee. (3) AVS [Address Verification System] ($0.05 per transaction). This is an additional charge per transaction for verifying a customer's address. (4) FYI, across the board, AmEx cards will demand a much higher rate (usually a full percent higher). (5) Batch Fees. These are usually under $0.25 per day if one or more charges happened during that day. The "system" is accessed one more time to upload all of your charges at once, and you're charged for it.
If you are planning to open an ecommerce store or accept credit card online this research should help you to select the right company for your online transaction.
As you can see there are many factors that can significantly increase your monthly fees so take your time to select the right Virtual Terminal and the Merchant Service Provider for your business. These are the main factors:
- No Contract
- No Cancellation Fees
- No Startup Fees
- Low Bach Fees
- Low Voice Activation Fees
- Ask for Interchange Plus Pricing System
Constantine Yaremtso has been working in the web design and ecommerce industry for the last 7 years. Currently he works at Web Design Company in San Diego, CA as a creative director. More of his articles can be found on Webika Design.
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