Regardless of whether you own a service-oriented business or one that primarily sells products, using the Web to accept payment is becoming a “must” in today’s economy. Nowadays, more people pay their bills online than ever before. People use credit cards to pay for more than half of what they spend (either because they’re broke and need to revolve, or because they value the itemized statement to track their budget each month). So, where does that leave YOU as a business owner with an online Web presence?

Well, if you can’t accept credit cards it means that you are missing what people are looking for. The days of paper bill payments are numbered. The “Life Takes Visa”™ TV commercials that depict the world coming to a screeching halt when someone pulls out their checkbook (or cash) to make a payment are pretty accurate in our economy. Since we live in economic times that are increasingly influenced by the Internet and e-commerce, the trend to accept electronic payments (both credit cards and e-checks) is at an all-time high.

The key to being “ahead of the power curve” (meaning successful) in your online venture is to sell the way people buy. Otherwise they will shop someplace else. That includes paying for services, products, and even charitable donations. A merchant account is your cash register online.

That said, not all merchant accounts are alike. The costs and level of service from each merchant account vary significantly. Typically, the fees are broken down into the following categories:

• Application Fee: Just as it sounds, it is a fee to apply for the merchant account. The bank or the merchant account provider may charge this fee. Sometimes this is free, but I have seen it as high as $300 from some banks. It is a one-time fee.
• Setup Fee: This fee may be assessed to setup the online gateway with the processing center. It covers the overhead of programming and other costs related to building your account and associating it with your bank, your processor, etc. This can reasonably be anything from $50 to upwards of $150 depending on the processor you choose. Like the application fee, this is a one-time charge.
• Monthly Account Fee: Paid to the Merchant Account provider, this is a service fee (just like any type of hosting or subscription) to manage your account and maintain its status. Usually this fee is in the $25 to $45 range, but I have seen some as high as $125 per month for basic service. Specialized services (that are uniquely designed to interact with third-party accounting and inventory programs) can be prohibitively expensive, as much as $800 or $900 per month. Most of the time, those high-dollar monthly fees are related to extremely large corporations doing millions of dollars of monthly business. As a small- to medium-sized company looking to transact business online, you should be able to find what you need for less than $45 per month.
• Transaction Fee: Whether you process a purchase or a refund, you are running a transaction. Even your daily batch of transactions sent to your processor after the close of business is a transaction. Transaction fees usually range from $.25 to $.35 each. Think of it this way: in the days of writing checks to pay your bills, each check you wrote had a cost of 18 cents to 30 cents (depending on how much you paid for checks), and each stamp today costs First-Class postage. To pay your electric bill, then, you have the overhead cost (a transaction fee) of perhaps $.65. As you can see, putting things into perspective, transaction fees for merchant accounts are much less expensive.
• Discount Rate: This is the piece of the transaction that the credit card company takes. It varies according to your merchant account provider. The Visa, MasterCard, American Express, Discover, etc. companies earn their money, in part, by assessing a small percentage fee to each sale. Depending on your merchant account processor, the type of account, and the kind of transactions (high-risk, low-risk, etc.) your discount rate might typically be close to 2% for brick-and-mortar swipe terminals, or upwards of 3% for online accounts. I’ve seen higher. I’ve seen lower.

There are other options to process/accept credit cards beyond a full merchant account. Depending on your needs, you might be happy with an account from third-party processing companies that will handle your credit card transactions on your behalf. If you use such a service, you will not have to deal with all of the a-la-carte fees. A transaction fee averaging about 2% is the only expense you’ll have. There are several such services available.

Why get a full merchant account, then? Well, you may not need one if a third-party service does what you want. There are two significant reasons to equip your business with your own merchant processor, however. First, credibility. It’s not that third-party processors are not credible, because they are. But when your Website links to a third-party processor to accept payment, it tends to give some people the impression of “short-cut, imitation merchant account.” Some of the service providers even require customers to create an account and log in before paying you. That makes for a clunky process. Your customers see that they must leave your site to buy their items, and that can shake their confidence in your business.

The second reason that a true merchant account may be a more appropriate option than a third-party provider involves SEO. In order to accept payment via a third party processor, your Website must link to the processor’s Website to secure the transaction. That means that your transaction is split into several segments that take customer away from your Website’s domain. Some search engines treat that process unfavorably.

Obviously, having a true merchant account is preferable if you can afford it. The litmus test would be to see what the brand-name, established department stores do when handling payments online: they use a real merchant account in which their customers never have to leave the Website. Does it cost more? Sure. But in the end, it yields more business. However, having a third-party payment option is better than none at all. If you only expect five to ten transactions each month, the third-party option might be the right answer for your business.

If you need more insight or some guidance on the topic, I can look at your individual circumstances and offer my advice.  If I think it’s not the right time to get a merchant account, and that a third-party provider makes more sense for your business, I’ll tell you that, too. The one detail you must keep in mind is that cheaper isn’t always better, and if saving a dime costs you a dollar, sometimes it’s better to invest a little extra in your business to get the desired results.