We design e-commerce websites, and can assist our clients with the selection of a compatible processing solution. We don't market merchant accounts outright, so I hope you'll find this impartial information useful.
Processing an Online Credit Card Transaction
Simplified Glossary
- Business Checking Account - Your normal bank account.
- Merchant Account - This is an account that allows you to accept credit cards. This type of account is offered by banks and competitive outside suppliers. The service they provide includes authorizing transactions, depositing collected funds into your business bank account, and withdrawing discount fees assessed by the credit card companies to merchants. Merchant accounts can receive card data via traditional swipe terminals, online "virtual" terminals, internet payment gateways, or, rarely, by phone.
- Payment Gateway - This is the website that transmits the card data in a secure way connects your website to the processor. The gateway can also be the window to your merchant account, offering a virtual terminal that can be used for hand entered transactions. You'll also receive a rich set of reporting tools. Your merchant account will probably offer a proprietary payment gateway. Most of the time, you'll need to select an solution other than the one offered by your merchant account for compatibility reasons.
How it works
When a customer enters their credit card number on your website, the data is sent securely to your "Payment Gateway" that has a connection to your "Merchant account". Your merchant account processor will then submit the transaction data to the card issuers bank for authorization. The authorize or decline code is then sent back down the chain to your website. This process usually happens in less than a second. If authorized, your merchant account will then deposit funds electronically into your bank account within a day or two.
Major top level credit card processors include Elavon, First Data, Merchant eSolutions, although these are rarely sold directly. Most often these accounts are sold though resellers, most commonly the bank where you have your business account. A cottage industry has sprung up with companies ranging from Costco to small mom and pop operations offering merchant accounts.
To make the secure connection to your website, you'll need a payment gateway. For modest businesses offering only a few items, gateway companies can provide a button for your website that will send your customer to a secure checkout page on their website to complete the purchase. This is the simplest approach since you will not need to have your own secure site, and installation is as simple as creating a link. The better approach for an e-commerce business of any size site is to host the complete checkout process on your website with a secure connection on the back end to the payment gateway. The latter approach is quite technical, and requires a website developer with api integration skills, or shopping cart software with payment gateway integration built in. Some merchant accounts will provide a free payment gateway, however you'll often find that you'll need to use an outside product due to compatibility issues. Standalone gateway providers such as authorize.net make it their business to be compatible with everyone, including both commercial and open source shopping cart software.
While you'll generally use two separate providers for the gateway and merchant accounts, Paypal and Google checkout offer all in one solutions that are quite compelling. These are discussed below.
In summary..
The flow for processing cards online from website sales
Your Internet Shopping Cart => Payment Gateway => Merchant Account => Deposit into your bank account.
Merchant Accounts
A Merchant account will approve credit cards and deposit the money into your bank account in about two days. To do this they charge a percentage of the sale, called a "Discount Fee" and a few cents per transaction. The rate advertised when you are shopping for a new merchant account is their very best rate for "qualified cards". Their are usually extra fees for partially- and Non-Qualified cards. Examples of Non-Qualfied cards are airline rewards cards, debit cards, corporate cards, etc. Foreign cards can add extra fees, too. You may find that 30-40% of the cards you accept are non qualified.
Merchant accounts require an application, credit check and usually a business license to open. Most merchant accounts and gateways are only purchased through resellers, for example, Costco and US Bank sell Elavon merchant services, and authorize.net is only sold through banks and outside suppliers.
Resellers and inflated fees / Scams
When shopping around for a merchant account, be careful of low teaser rates. You'll find hundreds of merchant account and gateway resellers, and many will advertise what appears to be unbeatable rates. If you dig a little deeper in the fine print, you'll find that many of these make their profit on added fees. Typical junk fees include:
- Statement Fees
- Termination fees
- Annual fees
- Hidden setup charges
- Non-refundable setup charges
- Batch fees
- Cancellation fees
- Licensing Fees
- Minimum fees
- Pass through fees
- Voice Authorization fees
- Bank Setup fees
- Daily Close-out fees
- Software fees
- Customer Support fees
- Technical Support fees
Look for terms and conditions regarding "full use of funds". As your business grows, you may find that some processors will restrict your ability to access funds you've collected.
Early Cancellation: I would not consider any processor that insisted on a contract that imposed a penalty cancellation of service.
Another scam involves low cost terminal leasing or sales. Many of these machines are locked to only work with one, usually expensive, processor and cannot be moved to another provider. In the case of leases, be sure to look at the fine print regarding termination fees if you decide to discontinue the lease.
Most processors will not refund discount fees on customer refunds. You may consider searching out one of the few that do if your business processes a lot of returns and exchanges. Online clothing and shoe businesses will typically fall into this category due to sizing variations.
Here is a great article on the hidden fees typically found in these accounts.Examples of typical fees assessed by Visa/MasterCard and the Merchant Account providers
-Fees shown below are "Discount Fee" + "Fee per transaction"
Actual rates are subject to change and negotiation.
Costco / Elavon
- $0 Monthly Fee
- Visa and Mastercard Qualified Cards: 1.99% + $0.27 per transaction.
- Visa Non Qualified: 2.96% + $0.32 per transaction.
- Mastercard Non Qualified: 3.8% + $0.32 per transaction.
Gateway: Requires a gateway product to connect to your website.
Refunds: The same fees are charged for customer refunds.
Since US Bank is the parent company of Elavon their rates seem to be similar, however my last quote had a monthly fee.
GATEWAYS
Your choice of a payment gateway provider will be determined by compatibility with both the shopping cart software and the merchant account provider.
Authorize.net
Probably the most universal choice, supported by almost everyone.
$49 setup
$15 monthly
10 cents per transaction
These fees can vary quite a bit depending on who is selling it. You do not need to purchase it from the bank that sold you the merchant account. That is usually the most expensive choice, and can be double the fees I've been able to source from independent providers.
Paypal Payflow Gateways
This should not be confused with standalone Paypal discussed below. These is their gateway only products, and both require a separate merchant account to function. They offer two products:
- Payflow Pro
You host the checkout page on your website.
$249 Setup, $59.00 per month and $0.10 per transaction - Payflow Link
Your checkout pages are on Paypal's website
$179 Setup, $19.95 per month + $0.10 per transaction
Other Gateway Companies
Be sure to check shopping cart and merchant account compatibility before selecting any provider.
- Beanstream
- CyberSource
- eLink
- First Data
- Global Moneris
- e-Select Plus account
- Ogone
- Sage Pay
- SecureTrading
ALL IN ONE: Merchant account + Gateway in one
Gateways provided by your merchant account provider.
These proprietary gateways can be just fine if the shopping cart software you are using is supported. We've found the selection of compatible carts and transaction reporting is usually limited. The fees are usually the same or more than selecting an independent gateway company.
Paypal
Paypal offers two services that acts as both your merchant account and payment gateway. The limitation with Paypal standard is that your customer knows they are checking out on Paypal which may be less prestiegous than hosting your own checkout page.
Two big pluses to PayPal is that the pro account does not charge discount fees on refunds. This is rather unique. Also, Qualified and non-Qualfied cards are the same rate on either pro or standard. Since 30-40% of your sales may be non-qualified, a PayPal account may end up being a bargain, event though the rates appear to be higher than most.
An application with a credit check is not required for the lowest tier of Payments Standard, however you will not receive the $3000+ fee discounts.
-
Paypal Website Payments Standard
Order entered on your website, then completed on Paypal's
$2000 maximum transaction.
$0 Monthly Fee
- Paypal Website Payments Pro
Order and payment completely on your website.
No maximum transaction amount
Monthly Account Fee $30
Transaction Fees (Pro or Standard)
- Qualified or Non Qualified cards are the same rate.
- $0 to $3000 Monthly Sales : 2.9% + $0.30 per transaction.
- $3000+ to $10,000 Monthly Sales : 2.5% + $0.30 per transaction.
- $10000+ Monthly Sales : 2.2% + $0.30 per transaction
Google Checkout
Sales are completed through Google Checkout
- Less than $3000 Monthly Sales: 2.9% + $0.30
- $3000 - $10000 Monthly Sales: 2.5% + $0.30
- $10000+ Monthly Sales: 2.2% + $0.30
Amazon Flexible Payment Services
Amazon offers very flexible integration features. There is no minimum fee and no start-up charges to use Amazon FPS.
Their simple start option is Amazon Payments
- 1.5% + $0.01 for Amazon Payments balance transfers.
- 2.0% + $0.05 for bank account debits.
- 2.9% + $0.30 for credit card for transactions above $10
- Drops to 2.5% $3-10k, 2.2% >10k monthly volume.
- 5.0% + $0.05 for credit card for transactions below $10.