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Businesses that don't accept plastic simply can't compete with those that do. If you don't have a merchant account to process credit and debit card payments then you may want to get one soon. Customers will shop elsewhere if you don't offer that convenience.
A merchant account is a bank account that allows a retailer to accept credit and debit cards. In exchange for the service and convenience, the bank or merchant account provider will deduct a portion of all credit and debit card transactions before depositing the remaining funds into your bank account.
You have two choices in selecting a merchant account – you can go directly through the processor or sponsoring bank or you can select an independent service provider that has contracts with multiple credit card companies.
Cost of Retail Merchant Accounts
To set up a retail merchant account, you'll first need a credit card terminal. They run $150 to $1,000 each, or can be leased for around $50 to $100 per month.
A merchant account comes with a variety of fees. Some are periodic and others are recurring based on the amount and type of transaction. Recurring fees, which will make up the vast majority of your monthly expenses, are:
- Interchange fees: complex fees that deduct a percentage of the total purchase price based on factors like the type of card, the size of the merchant and geographic region. The average fee is $.44 to $.50 per debit card transaction, but Congress has approved a proposal to cap that rate at $.12 beginning July 1. Credit card fees are typically higher.
- Assessment fees: flat fees set by the credit card company. If Visa's assessment rate, for example, is 0.11%, that would mean a $100 transaction would carry a fee of 11 cents.
Periodic and one-time fees include:
- Application fees: $25 to $200
- Statement fees: $10 to $15 or more per month
- Fees for failing to meet monthly minimums: $25 to $35
- Termination fees: Vary based on contract
Generally, small retailers pay more in fees as a percentage of sales than large retailers. Having a lot of small transactions will also hike up fees, which is why many retailers set a minimum for credit and debit card purchases. In addition, less established businesses or those with lower credit rating will pay more.
Choosing a Merchant Account Provider
There are so many types of fees associated with retail merchant accounts that it can be difficult to understand what you're purchasing. Ask any provider you're considering for a complete list of fees and read the fine print before agreeing to anything.
There's not much you can do to lower the cost of recurring assessment and interchange fees, so you'll want to select a provider with the lowest periodic and one-time fees. By shopping around, you can usually avoid some of those fees, particularly application and statement fees.
Look for a company that offers 24-hour technical support at no extra cost. Research the company's customer service records through consumer organizations like the Better Business Bureau, and talk to other merchants to find out what companies they use.
Research the company's customer service record, too, and find out if the provider has experience in your industry. You'll also want to look for a provider that offers 24-hour technical support.