Benefits of Having Your Own Merchant Account Vs Using A 3rd Party Merchant Account Provider.
Accepting credit card payments online is a essential to any Internet business. If you can accept spur of the moment credit card payments online, your sales can skyrocket as many online sales are emotional. If potential buyers cannot purchase immediately, their desire to buy may cool down. This article reveals how to accept credit card payments by applying for a merchant account of your own.
We all know that accepting credit cards is essential to online sales. Unfortunately, most merchants are unaware that acquiring a merchant account can actually save them money. And in many cases, big money!
For this experiment, we will use a fictional character named Dave. Dave owns and operates a great online website for marketing resources. Dave's website is a membership based website, and therefore could be approved for an Internet merchant account. Dave starts off processing his business with a popular third party processor who offers him the following plan:
3rd Party Merchant Account Start Up Fee = None
3rd Party Merchant Account Monthly Fee = None
3rd Party Merchant Account Transaction Fees 7.50%
Dave sets up his business with this popular third party merchant account processor and charges $30 per transaction. He has built an extensive reciprocal link exchange directory, has purchased some PPC advertising on a few of the best search engines, and has reached a excellent spot in the content based search listings for the top 5 search engines. His customer base has grown from zero before accepting credit cards, to 150 members, in just one month. Dave can't believe his success at Internet marketing, and is planning on building even more web based resources and tools for his website, thus increasing the value and content. He is ecstatic at the initial results, so let's take a look at Dave's numbers:
$30 (Per Membership Sold) x 150 (Memberships Sold) = $4,500.00
$4,500 x 7.50% (Discount Rate) = $337.50
$4,500.00 (In total sales) - $337.50 (Total fees) = $4,162.50 (Net profit after all processing fees have been deducted)
Ok. Dave certainly had an excellent first month accepting credit cards with his new business venture. But let's see how Dave would have made out if he would have secured an Internet merchant account for his new business:
Merchant Account Start Up Fee = None
Merchant Account Monthly Fee = $7.95
Merchant Account Discount Rate = 1.64% Card Present & 2.14% Card Not Present
Merchant Account Per Trans Fee = $0.24
LinkPoint Gateway Access Fee Per Month If Applicable = $15.00
Merchant Account AVS Fee (Address Verification Service) = $0.05 cents
Now the first thing we see is that the merchant account company is showing us more fees. This may be disheartening at first sight, but we should really explore what these fees are, and how they affect our bottom line.
Start Up Fee: This remains the same. Dave paid zero to get setup with his new merchant account, just as he paid zero to get setup with the third party processing account.
Monthly Fee: The third party processor offered us no monthly fees, yet we must pay $29.90 with the merchant account company.
Discount Rate: The merchant account has labeled one of their fees as discount rate. These fees are the fees Dave will pay as a percentage of each transaction. They are similar to the main fee charged by the third party processor. This fee, when charged by the merchant account company is substantially smaller than the high percentage charged by the third party processor. But we will wait till the end of this experiment to see who offers the better comprehensive deal.
Per Transaction Fee: The merchant account company charges Dave $0.25 per transaction he processes through his merchant account. Of course, we have already established that Dave will pay no per transaction fees with the package he received from the third party processor.
Gateway Access Monthly Fee: Because Dave will also need an Internet payment gateway for his merchant account to work online with his website, he will also be paying $19.95 a month for his Gateway.
AVS Fees: The AVS fee stands for Address Verification Service. Dave will want to use this service, to help reduce potential fraud, and customer chargeback's to his merchant account. He will now pay an additional per transaction fee of $0.05 per transaction.
Let's see the numbers behind processing with a merchant account as opposed to a third party processor:
$30 (Per Membership Sold) x 150 (Memberships Sold) = $4,500.00
$9.95 (Merchant Account Monthly Fee);
$19.95 Gateway Access Monthly Fee;
Discount Rate of 2.19% x $4,500.00 = $98.55;
(Per Trans Fee) $0.25 x 150 (Memberships Sold) = $37.50 cents;
(AVS Fees) $0.05 x 150 (Memberships Sold) = $7.50
Total Fees (With Merchant Account) = $173.45
$4,500.00(In total sales) - $173.45 (Total fees) = $4,326.55 (Net profit after all processing fees have been deducted)
With the merchant account, Dave was able to keep substantially more of his sales for himself, as profit. Dave could use these extra resources to advertise more, expand his operation, and even hire someone to work for him, even if only on a part time basis. The point is that the better deal in credit card processing is always with a merchant account as opposed to using a third party processor. Most third party processors leverage the high levels of risk and chargeback's they must face everyday, by charging enormous fees and rates to their entire customer base. Third party processors are synonymous with Adult related websites. This is the reason for their increased exposure to risk. They must charge high rates to overcome the losses they are subject to by processing for a category of merchants that, unfortunate as it may be for them, falls into a certain level of risk and fraud that most other merchants do not. Because the merchant account company restricts its clientele to only companies with non adult related content, they are able to offer an entrepreneur like Dave selling online content through his membership based marketing website, a much better deal in credit card processing.
$4,326.55 (Net Profit with Merchant Account) - $4,162.50 (Net Profit with Third Party Processing) = $164.05 (Total Savings with Merchant Account)
This experiment has shown that the average website owner can save substantially by choosing wisely when it comes to their credit card processing solution. We have proved that most any entrepreneur can and will save substantial amounts of money by using a merchant account for their online credit card processing, as opposed to processing with a third party processor. In our little test, Dave saved $164.05, and that was just in the first month alone. Remember, that the third party processor will charge more, 7.50% to be exact, per transaction, once the customer is charged on a recurring basis. This means that for the second month, Dave would have paid even more to his third party processor; $328.10 to be exact! And that is just on the first months returning 150 customers. Every time Dave has a recurring payment processed through his third party processing account, he would be subject to a 7.50% transaction fee on all those sales. Not a very thrifty choice for credit card processing.
As with any business decision, be smart. Compare rates and plans, and make sure the "simple" set up is really worth the cost. In most cases, your Merchant Service Provider can setup your merchant account up in as little as 24 hours. This is faster than your third party processor, and adds even more value to the otherwise already vastly superior deal you are receiving with your very own merchant account.