Cheap Merchant Accounts: What You Should Look Out For
Today, the use of credit cards has become so important that nearly everyone has one. A business that does not accept credit cards will limit themselves to customers who have cash on hand.
Not everyone carry cash in their pockets or wallets, but nearly everyone has a credit card. In fact, based on a study of a student population, around 84 percent own credit cards and only 2 percent have no credit history.
However, the cost of being able to accept credit cards may be a big factor in getting a merchant account. In fact, for small businesses, getting merchant accounts from merchant banks, though reliable and safe, may not be affordable. Instead, many turn to the internet or ads to look for cheap merchant account providers.
In choosing the cheapest merchant account, one must be careful since there are a lot of scammers out there. Merchant account providers know that fees are one of the most important things that can convince a business to sign up for a merchant account. This is why some use this information to fool businesses. One of the most popular ways of doing this is through hidden fees.
Some providers will advertise cheap merchant accounts. Indeed, when one checks the website, the fees are really low compared to other companies. The reason for this is most of their fees will not be advertised or they will charge highly for other fees not shown. Other providers will offer incredibly low rates, but if one reads the fine print, one will see that this only applies to certain cards or this low rate is temporary.
Another way of scamming businesses, though uncommon, is by vanishing. After the fees paid, the provider will disappear completely. The cheated business will have lost money and received no service.
The best way to be safe from these cheaters is by being in the know. Businesses, before contacting a merchant account provider, must know what to look for in a merchant account. They should know, for example, what fees are involved.
Online merchant accounts have, more or less, the same kinds of fees. Excluding the main fees (discount rate, monthly or statement fee, and transaction or authorization fee), below are some of the most common fees of merchant accounts:
- Termination or Cancellation fees – fees that apply if the merchant account holder closes his or her merchant account before the end of the contract.
- Gateway fees – Can be as high as $30 monthly. This should only apply if the merchant account holder is using an Internet Payment Gateway like Authorize.net and LinkPoint. Not applicable if merchant account holder is using a terminal (the device where one swipes credit cards) or has software.
- Batch fees – Usually a daily fee. The fee is charged when the merchant account holder submits all the authorizations for settlement at the closing of the terminal.
- Retrieval or Chargeback fees – Usually about $25. This is when the cardholder or his or her bank disputes a transaction. Reasons for disputes may be as simple as forgetting the purchase or service or if their credit card was fraudulently used. The merchant account provider incurs expenses as they handle the dispute and charges their expenses to the merchant account holder.
- Setup charges and application fees
- Surcharge fees – Usually an additional 0.5% to 2.5% over the discount rate. Applies to certain card types including some business, corporate, and international cards.
- Customer support fees
- Annual fees
Some merchant account providers will create fees that shouldn’t really be charged. For example: file, security, audit, conversion, over the limit, excessive transactions, and billback fees. These are called junk fees and are payments for nothing at all.
Businesses must also check the website of the Electronic Transactions Association (ETA). ETA is an association for merchant account providers, among others. If the provider is a member of ETA then it is a true merchant account provider and will surely not disappear after receiving the merchant account holders’ money.
When looking for cheap merchant accounts, make sure to check out the providers’ quality of service and rates. All fees, whether regular or will apply only for specific reasons, must be considered. Finally, be sure to read the entire merchant account contract before signing.
You might be interested in reading How To Apply For a cheap merchant account.