When it comes to accepting payments over the web, a small business owner has three options available.
The first are email based person-to-person shared merchant accounts such as Paypal. Paypal is well known in the auction world as a preferred method for accepting payments. However keep in mind that most retail merchants do not consider Paypal as a legitimate (maybe first-class is a better word) form of payment. All Paypal transactions occur on their website. There is no transparency from your website to theirs. Novice users do not like the idea of being transferred to a website outside of the one they are conducting business with to finish their transaction. If your business is conducted outside of the auction world, avoid using Paypal and get a real merchant account service provider. You will be recognized instantly as someone who takes consumer transactions seriously and the trust factor with the consumer is multiplied a hundredfold.
A second option is to use a third party merchant account service provider like 2Checkout. It is very tempting to use this option especially when just starting out in ecommerce. There are two large negatives to this option. First, like the above option, transactions are completed on a website other than your own. This does have a negative impact with consumers. Second, though their setup fee may be cheaper, their ongoing transaction fees are much higher and will cost you more in the long run.
One essential element of doing business on the web is trust. Accepting credit card payments through your own real merchant account is an immediate trust builder with potential customers. The integration with your shopping cart and website is seamless which builds further customer confidence in the way your business is conducted. Your ecommerce business needs its own credit card merchant account.
Opening a merchant account is not as expensive as you might think. Like everything else, you have to shop around. I will recommmend one small business merchant account provider and challenge you to find a provider that offers a better deal. If you do, email us.
Electronic Transfer offers one of the best deals around. A basic merchant account includes the ability to accept Visa and Mastercard. Accepting AMEX and Discover can be added but there are a few additional costs. What is discussed below is for a basic account.
- $50 Setup
- $10/month Gateway Fee
- $10/month Statement Fee
- 2.18% Discount Fee
- $0.39 transaction fee (.29 transacaction fee plus .10 per gateway transaction fee)
Note that the true discount fee is .29/transaction. Most merchant account providers do not mention that there is an additional gateway transaction fee. Electronic Transfer is upfront about this fee.
How does this break down practically? Let us take an example scenario. Let’s say that a business sells 100 widgets at $10 a piece per month. That is $1000 a month in credit card sales.
- Setup Fee per month (50 divided by 12) = 4.17 running total= 4.17
- Gateway Monthly Fee = 10 running total= 14.17
- Statement Fee = 10 running total= 24.17
- Discount Fee (100 transactions times $10/trans times .0218) = 21.80 running total= 45.97
- Transaction Fee (100 transactions times .39) = 39 running total = 84.97
- Total for one month = $84.97
Yes, the setup fee is paid up front, but dividing it out for a month helps in calculating your business budget.
I have looked and looked and have not found a decent online merchant account fee calculator. Most do not allow for all the potential fees that one needs to calculate. In order to comparison shop, you will have to open up a spreadsheet and create your own formulas and such. When you do shop around follow my methodology above with other merchant account providers. Plug in different numbers for volume and average cost per widget (those two figures can substantially change whether a particular merchant account is right for you).
You may be thinking that $85 dollars is a big chunk out of only $1000 of revenue. Pretty much figure that if you accept credit card payments that it will cost you about 8.5% of your credit card revenue. This precentage lowers if your volume increases. However keep a few things in mind. Would you have this revenue if you did not accept credit cards? You will find that you will sell more widgets if you accept credit cards with a bona fide merchant account.
Check out Electronic Transfer first. Then check out your local bank and a few other places. Do your own comparison shopping. Calculate ALL the fees associated with the account. I believe you will find Electronic Transfer provides a competitive small business merchant account.
