Sunday, June 24, 2012

eCommerce Merchant Account Rates

ECommerce merchants pay higher processing rates than their retail counterparts. The reason is that card-not-present transactions are more likely to generate customer disputes than card-present ones. Customer disputes, especially if not addressed properly, often lead to chargebacks, which are costly for both the merchant and its payment processing provider. So the premium that card-not-present transactions are charged pays the insurance against possible chargebacks. Following is a list of the components of the eCommerce merchant account processing costs and what we think is a reasonable rate for each one of them:
  • Discount rate. Rates for web merchant accounts have fallen substantially over the last few years and you should not be charged more than 2.19% for credit cards and 1.98% for debit cards for consumer types of cards. You should keep in mind that commercial, business, rewards and some other types of cards are charged at a significantly different interchange rate which, as its main component, directly affects the discount rate that you will be offered. When evaluating a pricing proposal, you should be aware of the pricing structure that your prospective merchant account processor is using. There are several types, most of which will give you a flat rate, in one form or another, for all types of credit and debit cards. The problem with these models is that, in order to make money on all transactions, merchant processing banks have to provide a rate that is higher than the highest possible interchange that you are likely to incur. Your best option would probably be the pass-through pricing model which adds your merchant account provider's payment processing costs to the interchange fees, thus ensuring that no transaction is overcharged.
  • Transaction fee. Online merchant account users should not pay more than $0.25 per transaction.
  • Application and set up fees. You should not pay any set up or application fees!
  • Payment gateway fee. Payment processing gateway is the service that will connect your website's shopping cart with your processing bank and will transmit payment information between them. It should be set up for free and the monthly gateway fee should not exceed $15.
  • Monthly statement fee. A bank fee that every merchant services provider will charge you. You should not agree to anything higher than $10.
  • Support fee. Another monthly fee. You should not pay any such fees.
Make sure to carefully examine the fine print in the merchant processing agreement before signing it and make sure your payment processor does not hide anything from you.

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