Businesses can't survive today without a merchant account. That's a fact. But, many businesses are paying way too much for those services. You might not even be aware of just how much you're losing to transactional costs. Here's how to assess whether it's time to make a switch.

The Four Players In The Merchant Game

You'd think that, because it's just you and the customer at the terminal, there are only two parties to a transaction. There are actually four: the merchant, the bank that the merchant uses to provide processing services, the bank that issued the card to the consumer, and the customer. At a very minimum, the credit issuer and the merchant provider (the one providing processing services to you) are making money on the transaction. If the customer and you are both on opposite ends of the same card issuer (i.e. Visa or Mastercard), then those companies profit from both you and your customer.

When a transaction is made, the merchant service provider fronts you the money until all services have been rendered and the chargeback period has expired. On the customer's end, the issuing bank lends the customer money so that he can shop with you. He will either pay off the balance within 30 days or pay interest on the card balance (the loan). You, as the merchant, present a risk to the acquiring bank because the customer may do a chargeback, in which case you're on the hook for the money spent by the customer.

Shop Around For Fees

Card payment (PD)Don't just accept the first merchant services offer you come across. Shop around for the lowest fee. You're getting about the same in terms of actual processing service anyway. Even still, the average fees in the industry are about 2.3 percent for Visa and Mastercard transactions, 3.5 percent for AMEX and Discover, with a $0.30 per transaction fee, a monthly service fee which can be as high as $20, and a minimum processing fee of up to $25 or $30 (sometimes more) per month. That means that, if you don't process a certain dollar amount, the merchant services provider charges you the minimum fee.

Companies, like Authorize.net tend to be pretty flexible and reasonable with these kinds of fees, but many offline or bank-oriented merchant services aren't.

Watch Out For Chargebacks

Chargebacks can kill your business. When a chargeback occurs, the credit card processor immediately seizes the funds in your merchant account associated with the transaction and sends you a dispute form so that you can state your case. Here's the kicker: usually, the customer has already received the products by the time the chargeback occurs, so you're out the full cost of the product, plus shipping.

That's why it's so important to focus on the customer experience and make sure that your customer is satisfied.

Make Sure You're PCI Compliant

PCI compliance used to be a lax requirement for all merchants in the past, but today card issuers are very serious about it. Failure to comply can cost you $100,000 per month in penalties. The PCI compliance is a series of security "challenges" you must meet in order to use the merchant services. It's a 120-question "survey," complete with a threat-test on your website. This process is repeated every single year.

Do yourself a favor and hire someone to do the compliance for you. It's worth every cent, and don't forget to do it – merchant providers and card issuers are taking this very seriously.

By Angela Williams

Angela embodies the entrepreneurial spirit, ever since she opened her first dog walking business in her neighborhood as a child. With years of experience and enthusiasm for success, she enjoys blogging about the ins and outs of small businesses in today's market.

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