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Accepting Credit Cards The Sensible Way by Walter Boyd © Copyright 1999-2002 All rights reserved...
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Accept Credit Cards But Avoid The Ripoff
If you have been online for very long, you've no doubt received plenty of spam advising you of the necessity of accepting credit cards in your business. This so called "merchant account status" is big business to those who cater to the home office and mail order markets. And well it should be. But before you respond to one of those ubiquitous ads or pieces of spam email, consider the following narrative very carefully. It may save you hundreds of dollars, perhaps much more!
The credit card service processors make a compelling case for the necessity of accepting credit cards in your business, particularly if it is operated online or is a mail order business. There is no doubt that credit card transactions are currently the preferred medium of payment on the World Wide Web. Because so many individuals and businesses have and use credit cards, they should indeed be the preferred medium. Online card transactions are also comparatively secure in spite of occasional press sensationalism to the contrary. It would be much easier to have your card number and pertinent data stolen from a vendor's trash can than to have it pilfered by someone intercepting your email!
So what's the problem then? Card service companies are plentiful. Approval is relatively easy except in cases of very poor credit or extremely risky business categories. Software is easy to set up, operate, and makes it easy to preserve transaction records. PLUS, your credibility as a business person is evaluated to some degree by the fact that you either accept cards or you don't. So there's really no problem. At least there isn't if you don't mind paying TEN to FIFTEEN times as much as the services should really cost!
Product Pricing
I still recall vividly the shock I felt in 1994 when I responded to an ad on CompuServe. The ad promised Merchant Account Status for an unheard of low price - $800 for the software plus a $125 application fee and change... I knew there had to be a better way! The sad fact is that even today the price remains unreasonably high. For example, I recently reviewed the web sites of some of the major vendors. One was offering the following deal: (All of these offers are for VISA/Master Card only; AMEX and Discover are usually also available, however)
$125.00 Application Fee
$995.00 Purchase Price of Card Processing Software
$1437.60 for a 48 Month Lease for the Same Software Package
$12.00 Monthly Statement Fee
$00.20 Transaction Fee plus 2.40% of Each Sale
Another offered this package:
NO Application fee
$1295.00 Cash Price for Software
$1917.60 for the Same Software on a 48 Month Lease
$20.00 Monthly Statement Fee
$00.35 Transaction Fee plus 2.25% of Each Sale
Yet a third service company tendered the following:
$75.00 Application Fee
$2877.60 for a 48 Month Lease ($59.95 per month)
$10.00 Monthly Statement Fee
$00.15 Transaction Fee plus 2.20% of Each Sale
Finally one that was almost reasonable:
NO Application Fee
Short Term Lease Only - No Software Purchase Available
$816.00 Software Lease for 24 Months ($34.00 per month)
$00.20 Transaction Fee plus 2.40% of Each Sale ...
NOTE 1: electronic terminals can be purchased in lieu of software if you will have physical possession of the cards...
NOTE 2: the leases must be paid in full even if you go out of business!!!
Market Rationale
By now you must be wondering how a simple piece of software (or electronic terminal) can be so expensive. So did I! The reality is that it's not - not at all. Apparently the Law of Supply & Demand thinks otherwise, however. I say this because lots of small and home businesses are signing on at these prices! Why? There are several potential reasons to explore.
(1) the advertising in the print media, email, and on web pages is powerful and seductive
(2) new merchants realize that accepting cards gives them instant credibility
(3) accepting cards permits impulse purchases
(4) many virtual domain hosts have relationships with certain vendors which steer customers toward those same vendors.
That said, perhaps the fact that so many small businesses sprang up on the original online services and the world wide web has made us web-centric. We prefer to do business online, even to the extent we do not always find the best deal here. Many new cyber-businesses are not actually begun by experienced business people anyway. Otherwise, different avenues would be more thoroughly explored just as they are offline. Let me explain...
The Alternative
When I saw that first ad on CompuServe, there was no way I could have justified spending a thousand dollars for a startup consulting business just so I could accept credit cards. But I also understood what accepting that ubiquitous piece of plastic bread could do for my bottom line! Although I was just as enamored of the online life as the rest of us, I also had the benefit of a career in banking and credit during my early years of employment. So...
Understanding the system makes it so much easier. I called my local commercial bank and set up an appointment with the officer in charge of merchant services. She asked me to bring a copy of my business plan and advised me to include revenue projections. BUSINESS PLAN??? Yes, business plan. Well, I had the plan in my head and had for many years already, but I'd not committed anything to paper(yet).
Anyway, I had several references to fall back on for writing a business plan. The one I finally chose was nothing more than a very well-written report about writing business plans that I had purchased sometime earlier. As with so many projects, the desire had been there but had gone unfulfilled. Once put into action, however, the business plan template worked very well indeed. The bank even complimented me on how well the plan was put together! I will be happy to send you the ASCII(txt)version at no charge. Or you can peruse the very same plan at
--->>> http://www.CyberValue.com/archives.html <<<---
and copy it if you'd like. There are many other helpful and informative free articles there too.
You can also purchase business plan software for around $75.00 to $100.00 from several different software companies. "But WHY?" as William Shatner asks in his rather clever Web TV commercial.
There was no application fee. The cost of the batch processing software was a paltry $75.00! It's the same product advertised online that I described earlier. The statement fee was $7.00 per month along with the 2.40 percent of each sale. A word of caution - some banks and card service companies will raise the percentage to as much as seven (7) percent for what they consider to be very high risk businesses. Some also ask for more if the "average" transaction dollar amount is very small. Some vendors make up or down adjustments to rates depending on monthly volume too. When completing your business plan, estimate sales on the high side if at all appropriate. Keep in mind that when dealing with your bank, you can negotiate for smaller percentages and fees once you have established your business and demonstrated that your business is not a high risk venture.
NEGOTIATE??? Yes, your friendly neighborhood FDIC insured commercial bank wants your business. The amount of money they have on deposit at any given time determines how much the fed allows them to loan to their customers. Each time your customer makes a purchase, the amount of the transaction is deposited into your business checking account. As your revenues increase, ask for a better price break on card services! Chances are you'll get one!
Be mindful of the fact that you can also deal with the bank that processes your own -personal- VISA or Master Card transactions! If you maintain an excellent payment record, ask for a reduced finance charge amount.
The more business you create for your bank, the more flexible it will be in its dealings with you. Credit cards aside, establishing a good relationship with your local bank can pay huge dividends! It simply makes sense to do business there whenever it is feasible! As your operation grows and prospers, you may need many of your bank's other services.
You have seen enough of the online vendors' ads to know that they inform you very quickly that you need them because your bank does not want to service your account. After all, you're new, small, online, and green! Not any more, however. I have gone through the process twice in the past few years. The first bank welcomed me. The second needed a little convincing before committing. I explained about secure sites, encryption, and the fact it is more dangerous to use a credit card at a physical storefront than to use one online. The clincher: I asked the banker to name two reliable computer related firms. She named Dell and IBM. I suggested she go to their sites, explore the secure areas, go through the process of placing an order, and then try the same thing at one of our sites. The little padlock did the trick! Security clicked!
In the event you should encounter a bank which is still doing business in the last century, I'll be happy to talk with them, explain modern e-commerce, and walk them through the process. There is no charge for this service, of course. If that does not work, I'll refer you to someone online who will almost be competitive with your local bank.
You know you must accept cards in order to compete. So call your bank's commercial services officer and ask what you should bring with you to the interview. Prepare your documentation thoroughly. Make the appointment. Go for it. You have nothing to lose and so much to gain!
A couple final notes: there are many possible software combinations out there. Real time processing is great but you may have to pay an extra fee (and possibly additional programming costs)if you go that route. There are many variables here. They depend mainly on your e-commerce host. Keep this in mind - Windows and Mac batch processing software is dependable, inexpensive when purchased through a bank, and an excellent record keeper. Unless you are offering immediate customer fulfillment such as on the spot software downloading, batch processing is probably the way to go, especially at first.
It works like this. Your customer places the order on your secure site. Your server sends your customer and YOU an immediate email confirmation detailing the order (minus credit card data) and the customary procedures that will be followed to get the product or service into his or her hands. You process the order by picking up the credit card details from your secure server, send the credit card information using your secure batch processing software, and ship the product to your customer once the card has been verified and approved! Clean, fast, inexpensive, and simple! Batch software handles VISA, Master Card, American Express, Diners' Club, Carte Blanche, Discover, and more. You are not required to accept any of the other cards, but if you wish to do so, you can handle the transaction directly with them individually right at their web sites! American Express customers tend to spend more often and in larger amounts than VISA or Master Card members. They also tend to be more willing to spend online. American Express has invested huge sums in promoting e-commerce and making it safe, simple, and fast for its customers to use its online services.
SAVE BIG! Try your local bank first! Build a working relationship. Prosper! Email any questions to Cards@sohostore.com ...
© 2002 All rights reserved... You may NOT copy or distribute this e-booklet without the express written consent of the author.
Edited & Distributed by the Staff of Computer Expertise Ltd.