E-Commerce payment processors
Types of Merchant Accounts
The Merchant Service Providers term MSP refers to banks, Independent Sales Organisations, or other institutions that offer financial transaction processing, usually related to credit card sales. Many MSPs provide merchant accounts; others require customers to establish them independently.
Banks
When you're ready to open a merchant account, the best place to start is with your local bank. If your business is less than 2 years old, you still should be able to establish a merchant account, provided you have a history, either business or personal, with that institution.
Generally, banks are viewed as the most secure and reliable option, but they also are more selective. Their rules often require that they limit the number of merchant accounts given to high-risk businesses. Since e-commerce businesses are generally considered high-risk by the card associations and by banks, some banks do not offer Internet merchant accounts. If they do, they may charge higher fees. Shop around to give yourself some leveraging power. If you locate lower fees elsewhere and present the discovery to your bank, your bank might agree to lower its charges just to keep your business.
Banks tend to shut down merchant accounts as a result of chargebacks without first working with the merchant to reduce the chargebacks. ISOs usually will offer advice and customer support to the merchant before they terminate an account.
Independent Sales Organisations
Most Independent Sales Organisations (ISOs) offer merchant accounts and the ability to process online credit card transactions in exchange for a transaction fee and a percentage of sales. Unlike banks, ISOs are generally more tolerant of high-risk accounts because they are not monitored or as tightly regulated. In fact, much of their business comes from companies that cannot obtain merchant accounts from banks directly.
Some ISOs are very reputable; some are not. Be especially wary of ISOs that do not require you to open a merchant account. This may be a sign of factoring - also known as laundering - in which you process your orders through a merchant account in the ISO's name rather than your own, usually for an exorbitant fee.
Look out for suspicious rates. Complaints regarding ISO practices are on the rise. Some ISOs advertise extremely low discount rates in order to get your business then tack on undisclosed fees or increase rates without warning. Be wary when you see very low rates. If something looks too good to be true, it probably is!
Check for a seal of approval. Look for sites that carry the Better Business Bureau Reliability Seal. ISOs must meet specific standards to use this seal. While sites that don't carry it aren't necessarily fraudulent, its presence can be a good way to determine whether a company is legitimate.
Credit Card Processors
These companies are responsible for processing the credit card transactions - verifying, approving then transferring funds securely from one bank to another. They are not considered Merchant Account Providers per se, as they do not provide merchant accounts. Instead, they form relationships with banks and ISOs to integrate payment processing with merchant accounts.
Pitfalls - The Reserve
One of the most important points to cover is the reserve. The reserve is a fee which the processor will keep back as 'insurance' against chargebacks and other problems. You will either have to pay the reserve (similar to a deposit) directly, or you will have a share of your transactions taken, on top of your commission.
Remember to ask your potential provider how they deal with the reserve issue. It's important to ask, since after taking their commission, their reserve, and possibly their international handling charges as well as their monthly processing fee, you may end up with only 50% of every transaction! It's important that you get all the facts and know what to expect. This can then help you price your goods and services more reasonably.
You may also find that if you take in more sales than you expected for the first few months after becoming a merchant, the bank may want to keep back some of your funds, so be optimistic about your projected income, and try to discover what you and your processor can do in varying scenarios, from good to bad.
