Accepting Credit Cards 2

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Reprinted with permission from Janet Attard* Copyright 2004. All rights reserved.
     
Why do banks object to giving legitimate Internet and mail order businesses merchant status?

Mail order businesses are particularly risky from the credit card processor's point of view because the company selling the merchandise never sees the customer, does not get the customer's signature at the time of the sale, and has no way of determining for sure that the person calling in the order is actually the owner of the card.

Are there any other circumstances that might prevent me from getting merchant status?

Credit card processors are not going to want to give you merchant status if you have a bankruptcy on your records, tax liens in effect, or accounts that have been written off by a lender.

I've heard stories about business owners paying steep applications and other fees and sometimes still not getting merchant status. Does that happen a lot?

It used to. Several years ago Dennis Mulgannon opened a pizzeria in California and wanted to accept credit cards. His bank turned him down for a merchant account because his business was too new. But then one day, he relates, "this guy came into the store and asks to see the owner. He says he can get me not only merchant status but also an electronic reader and printer.

"Well, I saw the clouds part, and heard the Mormon Tabernacle choir singing the Hallelujah Chorus. But it must have been just a recording. . . $300 and four weeks later I was 'regretfully informed' that I'd need to reapply after I had been in business longer."

Today, businesses find it much easier to get their applications accepted, but that doesn't mean the abusive practices have stopped completely. Small start-ups with limited knowledge of retailing and the merchant card industry are easy prey for sales agents and service providers that charge high fees and/or lock the new merchant into noncancellable equipment leases.

How much should I expect to pay to apply for merchant status?

Application fees and setup fees vary considerably. Some merchant account providers charge little or no application fee; some charge a setup fee that includes software for online processing; some charge separately for software. A recent comparison of two competing merchant providers showed on was charging $200 to set up a new merchant account and provide software for a particular payment gateway system. Their competitor charged only $39 for the set up and software for the same payment gateway system. recently showed variations from If the service provider you plan to submit your application to charges a fee, ask if it's refundable if you are not accepted. Or, ask to have the fee waived.

How much should it cost to buy or rent the terminals to process the cards?

Fees vary with the type of terminal, but average prices for up-front purchase of electronic terminals or software used to process credit card purchases range from $200 to approximately $800. (Mobile equipment is higher.) Some of the terminals include a printer, others require you to purchase a separate printer that is about the same price as the terminal.

Terminals and software can also be leased, but the leases are noncancellable and can quadruple your cost. A terminal that cost $500 to purchase outright would typically be leased at $40 a month for 48 months, for a total of $1,920. If the business wanted to keep the equipment at that time, they'd have to pay an additional sum to buyout the equipment at the end of the lease term.

One woman who had gotten a referral from her banker to an ISO (independent sales organization) was talked into leasing a terminal. After signing the lease she discovered she could have purchased the terminal for $385. She wanted out of the lease, but the lease was noncancellable.

"They told me I could send the machine back with a check for $1,725 or keep it and send them a check for $1,913.94," she says.

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