How Merchant Accounts Can Save You Money


We all know that accepting credit cards is the key to online sales. Unfortunately, most merchants are unaware that acquiring a merchant account can actually save them money. And in many cases, big money!

For this experiment, we will use a fictional character named Bill. Bill owns and operates a great online resources for marketing tools and resources. Bills website is a membership based website, and therefore could potentially be approved for both third party processing and an internet merchant account. Bill starts off processing his business with a popular third party processor who offers him the following plan:

Start Up Fee - None

Monthly Fee - None

Transaction Fees - 13.5% (Initial or One Time), 15.0% (Recurring)

Bills sets up his business with this popular third party processor and charges $30 per month. He has built an extensive reciprocal link exchange directory, has purchased some PPC advertising on a few of the best search engines, and has reached a excellent spot in the content based search listings for the top 5 search engines. His customer base has grown from zero before accepting credit cards, to 150 members, is just one month. Bill can't believe his success at internet marketing, and is planning on building even more web based resources and tools for his website, thus increasing the value and content. He is ecstatic at the initial results, so let's take a look at Bills numbers:

$30 (Per Membership Sold) x 150 (Memberships Sold) = $4,500.00

$4,500 x 13.5% (Initial or One Time Transactions) - $ 607.50

$4,500.00 (In total sales)

- 607.50 (Total fees)

= $3,892.50 (Net profit after all processing fees have been deducted)

Ok. Well Bill certainly had an excellent first month accepting credit cards with his new business venture. But let's see how Bill would have made out if he would have secured an internet merchant account for his new business:

Start Up Fee None

Monthly Fee $15.00

Discount Rate 2.35% (Initial, One Time or Recurring)

Per Trans Fee .30 cents

Gateway Mo. Fee $15.00

AVS Fees .10 cents

Now the first thing we see is that the merchant account company is showing us more fees. This may be disheartening at first sight, but we should really explore what these fees are, and how they affect our bottom line.

Start Up Fee: This remains the same. Bill paid zero to get setup with his new merchant account, just as he paid zero to get setup with the third party processing account.

Monthly Fee: The third party processor offered us no monthly fees, yet we must pay $15.00 with the merchant account company.

Discount Rate: The merchant account has labeled one of their fees as "discount rate." These fees are the fees Bill will pay as a percentage of each transaction. They are similar to the main fee charged by the third party processor. This fee when charged by the merchant account company is substantially smaller than the high percentage charged by the third party processor. But we will wait till the end of this experiment to see who offers the better comprehensive deal.

Per Trans Fee: The merchant account company charges Bill .30 per transaction he processes through his merchant account. Of course, we have already established that Bill will pay no per transaction fees with the package he received from the third party processor.

Gateway Monthly Fee: Because Bill will also need an internet payment gateway for his merchant account to work online with his website, he will also be paying $15.00 a month for his Gateway Monthly Fee.

AVS Fees: The AVS fee stands for Address Verification Service. Bill will want to use this service, to help reduce potential fraud, and customer chargebacks to his merchant account. He will now pay an additional per transaction fee of .10 per transaction.

Let's see the numbers behind processing with a merchant account as opposed to a third party processor:

$30 (Per Membership Sold) x 150 (Memberships Sold) = $4,500.00

$15.00 (Merchant Account Monthly Fee) - $15.00

$15.00 Gateway Monthly Fee) - $15.00

2.35% (Discount Rate) x $4,500.00 - $105.75

30 cents (Per Trans Fee) x 150 (Memberships Sold) - $45.00

10 cents (AVS Fees) x 150 (Memberships Sold) - $15.00

Total Fees (With Merchant Account) = $195.75

$4,500.00 (In total sales)

- 195.75 (Total fees)

= $4,304.25 (Net profit after all processing fees have been deducted)

With the merchant account, Bill was able to keep substantially more of his sales for himself, as profit. Bill could use these extra resources to advertise more, expand his operation, and even hire someone to work for him, even if only on a part time basis. The point is that that the better deal in credit card processing is always with a merchant account as opposed to using a third party processor.

Most third party processors leverage the high levels of risk and chargebacks they must face everyday, by charging enormous fees and rates to their entire customer base. Third party processors are synonymous with Adult related websites. This is the reason for their increased exposure to risk. They must charge high rates to overcome the losses they are subject to by processing for a category of merchants that, unfortunate as it may be for them, falls into a certain level of risk and fraud that most other merchants do not. Because the merchant account company restricts its clientele to only companies with non adult related content, they are able to offer an entrepreneur like Bill, selling online content through his membership based marketing website, a much better deal in credit card processing.

$4,304.25 (Net Profit with Merchant Account)

- 3,892.50 (Net Profit with Third Party Processing)

= $411.75 (Total Savings with Merchant Account)

This experiment has shown that the average website owner can save substantially by choosing wisely when it comes to their credit card processing solution. We have proved that most any entrepreneur can and will save substantial amounts of money by using a merchant account for their online credit card processing, as opposed to processing with a third party processor. In our little test, Bill saved $411.75, and that was just in the first month alone.

Remember, that the third party processor will charge more, 15.0% to be exact, per transaction, once the customer is charged on a recurring basis. This means that for the second month, Bill would have paid even more to his third party processor; $675.00 to be exact! And that is just on the first months returning 150 customers. Every time Bill has a recurring payment processed through his third party processing account, he would be subject to a 15.0% transaction fee on all those sales. Not a very thrifty choice for credit card processing.

As with any business decision, be smart. Compare rates and plans, and make sure the "simple" setup is really worth the cost. In most cases, your Merchant Service Provider can setup your merchant account in as little as 24 hours. This is faster than your third party processor, and adds even more value to the otherwise already vastly superior deal you are receiving with your very own merchant account.

Make the decision that is best for your business, and best of luck! Please visit Josh Greth at CardStreet.com.

Copyright 2003 Josh Greth. All rights reserved.

About The Author

Josh Greth draws upon his 20+ years of Credit Card Processing/Executive experience in the field of Merchant Services.


More Resources

Unable to open RSS Feed $XMLfilename with error HTTP ERROR: 404, exiting

More E-Commerce Information:

Related Articles

Tell Them Whats in The Can!
What does 'the can' mean? Well, its literal meaning relates to canned goods on supermarket shelves. If your can is up there among thousands of others, the label had better state pretty clearly exactly what's in the can.
Why Ecommerce is Not Ready for My Daughter or Me
As the mother of a teenage clothing fanatic I'm often at my local mall. It occurred to me that the shopping experience for my daughter is attractive to her not because she wants to spend my money, but because the experience of buying itself is so rich to the senses.
Intranet Portals - Search and Taxonomies
Knowledge Management for beginnersKnowledge Management (KM) can be defined simply as the process through which organizations generate value from their intellectual and knowledge-based assets. Knowledge assets are often grouped into two categories:(1) Explicit KnowledgeGenerally, everything and anything that can be documented, archived and codified.
Shop: Is Shopping Online Secure?
Is shopping online becoming popular and safe enough for you and I to do the vast majority of our shopping on the Internet?As I contemplated, when I initially set up my website: www.shopshopshop.
Simple Steps to Start a Profitable Member Only, Subscription Web Site
Having a successful member only, paid membership site is one of the best ways to make money online. A successful membership site can give you the steady income of a CEO ?.
Is Your Business Afraid of the Internet?
My Business is Afraid of the InternetBill Gates, CEO of Microsoft, once said that there would soon be two types of businesses, those online, and those out of business. Those words still ring true today, and many small businesses are missing a huge boat by not getting online.
E-commerce: Is It Right for You?
The birth of the Internet and the mass availability of personal Computers in the late 80's changed peoples life forever, Everyone now has had the potential to be their own boss whether you are mother at home looking after your children or a manual laborer there are opportunities in abundance . Just a search on Google for business opportunities will bring up more offers than your parents would have had in their whole life.
Shopping Online: What You Should Know
For some people, shopping online is as normal as driving a car. It's become part of the norm.
Stakeholder Analysis and Stakeholder Management
What is a Stakeholder?Try "define: Stakeholder" in Google and you will be surprised by the huge differences in the way this simple word is defined. It perhaps proves - in a way - just how confused people get about Stakeholder Management and how inconsistent the different approaches to it can be!My simple definition is "anyone affected by a decision and interested in its outcome".
E-marketplaces from Sellers Perspective
What is an E-marketplace anyway?E-marketplace is a business to business web based venue, where buyers and sellers meet online, generate business leads and conduct business transactions. The e-marketplace features are tailored in a manner so that a large numbers of buyers and suppliers can be serviced as a community.
Keep Your Customers Happy by Organizing Your Payment Options
Anyone using a slow, or an awkward payment processor had better wake up!There are some very slick ways to transfer money around the globe, in todays, lightning fast world, both your customers and your suppliers demand payment in the click of a mouse.The processing companies have been fiercely competing with each other for years now, every so often, they revamp and recalibrate.
Choosing An Internet Merchant Account
Surf to Google and perform a search on "Internet Merchant Account". The results are staggering (472,000 results!) If you have created a web based business and need to accept credit card payments, your choices are limitless.
Two Pillars of a Successful Web Site
For a web site to get close to fulfilling its potential, you need absolute clarity on two points. First, achieve clarity on what your site's core purpose is Is to provide information? Is it to complete direct sales? Is it to drive prospects to pick up the phone and call you? Is it to start a free trial? To register? The more companies I work with, especially larger ones, the more apparent it becomes to me that very few sites have absolute clarity of purpose.
Direct Marketing isn't all Brute Force
There are so many metrics surrounding direct marketing. So many facts, figures, test results and other sundry measurements.
Leveraging Open Source Technology
Open Source applications can bring unique value to business owners. Since the base application development costs of open source applications is free, small and medium business owners are able to leverage previously unobtainable technolgies against their sales objectives, operational costs and customer satisfaction levels.
How Do You Make Money Online?
If you learn how other people make money online, I mean really study how it's done and ask a lot of questions, there is no reason in the world you cannot make money on the internet as well.How do people make money with websites? There are literally tens of thousands of things people make money on from the net.
Accept Credit Cards Online Without A Merchant Account
It is often assumed if you want to accept creditcards on your website that you must have a merchantaccount. This is not the case.
Starting An E-Commerce Business
The development and expansion of the Internet has made business opportunities, once only available to the wealthy, available to nearly everyone. In the past, opening a business was a huge commitment in terms of finances and risk.
Grow your Business with Emarketplace - Part III
Increase Company ProductivityAfter years of hard work, finally your business started to pick up. You are selling more products then ever! You have lined up a good number of suppliers and buyers.
Accepting Credit Card Payments Online
Being able to accept credit cards and other online payments is crucial to the success of your business and profits. Your customers are more likely to buy from you if you offer them a secure and convenient way to order goods and services online at your site.