Free merchant account FAQ part 1

Note: This is a transcript of my recorded interview with a potential merchant (let's call him.. George) who doesn't know anything about making money off the world wide web. Part 2 will follow. Soon. -> baileyboy

George: What's a free merchant account?
A free merchant account allows merchants to provide a host of payment processing services to their customers, which includes credit card processing, check processing, EBT transfer, B2B services, etc. Most start up companies, or businesses in the field of high risk avail of a free merchant account or offshore merchant account.

G: Is it really free?
B: Hey, remember your family? Yes. You have to feed them right? Well the people behind those merchant accounts have mouths to feed too - & where will they get their money? From the services they provide. So it's not really free. HOWEVER, most free merchant account providers throw in freebies like free terminals, free setup, free application fees.

G: So... it's not free. What kinds of fees will I encounter if I avail of a free merchant account?

B: Are you sure you're recording this? It's not gonna be short. Okay, let's start with...
  • One time fees - includes set up as well as application fees
  • Recurring monthly fees (statement fees)
    • Statement fees - a fee you pay for a report of all your transactions for the month
  • Transaction related fees(discount rate, per transaction fees, or total orders fees)
    • Discount rate - Normally 3% of the transaction charged to merchants by the credit card processor

Other fees:

  • Chargeback Fee - the amount you pay if your customer disputes the charge
  • Return Fee - the amount you pay if a charge gets rejected
  • Reserve fee - in case of fraud, merchant account providers hold a percentage of your funds for chargebacks or possible returns. Reasonable rate would be 5-10%.

You got all that mate? brilliant.

G: That was a pretty long list...
B: I told you it was...

G: How long does it take to get approved for an Internet merchant account?
B: If your chosen free merchant account is indeed fast, you can process transactions after 24 hours.

G: Aside from payments online, can I also accept payments over the phone?
B: Absolutely! These transactions fall under "card not present" transactions. These kinds of transactions require an Internet merchant account. You'll be given a wireless terminal or you can input information onto a computer using your free merchant account software.

G: Let's talk security. How do free merchant account providers maintain security of transactions?
B: Aside from SSL (secure sockets layer), free merchant account providers also use:
  • Fraud detection suite
  • Address verification service(AVS)
  • Internet Authentication Protocol
  • PCI & CISP certifications

Most free merchant account providers work with payment gateways in order to safeguard transactions. These services will cost you additional dollars, but it's better to fight fraud than be a victim of it.

G: I keep hearing about shopping carts. What's a shopping cart?

B: Just like shopping carts you see in grocery stores - assuming you've been in one at least once in your life - an online shopping cart allows a customer to browse, choose & decide what items to buy. It's a software integrated to online stores for secure & easier shopping.

G: Are all shopping carts compatible with internet merchant accounts?
B: Some shopping carts work with certain payment gateways & certain Internet merchant accounts ONLY. Choose carefully from amongst the shopping carts available & make sure it's compatible with both your payment gateway & merchant account.

G: You've been saying payment gateway, but I still don't know what it is!
B: Hold your horses. The payment gateway secures the transfer of credit card funds of your customers from your online store to your merchant account. It's usually a software combined with hardware that acts like a middle man.
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