| Q: I'm opening a gift shop and want to be able to | | | | each credit card company whose card you want to |
| accept credit cards. I talked to the branch manager at | | | | accept. To do business with American Express and |
| my bank, but he didn't seem to know much about how | | | | Discover all you have to do is fill out an application, but |
| it all worked. He did say that I would need something | | | | to accept Visa and MasterCard you must have a |
| called "a merchant account" and something else called | | | | merchant account. A merchant account is a special |
| "a credit card processor." Beyond that he seemed as | | | | bank account set up for the expressed purpose of |
| clueless as I am. I'm thinking about going to another | | | | accepting credit card payments processed by the |
| bank. Can you explain how that all works? | | | | gateway company. Merchant accounts are usually |
| -- Mary Ann G. | | | | associated with banks, though you can also use credit |
| A: Maryann, I'm going to give your banker the benefit | | | | card merchant account service companies to perform |
| of the doubt and say that a lack of knowledge | | | | the same function if you can not get approved for a |
| regarding the specifics of credit card processing is not | | | | bank merchant account. |
| necessarily a reflection of the banker's competence. I | | | | Applying for a merchant account at a bank is much |
| have found over the years that most bankers, no | | | | the same as applying for a loan. The only difference is |
| matter how experienced or knowledgeable about the | | | | sometimes a loan is easier to get. There is the |
| banking business they my be, don't really know much | | | | prerequisite paperwork to complete and pledging of |
| about how credit card processing and acceptance | | | | the first born, followed by an approval process that |
| really works. That's because the task of accepting and | | | | can take up to several weeks. And you are not |
| verifying credit card purchases is handled by third | | | | guaranteed that the bank will approve your merchant |
| party service companies who process and deposit (or | | | | account, even if you have been a favored customer |
| settle) the funds into a bank merchant account. | | | | for many years. Banks have strict regulations |
| The decision to accept credit cards is a wise one for | | | | regarding the granting of merchant accounts and if |
| any retailer. I agree with financial guru Dave Ramsey's | | | | issuing you a merchant account in anyway puts the |
| teachings regarding the use and abuse of credit cards. | | | | bank at risk of losing money, you will be turned down. |
| Many people dig deep holes with credit cards that are | | | | Banks always make decisions based on economics, |
| hard to climb out of. But, from a practical business point | | | | not relationships (no matter what your banker tells |
| of view, any retail business that does not accept credit | | | | you). |
| cards is leaving money on the table. Research has | | | | Requirements for qualifying for a merchant account |
| shown that accepting credit cards increases revenue | | | | varies among banks, but in general the bank will look at |
| and helps with cash flow since you receive the money | | | | the following criteria: |
| within a couple of days instead of waiting up to a | | | | How long have you been in business? Business |
| week for a check to clear. | | | | longevity suggests a history of stability, efficient |
| Credit cards don't bounce, as some checks have a | | | | management, and good financial health. |
| tendency to do. Credit card users are also more likely | | | | What is your product or service? Does your product |
| to buy on impulse and spend more when they do. Bad | | | | lend itself to a high rate of returns and chargebacks? |
| news for them, but good news for you. If you have a | | | | A chargeback is a disputed credit card charge that is |
| social conscience concerning the use of consumer | | | | refunded to the buyer and charged against your |
| credit cards, a retail operation probably isn't the | | | | account. You are accessed a chargeback fee that |
| business for you. | | | | can be as much as $20 per event. If your business |
| To accept credit cards at a brick and mortar location | | | | lends itself to high chargebacks, you will not get the |
| you typically need four things. The requirements may | | | | merchant account. |
| vary a little, but the following applies in most cases. | | | | How's your credit report? Banks always look at how |
| You will need: (1) A way to enter the customer's credit | | | | much you owe and how you pay your bills, so it's |
| card information into a verification and processing | | | | important to have good financial and trade references. |
| system. This can be done with a swipe terminal, point | | | | If you have a history of late payments or defaults to |
| of sale system, or by calling the credit card in by | | | | vendors, it will count against you. |
| phone; (2) A credit card gateway company to verify | | | | What is your anticipated volume of sales and average |
| the credit card's validity and process the payments; (3) | | | | transaction amount? The more money you make, the |
| A credit card merchant account in which the gateway | | | | more money the bank makes. If you anticipate just a |
| company will deposit payments made to you; and (4) | | | | few credit card charges per week it may not be |
| A business bank account into which the settled funds | | | | enough to justify the merchant account in the bank's |
| will ultimately be deposited for your use. | | | | eyes. |
| Here's how the process works. (1) You make a sale | | | | Is your business categorized as a "high risk merchant?" |
| and the customer pays by credit card. (2) Using a card | | | | High risk merchants are those with the highest |
| swipe machine or telephone, you contact what is | | | | instances of credit card fraud and chargebacks. High |
| known as a "gateway company" who takes the card | | | | risk merchants include many types of internet-based |
| information you submit and verifies that the card is | | | | businesses, telemarketers, travel and cruise |
| valid and the charge can be made against the card | | | | businesses, and membership clubs. Being a high risk |
| account. The gateway company returns an approval | | | | merchant dramatically decreases your chances of |
| code for the purchase. | | | | getting a merchant account with a bank. |
| With a swipe machine or point of sale terminal the | | | | Being a high risk merchant doesn't mean that you can't |
| verification process happens in a matter of seconds. If | | | | get a merchant account from somewhere else. |
| you're doing telephone verification it can take a couple | | | | Thanks to the growth of ecommerce in recent years |
| of minutes. You call the gateway company, give them | | | | there are a number of alternative companies that will |
| the credit card number and expiration date and they | | | | provide you with a merchant account, sometimes with |
| give you an approval code that you write on the credit | | | | more perks than a traditional account, but almost |
| card charge slip. Either way, the money is typically | | | | always with higher fees. |
| deposited in your merchant account within 24 to 48 | | | | Also, not all banks support internet merchant accounts. |
| hours (less fees, of course). | | | | If yours does not, shop around for one that does. |
| You'll also need to apply for merchant status with | | | | |