Comparing Merchant Services January 9, 2008

In order to properly compare merchant service providers, you need to know exactly which services you need. Here are some possibilities:

Merchant account: a place to put the credit card money you earn until it is approved and transfered to your bank. If you accept credit cards at all, you need this. There’s a link to a great diagram of this process in the previous merchant services post.

Virtual terminal: a web site where you key in credit card info your customers provide to you by phone, mail, or in person using a credit card imprinter and carbon receipt. If you don’t need to process your customers’ cards right away, either in person or online, this is a good option for you.

MOTO processing: “Mail order/Telephone order” processing is like a virtual terminal, but you dial in the information on a telephone rather than enter it online. Very often you can use a cell phone for this to get instant approval, though it may cost you extra.

Payment gateway: software that allows customers to enter their credit card info directly on your web site. Using a gateway requires a shopping cart as well.

P.O.S. processing: “Point of Sale” processing requires a swipe-able terminal (usually costs extra to rent or buy) that processes credit cards instantly. This is what you would use if you had your own brick-and-mortar store. It requires its own phone or wireless connection to operate but your per-transaction fees will be a lot lower than if you process cards later using a virtual terminal or MOTO processing.

Shopping cart: software that allows people to find, choose and submit products to order. This, on its own, cannot process payments.

SSL certificate: “Secure Socket Layer” protection for your web site. Puts a protective shield around your web site so people cannot see your customers’ sensitive information as it is transmitted. Some payment gateways come with SSL protection included.

If you only sell things occasionally online (through Etsy, for example), you should go with a service like Paypal or 2Checkout’s standard services. These are all-in-one solutions that include a merchant account and shopping cart wrapped up neatly in one package. The pros of using an all-in-one processor are that they are simple to set up and charge no monthly fees (I heard a rumor that Paypal charges smaller fees if your products cost less than $5 apiece, but I can’t find confirmation). The cons are that they take a bigger percentage of each sale than most other merchant service providers, and your customers have to pay on a Paypal or 2CO web page; they cannot use Paypal or 2CO’s gateways to pay directly on your web site. I currently use Paypal with a Mal’s free shopping cart for my online retail orders. For whatever reason, some people are uncomfortable with using Paypal to pay online (even though you don’t need a Paypal account to use it) and I lose about 10% of my business as a result. So far, the amount I lose in sales is still less than the cost of using a different merchant service provider.

If you mainly sell things at craft fairs, through the mail, and/or on the phone, and you do less than $3,000 in business per month, you would want to go with MOTO processing or something like Propay. Propay provides you with a merchant account and a virtual terminal. Their annual fees are significantly less than most other companies’, but they don’t provide a payment gateway. You have to buy Paypal’s Payflow gateway to sell things online.

Now that I’m starting to sell wholesale, I need to be able sell products directly through my web site, to take credit card orders at trade shows, and to allow people to order by phone or by mail. I therefore need a merchant account, a payment gateway, a shopping cart, SSL protection and a virtual terminal. My wholesale customers always receive their products shipped at a later date, so if a transaction is denied, we can resolve it before any goods arrive. I therefore don’t need any form of instant processing, either through a P.O.S. terminal or a cell phone.

The shopping cart I’m using for my wholesale site is Zen Cart. It’s free, open source software, which means there are a lot of online forums and documents, but no nifty 800-number you can call for support. It’s complicated as hell for a programming novice, and I’ve seen a lot of Zen Cart sites that look exactly the same because it’s too hard to figure out how to customize. Luckily, I have a fiance who’s pretty good at this stuff, so so far it’s working out for me.

For all the other stuff, including a full breakdown of the types of fees you can expect, I’ve made a nice little chart in Microsoft Excel for you. In it, I have compared the four different merchant service providers who gave me a knowledgeable person to talk to and could provide me with competitive rates for all the services I need. I didn’t include any P.O.S. info (sorry, don’t need it for my own business), but it’s all equation-based, so you can change around the sales numbers in lines 2-11 to see how the costs go up or down. You can also copy and paste any column and put in numbers for other service providers you research yourself. The formulas should remain intact.

Right-click (or control-click on a Mac) on this link and save the file to your computer. You can then open it in any spreadsheet program you’ve got. Hope this helps those of you out there who don’t know your POS from your MOTO.