Epic How-To: Setting Up Your Business to Accept Credit Cards February 20, 2010

I’ve written a few posts before about my own experience with accepting credit cards, but I’ve finally put all of info together in one place.  Enjoy!

When I first decided to start taking credit cards, it took me weeks to sort out the fees, the terminology and the parties involved, and even longer to feel secure that I was buying what I needed at a reasonable price.  To save you some of that hassle I’ve laid out the process below.

Step 1: Estimate whether your business can afford to accept credit cards.

For a small business, accepting Visa and Mastercard for in-person or phone/fax/mail sales will cost you around $25 a month, plus 3.5% of each transaction, often with a $20 monthly transaction fee minimum.  If you want to accept credit cards through your web site, add another $20 a month for a gateway, shopping cart, and/or SSL encryption (more on this later).

But how can you tell how much accepting credit cards will increase your sales?  Here are two commonly used rough estimates:

• you can estimate an increase of about 25% (I found this to be true for my own business).
• for in-person sales like those at craft fairs or brick-and mortar stores, you can estimate an increase rate about equal to your average sale.  In other words, if your average sale is $20, you can estimate about a 20% increase in sales from credit cards.

Here’s a quick example: if your monthly sales average $500 and your typical sale is $10, you can expect $50 more each month in sales (a 10% increase), but your processing fees will eat up nearly all of it, so it might make sense to wait a little longer before signing up to take credit cards.

Step 2: Know what you need.

Depending on your business, you may need some merchant services and not others.  It’s important to figure this out before you start searching for a “merchant service provider” so that you don’t end up paying for products you don’t use.

No matter what, you will need a merchant account.  A merchant account is basically an intermediate account between your bank and the customer’s card-issuing bank.  A merchant account is presided over by a merchant acquirer (usually another bank), who is responsible for finding out whether transactions have been accepted or declined. Here’s how it works:

The day of the sale…

1. Susie buys a handmade scarf from you for $50.  She hands you her Washington Mutual Visa card.  You swipe or imprint the card and she signs the receipt.
2. You send the information about the card and the transaction to your merchant acquirer.  You might type this in yourself on a phone or through a website, or it might get sent automatically if you swipe the card using a terminal.
3. The acquirer sends the info to Visa, and then Visa sends the info to Washington Mutual for verification.  If everything is cool (i.e. the card number is valid, Susie hasn’t exceeded her credit limit, etc.), Washington Mutual authorizes the transaction to Visa.
4. Visa tells your acquirer that everything is approved.  Your acquirer keeps a record of the authorization for later (called “batching”).

The next day…

1. Your acquirer takes the batch of all the approved credit card transactions you made that day and sends them back through Visa for payment.
2. Visa sends all of the transactions to the appropriate card-issuing banks, including Susie’s for $50 to Washington Mutual.  Washington Mutual pays Visa the $50, and Visa pays the acquirer.  The batch is now “settled.”
3. Once the acquirer gets paid, they put $50 minus their transaction fee into your merchant account.  Usually, the money is then transferred to your business’s checking or savings account the following day.

Now that you know how it works, it’s time to decide what you need.  You’ll need most basically to decide on your merchant account, equipment, and in some cases, your processing method.

The Merchant Account:

Lots of places offer merchant accounts, including banks, trade associations, and third-party companies.  Unfortunately, fee structures are not consistent from company to company, so it can be tough to comparison shop. Here are the most common charges to check on:

• One-time set-up fees
• Annual or monthly fees (often called “statement” or “reporting” fees)
• Per transaction fees
• Transfer fees (for transferring the money from your merchant account to your bank account)
• Monthly minimums
• Equipment fees (terminal lease, imprinter and name plate, etc.)
• Any other fees they haven’t told you about yet

You might have to do a bit of math to figure out the best combination of fees for your business.  If you have low monthly sales, for example (like if your business is part-time), your best bet is a merchant account with low monthly fees even if it means higher transaction fees.  If, on the other hand, you make a lot of small sales ($10 or less), you’ll want to look for a merchant account with percentage-only transaction fees (3.5%), rather than fees that take a percentage plus a fixed charge (3.0 % + $0.50).  Propay is a popular merchant account with small-volume businesses.

Equipment/processing method:

This is the device you use to collect your customer’s credit card info.  There are three common options:

“Knucklebuster” credit card imprinter:  This is the old-school sliding machine that physically rubs the credit card info onto a receipt.  You need to get the name plates for these directly from your merchant services provider.

Pros: portable, don’t require electricity or a network connection, inexpensive ($25 for machine and name plate and $20 for 100 receipts).

Cons: inconvenient, require manual entry of transaction info, offer no instant authorization.

Best for: craft fair vendors or people who need a cheap, portable device to use occasionally.

Processing method: manual entry of all data via “MOTO” processing (telephone) or “virtual terminal” (online form).  For an extra fee you can sometimes add cell phone processing to get instant authorizations while on the road.

Credit card terminal: this is the machine that you swipe your card into. Some print receipts directly, and others connect to a computer or cash register running “Point-of-Sale” (POS) software, which might cost extra.  They need to be hooked up to a phone or data line, but this can be done wirelessly.

Pros: convenient, offer instant authorization (and therefore cheaper transaction fees), can be integrated directly accounting software like Quickbooks.

Cons: expensive ($300-$1000 per system), require electricity and phone/data line, non-portable

Best for: people with brick-and-mortar stores, offices or studios who process a fair number of credit cards each month.

Shopping cart and payment gateway: these are web tools you need to process credit cards through an eCommerce site.  The shopping cart collects your customers’ information, and the payment gateway transmits it securely to your merchant acquirer.  If the checkout page of your shopping cart isn’t secure, you might also need to add SSL (Secure Socket Layer) encryption to your site. Your web host can usually provide this for about $20/year.

I won’t go into detail about the various e-commerce products now, but here are some examples:

• Shopping cart: Shopify, Zen Cart or Mal’s eCommerce.
• Payment gateways: Authorize, LinkPoint, and Paypal’s PayFlow.
• Combo merchant accounts/shopping carts: Paypal Merchant Services or 2Checkout.

Pros: convenient, offer instant authorization, allow you to take credit cards over the internet.

Cons: requires separate monthly fees, can be complicated to set up, not all shopping carts work with all gateways.

Best for: people who want to set up web stores that move beyond Paypal.

Phew!  That’s a lot of options.  Now that you know what you want to buy and how much you can afford to spend, it’s time to take the plunge.

Step 3: Compare and negotiate

Do some research to find a short list of companies that offer what you need.  You can get suggestions from your bank, your credit card issuer, or your local chamber of commerce.  You can also let your mouse do the walking, but make sure any companies you find through the web are reputable by checking references or the Better Business Bureau.

Call the sales department of each company.  Salesmen will often waive or lower fees, especially if you present them with a competing offer.  You can also negotiate combo deals this way, such as a discount for adding a payment gateway for your web site.  When I did this step I kept the most current rates for each company in a spreadsheet for easy access and comparison.

Be aware that most merchant service providers will run a credit check on you and/or your business before giving you a merchant account.  Your credit can affect the fees that they charge you.

If you don’t have a separate bank account for your business, now is the time to open one.  Even if you’re a sole proprietor, it’s always a good idea to keep business and personal finances separate, and some merchant acquirers will not give you a merchant account without a business bank account.

Get your best offer in writing.  Read it carefully.  If everything looks good go ahead and sign up.

Step 4: Test

Ask a friend or family member to “buy” something from you so that you can run a test transaction.  Make sure everything goes smoothly on both ends before accepting cards from customers.

If you’re accepting credit cards through your web site, make sure every step in the process (shopping cart, gateway and merchant account) is functioning correctly before going “live.”

I hope this helps to remove some of the mystery and confusion from opening a merchant account.  It can be a long process but it’s worth it to do things carefully and correctly the first time.  I’ve had my merchant account and gateway for three years now and I’ve never had a problem or a chargeback.

For more resources, check out some of the links below.

Resources:

Visa’s rules for merchants (pdf): http://usa.visa.com/download/merchants/rules_for_visa_merchants.pdf

Mastercard’s rules for merchants (pdf): http://www.mastercard.com/za/wce/PDF/10071_MasterCard_Merchant_Rules.pdf

Craftster shopping cart poll: http://www.craftster.org/forum/index.php?topic=231406.0

How to Configure SSL With a Merchant Account: http://www.ehow.com/how_5704137_configure-ssl-merchant-account.html

How to Evaluate Credit Card Processing Companies: http://www.businessknowhow.com/money/tips5.htm

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It’s Alive! October 20, 2008

It’s seems that no other project racks up delays quite like a web site.  There’s always something that could be added, or could use cleaner functionality, or doesn’t look quite right in Internet Explorer 18.3 for Windows WTF.  But after six months of such delays, I am proud relieved to announce that Sweet-Meats.com 2.0 has finally launched!  It’s as close to perfect (for my own purposes) as I’ve ever gotten a web site, so I’d like to share some of my steps with you, and review a few of the services I tried along the way.

Step 1: Evaluate. There were a lot of reasons I desperately needed a new web site.  I enumerated them on paper in order to be sure that each issue got solved in the re-design:

• Not a clean design.  It was simple, and cutesy-clever, and some people liked it, but it was also pretty slap-dash.  And four years old.  It felt ridiculous that my own web site wasn’t good enough to include in my design portfolio.  The product photos also weren’t very good.
• Hard to pay.  My old site only accepted payments via Paypal.  I calculated that I lost at least 25% of my potential customers because of this.
• Not expandable.  The design didn’t allow for the easy addition of more products or pages.
• Limited functionality.  It had no ability to handle discounts, gift certificates, shipping choices or product sizes with any grace.
• Bad navigation.  It used pop-ups in an incredibly unattractive and repetitive way.
• Hard to analyze.  Very minimal stats that provided few clues about how to improve sales and traffic.
• Bad SEO.  Only appeared in Google rankings for very specific search terms like “Sweet Meats Plush.”

Step 2: Make lists. I wrote down exactly what features and functionality I wanted to have in my site, and what keywords I wanted Sweet Meats to be associated with in searches.  I decided what was important to have right out front, and what could be reached in a click or two.

Step 3: Research. With my list of features in hand, I searched for a shopping cart, and then a web host, that could accommodate my needs for a reasonable price.  I already have a merchant account and Authorize.net payment gateway through Thompson Merchant Services to handle credit cards.  I wish they were cheaper but they work really well.  As far as shopping carts went, I tried four:

1. Zen Cart: completely free, open-source shopping cart software that is chock full of features and is theoretically fully customizable.  You have to be a really good PHP programmer and be able to handle hideously confusing file organization in order to make this work, though.  I constructed a passable wholesale site using Zen Cart.  It took three frustrating weeks and my customers hated using it, so I didn’t even try to make a retail site with this cart.
2. Shopify: I downloaded the trial and started mucking around with it but didn’t get very far.  It’s not hard to use but I realized that the features I would need, like SSL security and the ability to do discounts, were only available with the “Professional” plan, which costs $59 a month + 1% of sales.  Way too expensive for my small business.
3. WP E-Commerce: This is only for WordPress sites, but my husband is a wiz at programming these, so I thought I’d give it a try.  It’s not a good option for US vendors, because it can’t handle shipping physical goods with different weights, and doesn’t interface with UPS or FedEx.  After mentioning this in a previous post, one of the company owners offered to send me a working version of the cart, “personally,” but he never did.  I’m a little pissed I wasted $25 on the “Gold Cart” upgrade before I was able to figure out that the cart just doesn’t work.
4. Mal’s E-Commerce.  This is what my last web site used, and what I ultimately went with again.  I had unfairly written off this cart because it was somewhat limited in its customization, but (naturally) it has changed somewhat in the four years since I last looked at it, and it handles quite nicely.  Here’s what I like about it:

• • It only costs $8 a month.  It would be free if I didn’t want to process credit cards through my own gateway (rather than use Paypal).
  • All of the code goes in your buttons, so it doesn’t change the appearance of your web site in any way.
  • It integrates with UPS and USPS shipping modules, so you can calculate shipping automatically based on weight and location.
  • It’s ridiculously easy to set up and works with graphic buttons, pull-down menus and text boxes, all of which I use on my product pages.
  • The shopping cart is hosted on Mal’s secure server, so I save money on not having to purchase my own SSL certificate.  The only downside to this is that the amount of customization you can do on the checkout pages is limited, but it looks integrated enough for my taste.

Step 4.  Design!  I laid out exactly how I wanted all of my pages to look in Photoshop, down to the pixel.  It took five drafts to get it just right and I got a lot of feedback from friends throughout the process.

Step 5.  Host.  I was getting a little tired of GoDaddy, with their limited stats and the bizarre way they handle permalinks and page titles, so I tried Lunarpages.  It was easy to set up, and reasonably priced, but they don’t handle domains very well.  I got a free domain with my hosting, so I chose “sweetmeatsplushtoys.com” and used it to build my new site online.  When I was finished, I planned to have my old domain, “sweet-meats.com” (which is hosted with GoDaddy) point to my new Lunarpages web site, and have that super long domain name just forward to the right place.  But as my “primary domain,” Lunarpages’ control panel wouldn’t let me forward sweetmeatsplushtoys.com, and consequently, my old domain wouldn’t point properly either.  Tech support was quick to answer the phone, and they took care of the “primary domain” problem for me right away, but they couldn’t figure out how to get sweetmeatsplushtoys.com to forward to sweet-meats.com, they could only “park” it.  My husband eventually fixed this for me, but I was annoyed that a web hosting company didn’t have the capability to do this themselves.

Step 6.  Program.  This was the tedious part, and required a lot of tutorials from my husband.  I haven’t programmed a web site since college, and a lot has changed on the web since 1999.  I also signed up with Google Analytics at this point (free!), so I can track things like “conversion” (how many visitors turn into buyers), and return-on-investment for pay-per-click advertising.

Step 7.  Test.  This was the REALLY tedious part, but it’s important to proofread everything 2-3 times and to test every link on every page.  Anything that doesn’t work right could cost you a sale or publicity.

Step 8. Launch!  I sent an e-mail to my wholesale customers, then to my newsletter subscribers, and then to family and friends.  This week I’ll be working on an announcement to send to the press.

If you like something I’ve done on the site and have questions about how I did it, don’t hesitate to ask!

Little Thing I Learned Today January 28, 2008

In trying to set up my payment gateway tonight so I can begin accepting credit card orders on my web site, I learned that while you are required to collect every customer’s CVV2 number (the three-digit one on the back of the card), it is illegal to store it in any way for any length of time.  I verified this right here on page 12 of Visa’s Merchant Rules document.

Merchant Services Chosen January 11, 2008

Well, it happened about a week later than I wanted it to, but I have finally chosen Thompson Merchant Services to process my credit cards. They were neck and neck for a while with WaMu’s TransFirst merchant services, who cost a little more but provided excellent service and assistance during the sales process. They both offer competitive rates on a package that includes a gateway, a merchant account and a virtual terminal. They both respond to questions and submissions quickly. The deal-breaker was the SSL certificate.

Thomas’ NexCommerce gateway, run by Authorize.net, comes with SSL encryption built in. For those of you who did not read the previous merchant services posts, an SSL certificate is a safety wrapper you buy for your web site so that identity thieves can’t steal your customers’ personal info when they buy things from you online. TransFirst’s Transaction Central requires that you purchase your own SSL certificate, which is pretty standard. Normally, this is not a big deal. GoDaddy can provide you with one for $20 a year or less, depending on how many years you buy up front (and their 24/7 customer service is second to none). The problem is that my web site is just one subdomain in a web hosting package my fiance and I use for all of our various web projects. In other words, our main domain is my fiance’s design business, www.burning-house.com, and my Sweet Meats web site is actually located at meat.burning-house.com. The domain name http://www.sweet-meats.com just points you to that meat folder on the burning-house web site.

So, back to my gateway issue: an SSL certificate can only be added to the main domain of a hosting package (the burning-house.com one), which means that I would have buy another web hosting package and move all of my Sweet Meats files over to a new server. I just don’t have the time or the money for that right now.

NexCommerce will not set up their gateway for you unless you have a few things on your web site first:

1. Customer Service number or email.
2. Return/Refund Policy (including “no refunds” if this is the case).
3. Merchant Privacy Statement (a sample privacy policy may be found on the Better Business Bureau’s website at: http://www.bbbonline.org/privacy/sample_privacy.asp).
4. Website Secure Order Page along w/shopping cart (order page doesn’t need to be functional yet but must be present)
5. Delivery Method and timing are clearly stated (like “Products are shipped 24-48 hours after receiving your order via UPS Ground, Fedex 2nd Day”, etc.)

Some of these things are links on every page of my wholesale site and some are found in pages like “Terms of Use” and “FAQs.” I’m also a little confused about what they mean by “Secure Order Page.” We’ll see what they have to say about that tomorrow and if they’ll actually give me the gateway. Only one week left before the CGS in which to get everything working. Yikes!

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.