Page 1 of 1

Consider this when shopping for a merchant account...

Posted: Jul 18, 2008 7:48 pm
by Gary
First let me say that I have a strong dislike for eBay (and the company that eBay owns, known as Paypal) but here is why I use Paypal Express and Pro...

1. Many merchant service providers will not refund fees or commissions (discount rate), and may actually charge you additional transaction fees (25-30 cents) for making a refund.
Paypal refunds all fees, including the discount rate (%) and per transaction fee (if issuing a full refund).

2. All merchant processors that I have checked offer no Address Verification for non-US cards.
Paypal offers at least partial verifications for most EU, UK, Australian and other customers.

3. You'll see a delay of 3-5 days between your batch and the deposit of money into your account.
Though perhaps not immediately available in your bank, sales revenue (deposits) are instantly-available in your Paypal account.

4. Expect that the best discount rate you will find for an online business is about 2.29% plus 20-30 cents for each transaction (plus monthly gateway fee, customer service fee, statement fee, "WATS" fees, batch fees, and other monthly charges with names that vary by the company you work with). Oh, and often an initial application fee of $50 to $300.
While shopping around, and your good negotiation skills, can help you avoid some of these fees (always negotiate the contract!), here's Paypal's deal:
$30 per month, 2.5% plus 30 cents per transaction for the average merchant. No other hidden fees, and the higher your volume, the lower your rate (I'm doing just enough volume for the 2.2% rate).
Add it all up on a spreadsheet with your projected sales, with all the fees applied, and see which is really better for you.

5. Many providers may jump your discount rate by about 2% and charge additional fees, pushing you to almost 5% on international transactions.
Paypal is 1% more for international transactions.

6. When a customer disputes a transaction, expect a chargeback fee of $20 to $40 per transaction with most providers.
My understanding is that there is no chargeback fee with Paypal. If there is going to be a chargeback for sure, you can still do a refund instead of going through the chargeback process - but only with Paypal. Card Service International will either lock you out of doing a refund, or charge you the $40 chargeback fee anyway.

7. You may need to sign a 1 or 2 year contract with many providers (again, negotiate around this). The fee to close your account or end the contract early can be $75-$300.
With Paypal, you can quit any time, with no account closing fees or penalty.

8. Get a few chargebacks here and there? Card Service International, and anyone using Wells Fargo as the acquiring bank, may, at any time, start to hold a reserve on you. This means, just because criminals tried to defraud you, the money you legitimately earn, is held in a special "reserve account" for at least six months! No interest is paid while they hold your money. This may happen regardless of whether you fully fund the chargebacks, or default on them (NSF via ACH). I fully funded all of mine, and they still held $20,000 on me.
My understanding is that Paypal will only do this with excessive chargebacks, if you default on them (were not able to pay with available funds in your Paypal or the bank account associated with your Paypal account).

I really hate to admit this, but for me, the best deal is Paypal. In the past 10 years, I had accounts with Card Service International, a reseller of First Data, and AVP Solutions. I might go back to AVP, if they ever stop using Wells Fargo as their acquiring bank (good customer service from AVP, but Wells Fargo will screw you in favor of protecting themselves to the point of paranoia - they still owe me over $20,000 that they decided to hold in reserve after 8 chargebacks came through - even though I fully funded all chargebacks with never a single NSF).

If you don't use Paypal, at least find a provider who uses an acquiring bank such as HSBC, but never Wells Fargo.


Going back to a "real" merchant account

Posted: Nov 21, 2008 4:58 pm
by Gary
Last month, I bit the bullet, and went back to a "real" merchant account. Everything I said above is still valid, but here are the reasons I switched:

Paypal Pro adds their own name to the title of transactions that your customer receives. So it said "Paypal Oriental*" on our customers' credit card statements. This confused a few people, so I changed it to "Paypal Artwork*". This also confused a few people.

We a regular merchant account, the customers see "Oriental Outpost" on their statement, and they remember exactly who they made the purchase from (and don't question it).

I also negotiated a good deal (you should too). I settled for 2.21% and only 1% more for international and corporate cards. I'm paying $0.25 per transaction, no batch fees, and no additional per trans for
No WATS, AVS or other fees. Just statement and fees totaling $18.00 per month.

You can and should negotiate rates close to this for your online business.

As soon as I am sure I am happy with my new provider, I will divulge who they are, and a link to their website.


PS: It's still worth accepting regular Paypal as an alternate form of payment. Though millions of people may hate them, or not have Paypal accounts, there are millions and millions more who do have accounts, and love Paypal.

Posted: Mar 22, 2010 10:44 pm
by Gary
Well, I am back with PayPal Direct this month.

PayPal has changed their policy so you can have just your business name appear on credit card statements.

That other company that I tried for the last year was PowerPay. The agent lied plenty and they charged an annual fee which was not in the contract. They also charge the MasterCard and Visa discount rate again on refunds (not only do they not give the fee back when you refund, they charge it again on the refund).

Fees on international and business cards were supposed to be capped at 1.05%, they were not.

My recommendation: Do not do business with