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Internet Merchant Accounts For Innocents Abroad

Nov 20, 2007
If you want to sell on the internet, you need to accept credit cards. To accept credit cards, you need a merchant account, or access to one. There're two ways of getting this: Get your own merchant account, or 'pimp' off someone else's.

The latter is the option most new merchants choose. You use a third-party to process your payments, and they take percentage. Here are a few popular ones:

PayPal.com ( http://www.paypal.com )

I don't recommend them as your main processor. See http://www.paypalsucks.com. PayPal is popular because it was 'firstest with the mostest' on auction sites. For this reason, eBay bought them out. PayPalSucks.com alleges that if you have a bad order they freeze your account, and can even dip into your bank account to make up any shortfalls. Mitigating circumstances are not taken into account. I've read enough complaints about PayPal on webmaster forums to heed them.

The usual rejoinder is; "But I've never had any problems with PayPal". To which is usually retorted "Just wait 'till you get a chargeback!"

A chargeback occurs when someone asks their credit-card company for a refund. They say they didn't get the goods, or they never made the order, or the goods were not as advertised. This is passed on to the processor, who in turn debits the merchant. Or drops him entirely. You don't want too many of these.

I've used them for years for small amounts, with no problem, but on the basis of others' complaints in webmaster forums, I wouldn't use them for large ones. Don't leave large amounts 'on deposit' in any internet-based company; they're not banks, and even banks go bust occasionally.

The best use for PayPal is to entice customers who already use it. Find another provider to be your main one. One like ...

2Checkout.com ( http://www.2checkout.com )

This is a factoring service like PayPal. Unlike them, they have a pretty good reputation with webmasters. Like PayPal, they don't provide you with a merchant account; they process your orders through their own.

This is why such sites have to be very stringent; they are answerable to their own merchant account provider. Too many bogus orders, and they go out of business.

This is why third-party factoring services like 2Checkout are very useful to a newbie merchant: fraud prevention. They can screen out suspicious orders.

Most merchants would like to think they can sell worldwide. The fact is most of the world is poor; MOST countries can't afford your goods. So some citizens try to get them fraudulently.

A smart merchant would bar most of the world from accessing his cart, and only accept orders from the USA, Canada, western Europe, Australia and New Zealand, and his home country. Harsh, but you'll sleep better at night.

WorldPay ( http://www.worldpay.com )

A well-regarded service. I found adding it to the Oscommerce cart ( http://www.oscommerce.com ) a bit of a chore, but it worked. More expensive to join than 2Checkout. You don't hear many gripes about WorldPay, which is rare in webmaster circles.

ClickBank.com ( http://www.clickbank.com )

Handy if you're selling a few items of inexpensive software to start off your business. They'll let you up the price once they're sure of you. I managed to get them to go up to $150 (whoo!). I was very jealous of their system. It's well designed and extremely 'viral'; they're basically a huge affiliate program. Join ClickBank, and others will try and sell your product for you.

They allow you to block whole continents from trying to buy your product, and that is good. The odds are that a $25 order for an ebook, from a third-world country, is fraudulent.

If an order looks dodgy, it probably is. Contact the customer by 'phone or email. If you don't get a satisfactory reply, refund the card.

When you're making $1000+ a month, get your own merchant account. Look for 'merchant services' at your local bank. Having one's own merchant account means paying less in processing fees.

IMPORTANT: You should specify up-front that you are looking for an internet merchant account. Internet transactions are viewed as higher risk than those by bricks-and-mortar businesses. The technical term is 'card not present'.

Some things you may need, if applying for a merchant account of your own:

Business bank account;
Photocopy of a voided cheque for said account;
Copy of the articles of incorporation of your company;
Photocopy of your return policy information;
Trade references;
Photocopy of your driver's license or passport.

In short, you need to prove that both you and your company are what you say they are. Your account provider is taking a chance on you. You might send them a ton of bogus orders. A bank is a business too, not a community service. Help them to make the right decision! The more you can establish that you are bona-fide, the lower the cost of your account.

Things to avoid, if you can:

a) Expensive credit-card processing software rental or hire-purchase.
b) Monthly fees.
c) High discounts ( the % of your sales they keep ).
d) Fat fees up front ( anything over $500 is a joke ).
e) Salesmen calling you up with a spiel.
f) Getting lumbered with hiring their shopping cart as well.

Things to look out for at sites offering merchant accounts:

If you need to maintain a U.S. presence - full U.S. incorporation, U.S. server, U.S. offices, U.S. bank account - or not.

Also if they want a deposit, and the size of their application fee. And the usual monthly minimums, discounts etc.

Avoid getting into any software purchase or equipment rental. You can sort all that out later, for less money. There are plenty of good payment gateways, like Authorize.net ( http://www.authorize.net ) just itching for your business.

PS: Don't accept a merchant account from an Eastern European bank. I did, some years ago. The bank went bust. One guy wailed on Usenet that he'd lost $10,000 dollars. Luckily for me, business was bad that year!
About the Author
T. O' Donnell is an author offering advice about credit cards, merchant accounts and insurance, in London UK.
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