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Ecommerce Information |
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Choosing An Internet Merchant Account
Surf to Google and perform a search on "Internet Merchant Account". The results are staggering (472,000 results!) If you have created a web based business and need to accept credit card payments, your choices are limitless. Before you partner with a provider, take time to understand the different components of internet credit card processing, and know what to look for in a merchant provider. How It Works Accepting credit card payments through your web site actually requires multiple components. Between a paying customer and your bank account, three layers exist: Payment Gateway - This is the code that will transmit a customer's order to and from an internet merchant account provider. The payment gateway provides you the ability to accept customer billing information (credit card number, credit card type, expiration date, and payment amount) and the necessary validation steps that must be followed before the credit card is actually billed. Internet Merchant Account - A Merchant Account is an account with a financial institution or bank, which enables you to accept credit card payments from your clients. The payment gateway actually transmits the billing information to the internet merchant account provider. Unfortunately, most local banks do not provide internet merchant account capability. The main reason why most local financial institutions or banks do not want to provide online merchant accounts is because transactions conducted over the Internet are totally different from face to face transactions where a signature is required to authorize the purchase. This makes online transactions prone to credit card fraud. Fraud protection should be one of your primary considerations when choosing an internet merchant account provider. Web Site - Regardless of which merchant provider and gateway service you choose, your web site will need to integrate with your service providers. Most providers include detailed web integration instructions. How Much Does It Cost Understanding the total costs of your merchant provider can be tricky. Remember my Google example - there are more merchant account providers than there are people looking for internet merchant accounts so ask questions and be picky! Typically, an internet merchant account will have three types of costs:
Let us discuss each type of cost: Up Front Application Fees Many internet merchant accounts will require an up front application fee. This fee, supposedly, is to cover their costs for processing your application. In case you choose not to open an internet merchant account, they still cover their initial costs. Although common, many providers waive these fees and I recommend that you choose a provider that does not require an up front fee. On Going Fixed Fee Most all internet merchant providers require a monthly fixed fee or "statement fee" as it is commonly named, which is simply another way to cover their costs and make money. You will be hard pressed to find a provider that does not require this type of fee on a monthly basis. However, do not choose an internet merchant account that requires more than $10 per month. Additionally, most internet merchant providers require a monthly minimum (usually $25). The bottom line is that you will be paying at least $25 per month (on top of the monthly statement fee) for your account. Discount Rate Usually, the discount rate will be between 2 and 4 percent. The discount rate is the sales commission the provider earns on each sale. For example, if the discount rate offered is 3%, and you receive a sale over your web site for $20, you will owe 60 cents to your internet merchant provider. Fixed Transaction Fee Usually between $0.20 and $0.30, the fixed transaction fee is the fixed fee portion of each sale. Unlike the discount rate, the fixed transaction fee is the same for every transaction. Whether you get a $1 sale or a $100 sale, the transaction fee will be the same. Termination Fee A bit more hidden in the small print, a termination fee can apply if you cancel your merchant account within a specified period of time (usually within one year). But beware, some merchant providers require a three year commitment! Miscellaneous Fees If a customer requests a refund and they want their credit card credited, an internet merchant provider will charge you a separate fee (usually between $10 - $20). Read the contract carefully, as other special fees may apply. Putting It All Together Now that the different fees have been explained, let us look at an example set of transactions to help understand what an internet merchant account may cost your business on a monthly basis. I have created a simple formula to help you calculate your monthly charges: Total Charges = Statement Fee + Number of Transactions x (Average Sale x Discount Rate + Fixed Transaction Fee) + (Number of Chargebacks x Chargeback Fee) For example, let us see you sell widgets over the internet. The sales price for each widget is $10. You typically have 100 sales per month and about 5 people request refunds (chargebacks). For this example, let us assume you have signed up with Jones&Jones internet merchant account services and have the following terms: Discount Rate - %2.5
Using my formula above, your monthly Jones&Jones charges will be: Total Charges = 10 + 100 x (10 x .025 + 0.3) + (5 x 15) = $140 You can calculate your monthly sales revenue by multiplying your sales volume by your price: Monthly Sales Revenue = 100 x $10 = $1000 Your internet merchant provider is costing you %14 or your total sales. Making Your Decision Before you choose and internet merchant provider, understand all of the cost components. Use your current or projected sales data to forecast what your internet merchant account costs will be. Planning ahead can save you time and money. About The Author Andy Quick is co-founder of Findmyhosting.com (http://www.findmyhosting.com), a free web hosting directory offering businesses and consumers a hassle free way to find the right hosting plan for their needs. Feel free to contact Andy at andy@findmyhosting.com in case you have any questions or comments regarding this article.
MORE RESOURCES: New Shopify and Google Cloud AI Integration Brings Advanced Ecommerce Capabilities to Retailers and Merchants Worldwide Yahoo Finance Ecommerce upstarts navigate pandemic shopping reset Financial Times The rise of ecommerce in the coffee industry Perfect Daily Grind Ecommerce SEO Trends and Insights for 2023 Entrepreneur Nike Digital sales account for 27% of total revenue in Q3 Digital Commerce 360 The Future of Ecommerce: How a Product Becomes a Purchase Andreessen Horowitz What's driving e-commerce growth? Chain Store Age A tire maker rolls out a new ecommerce platform Digital Commerce 360 EnvisionB2B Speaker Spotlight: ChemDirect’s Dave Haase on overcoming ecommerce barriers Digital Commerce 360 Revenue Boosters in a Rough Economy Practical Ecommerce Government plans to make ecommerce platforms like Amazon, Flipkart liable for sellers’ fraud Economic Times Williams-Sonoma ecommerce accounts for 66% of total revenue in fiscal ‘22 Digital Commerce 360 India's ecommerce market to reach $150 billion by 2026 fuelled by rise in UPI transactions: report Economic Times Top 5 eCommerce Marketing Agencies In India In 2023 Hindustan Times Ecommerce Product Releases: March 15, 2023 Practical Ecommerce Actually, Ecommerce Excelled in 2022 Practical Ecommerce Firms Link for Southeast Asia eCommerce Insights - Daily Research ... Daily Research News Online Paramount Bets on Unified Ecommerce Site for ‘Star Trek,’ ‘Yellowstone’ and More Merch (Exclusive) Hollywood Reporter Ecommerce Product Releases: March 1, 2023 Practical Ecommerce Southeast Asia Retail Ecommerce Forecast 2023 Insider Intelligence Finding today’s best B2B ecommerce teams Digital Commerce 360 Google Shopping Hacks To Upgrade Your Ecommerce Strategy Search Engine Journal Ecommerce return rates rose in retail's longest holiday season yet Insider Intelligence Livestream ecommerce takes off in Latin America Insider Intelligence 4 steps to a better ecommerce strategy Insider Intelligence Costco ecommerce sales drop despite total sales increase Digital Commerce 360 Temu is seeing unprecedented ecommerce growth—how seriously ... Insider Intelligence What ChatGPT can Teach Ecommerce Companies About the Future ... Retail TouchPoints Ecommerce accessibility lawsuits reached a new high in 2022. Here’s why retailers should worry. Digital Commerce 360 Silicon Valley Bank’s collapse hit the ecommerce world. See a list of impacted companies. Digital Commerce 360 Kraft Heinz, ecommerce platform partner to discover new points of ... - Pennsylvania Business Report Kraft Heinz, ecommerce platform partner to discover new points of ... Pennsylvania Business Report Danone Nutricia Consolidates Ecommerce Platform Management ... Little Black Book - LBBonline 3 Ecommerce Trends You Need to Know in 2023 Entrepreneur Does Your Business Need E-Commerce Financing? Miami Herald 4 Stocks to Buy as E-Commerce Sales Continue to Soar Yahoo Finance Role of IoT in Ecommerce in 2023 Customer Think 2023 Consumer Trends Impacting eCommerce Profitability Supermarket News 3 ecommerce brands embracing physical retail this weekend InternetRetailing Dodo Mat wins at Asia eCommerce Awards 2022 - Best in ... Paul Tan's Automotive News Latin America poised for standout digital ad spending and ... Insider Intelligence E-commerce continues to grow in the EU European Commission Global B2B Ecommerce Market 2022-2028: Adoption of Social Commerce Presents Opportunities Yahoo Finance Mercado Libre's retail ecommerce sales soar 21.5% in 2022 Insider Intelligence Dutch ecommerce worth €33.3 billion in 2022 Ecommerce News SaksOff5th.com Adds Ecommerce SVP as it ‘Evolves its Digital ... Retail TouchPoints Charts: Fastest Growing Global Marketplaces Practical Ecommerce Levi's to Test AI-Generated Models for E-Commerce Sourcing Journal 3 Ways E-Commerce Businesses Can Continue to Thrive Total Retail Slowdown in E-Commerce Hitting Logistics Companies' Payrolls ... The Wall Street Journal Ecommerce giant Coupang to adopt more tailor-made electric ... Aju Business Daily Chinese E-Commerce Flourishes on U.S. Soil The Wall Street Journal Retail and eCommerce news from the week beginning 27 February ... Enterprise Times |
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