Do You Really Need a Merchant Account?

The short answer is yes, but there’s more to it than that…

The Statistics

credit-card-usage-statisticsAccording to the U.S. Census Bureau, there will be a projected 181 million credit card holders living in the country this year. That’s over half the population. I could get into even more detail about the numbers, but it’s pretty obvious that if you don’t allow your customers to pay with credit cards, you’re probably missing out on quite a bit of business.

However, there’s a problem…

The Dilemma

do-i-need-a-merchant-accountWhether you’re just getting started with your first e-Commerce store, or expanding your brick-n-mortar shop into the online world, you’re going to face the same question. Do I sign up for a merchant account right now?

A better question to ask yourself is; “will the increase in sales that I obtain by allowing my customers to pay via credit card, exceed the costs that will be associated with offering that option in the first place?”

Even if you don’t process any transactions for any given month, you still have to pay some sort of monthly fee. There are payment gateway fees, statement fees, monthly minimum fees etc…, so it’s possible that you’ll have to shell out as much as $60/month just for the ability to process credit cards. Not to mention, some providers will require you to leave a percentage of your sales revenue with them as a sort of insurance policy against chargebacks, fraudulent charges or bankruptcy (see “rolling reserve”). To top it all off, there’s always the possibility of having your funds withheld by the bank due to any number of risk-related issues.

As a bootstrapping merchant, just adding an extra $60/month in overhead might be enough to put you out of business, let alone having to cover a rolling reserve. So, you better be sure that you’ll be able to handle the possible financial burden that will accompany a merchant account.

If you’re a small business, and you’re just developing your online presence, chances are that it’ll take some time before you have enough sales or cashflow to justify the cost for merchant services. But the problem is, that without the ability to process credit cards, you’ll probably miss out on those same sales that are supposed to help you grow to that level of justification. It’s a typical Catch-22.

Your solution…

The Third-Party Payment Processor

third-party-transactionI personally like taking things in steps. Third-party payment processors will allow you to do just that.

Third-party payment processors like Paypal and Google Checkout allow you to add the Visa and Mastercard payment option to your website without burdening you with the costs of a traditional merchant account. They just charge you a percentage of the transaction, and that’s it. No recurring monthly fees.

*Note: Paypal does have a merchant account option (Website Payments Pro), but I’m not talking about that, I’m talking about their simple third-party platform (Website Payments Standard). The platform that requires you to send your visitor over to Paypal in order to make a payment, instead of allowing you to process them directly on your own website.

Once you add that functionality, you can then monitor your sales. Have they increased? How many visitors are paying via credit card? Can you afford a merchant account now?

Personally, I would get setup with something like Paypal and let it run for a few months. I’d let my traffic grow, let my sales grow and stabilize, save up some money, then I’d start shopping for a merchant account. That way, you’ll have enough reason, and hopefully enough cashflow to take that next step.

FeeFighters has a pretty cool calculator that’ll help you compare costs between Paypal and a traditional merchant account. Definitely worth a look.

Here are some well known third-party payment processors. Keep in mind that I haven’t done any research on any of these companies just yet, but I do plan on adding reviews for all of them soon:

  • Paypal
  • Google Checkout
  • 2Checkout
  • CCNow
  • Amazon Check Out

Did this information help? Have questions? Let me know.

Amad Ebrahimi
Amad has worked in the eCommerce and online marketing world since 2002. He started as an eBay seller, then slowly graduated to building & marketing his own websites and consulting others to do the same. He founded Merchant Maverick out of frustration with all the misinformation and shady tactics that he encountered when trying to find a merchant account for his and his client's businesses. He's the man behind most of the merchant account reviews, and articles posted on MerchantMaverick.com. Have any questions related to credit card processing? Talk to him.
Amad Ebrahimi
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12 Comments

    Osama

    Hi,
    I am Planning to Start a Ecommerce Site which deals in Office Equipment. Need your help that what are the things i need to first to accept credit card on website. I am not in US & my target market is USA.

    Chloe Bahal

    Hi Osama,

    I would recommend taking a look at Instabill.

    Charmaine

    From the extensive research I’ve done here on your site it would seem that one of these options is the way to go for me. I own a small yoga studio that I would like to grow and am hoping that by offering online payments plus a booking service I will increase student attendance. Income is around $800/month now. By increasing the number of classes and workshops offered I hope to get that up to $2,000-plus within the next 6 months.

    Currently I am looking at YogaReg.com – they have a pay-as-you go option with a minimum monthly payment of $15. However, they require Authorize.net plus a merchant – not the cheapest option out there.
    My WordPress website comes with WooCommerce – clients can shop for class packages, etc., and I think that tthis option can work with Paypal (this is a gateway and merchant, am I right?), if not I’ll need gateway and merchant for this option too.
    In this case I will still need booking software for students to be able to reserve their spot in a scheduled class-time.

    Do you have knowledge of a better solution for my business?

    Thanks in advance,
    Charmaine

    Tom DeSimone

    Hi Charmaine,

    YogaReg.com looks extremely expensive. Unless they are providing you with something very special, I think you should look elsewhere.

    I think using WooCommerce is a good idea. Woo integrates with a ton of different gateway and merchant account providers. PayPal would be a simple all-in-one solution, and with your volume it’s would probably be the best fit.

    In terms of booking software, you have a bunch of options – all of which will be way less expensive than YogaReg. Check out Appointy to start, and then look at some of our other favorite booking software reviews.

    Hope this helps. If you need more help choosing, get in touch!

    Good luck,
    Tom

    Tyler

    As an FYI, the link that you posted for the fee-fighters paypal calculator, it takes you to groupon.com….

    Amad Ebrahimi

    Thanks Tyler,

    FeeFighters was bought out by Groupon a while back. Looks like the calculator is no longer active.

    Mike

    What about authorize.net or a top-tier provider like braintree?

    Tom7

    I agree with Mo, I would be EXTREMELY interested to see an informed, trustworthy comparison of PayPal, Google Checkout and Amazon Check Out in particular.

    mo

    I’ll be very interested to see how you think the options listed above measure up in a comparison. Your site is awesome!

    Chris

    Don’t forget Amazon check out.

    Merchant Maverick Admin

    Thanks for the recommendation Chris. I added them to the article.

    mo

    Have you used Amazon Check Out? If so, how do you like it?

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