Credit card merchant accounts
can cost businesses a lot of cash
By Christine Selvig • Bankrate.com

Customers love to use credit cards so they can buy now and pay later.

But a small-business owner who wants to accept plastic has to pay now and pay later, too. There are significant costs, upfront and ongoing, for the owner who wants to slap a credit card sticker on the window.

So treat your search for a credit card merchant account provider and related equipment as seriously as you would treat shopping for a car. First, categorize your needs and establish a budget. Then, survey your options and their costs. Finally, narrow down your choices to the products that will work best for your business.

As you begin to evaluate your service choices, you will also face some decisions about how you process your transactions. Different terminal options are available to meet varying needs.

If yours is a small, home-based business involved mainly with cash transactions, a simple telephone authorization service may be all you need. High-volume businesses need to be able to process and store large numbers of transactions in their terminals. A restaurant terminal should print receipts and accommodate tip entries.

Shop for prices
Because prices on these systems vary, it pays to shop around. We found price swings as wide as 86 percent on some terminals. You can also save money by buying your equipment instead of leasing it. A VeriFone Tranz 330 terminal selling for $550, for example, ends up costing more than $1,000 when you spread the $21-per-month payments over four years.

Shop for options
Examples of a few of the options available to you follow:

Touch-tone telephone systems: If you deal primarily in cash but occasionally would like to take credit cards from your customers, this might be the solution for you. Prices to set up this service range from $150 to $300. And while you don't pay much to set up this service, you don't get much either.

You can process all of your credit card sales by keying merchant identification and credit card numbers into your touch-tone phone. No additional software or equipment is needed. The discount rate (the percentage of your price that goes to the credit card company) and transaction fees for this service are higher than for most other types of service. It would be both expensive and time consuming to use this type of service for anything other than minimal usage.

Point-of-sale terminals come with a variety of options. We found terminals ranging in price from a couple hundred to more than $1,000. Options such as a printer or a PIN pad option for processing ATM transactions are a few of the features that up the price. The key is to find a terminal that will meet your business needs.

The VeriFone Tranz 330 is a basic system that will accept all major credit cards. It's a simple swipe-and-keypad machine that sells for around $265 at MerchantWarehouse.com. You can add a printer and a PIN pad to this terminal later on if you decide you need them.

A printer will cost between $200 and $300. Prices for PIN pads start at about $135.

If you operate two businesses or share a storefront with another business, you may be interested in a terminal such as the VeriFone Tranz 380 x2. This terminal, recommended for-high volume outlets, will let you run two separate merchant accounts at the same time.

If you sell products at craft shows, art festivals or even out of a kiosk in a mall, you may want a terminal that will allow you to swipe credit cards under rustic conditions. The Nurit 2060u comes with a 10-hour battery. An inexpensive interface cable hooks up to a cellular phone for authorizations. The Nurit 2060u has a built-in printer and sells for around $500.

PC-based software can prove particularly helpful for businesses fielding phone and mail orders. The software assists business owners in verifying addresses, producing receipts and creating databases for future contacts. In addition to the authorization software available through individual service providers, there are a number of commercially available programs. This software can be integrated with your Web site and electronic cash registers too. Prices for PC software start at around $300.

Internet-based solutions allow your customers to place orders on your Web site. AuthorizeNet and PaymentNet are two of the payment gateways that are used by a number of value-added service providers. Most of the service providers offer at least one Web-based authorization solution. These real-time authorizations nip potential payment problems in the bud by letting your customers know immediately if there is a problem with a credit card.

We've also gathered some sample prices of merchant account service providers and the hardware you'll need.

-- Posted: May 1, 2000