Merchant Services: Essential to an Online Business

Merchant services are an essential portion of a successful, profitable online business because they enable you to take credit card payments online. Creating and operating your own business can be a challenging yet rewarding task. It's safe to say at one point we've all wanted to break away from our jobs and be our own boss. Opening your own online business can be a very lucrative business option, and in the last few years the internet has been an extraordinary facilitator of those entrepreneurial dreams.

Unlike a traditional store you don't need to rent a storefront or have employees manning the register; you can be "open" 24 hours a day and require little manpower. Many use their online business simply as supplemental income to their regular 9-5 job. Once your online business is setup and established all you have to do is ship your goods. As of 2004, more than 20 million small businesses in the United States were considered sole proprietorships that did not have any formal employees.

The internet runs on credit, and in order to accept credit cards online you need to have a merchant account through a merchant service. The principle components associated with online merchant accounts include:

Virtual Terminal

A virtual terminal simply enables you or your customers to input their personal and credit card information. The simplest virtual terminals are screens that include four or five input fields like name, address and card number. These terminals are most frequently used for businesses taking orders over the phone.

All merchant services and online stores use some kind of virtual terminal because most virtual terminals are integrated into your payment gateway. On the back end, your virtual terminal also gives you access to a number of reports, and the ability to make refunds, automatically bill and check the status of transactions.

Payment Gateway

Your payment gateway will assist the merchant service in collecting credit card data and authorizing payments. Payment gateways provide the pivotal connection between your business' website, your merchant service and the credit card company. Although there are several merchant services or credit card companies for you to choose from there are only a few gateway companies. Most merchant services associate themselves with one of the popular gateways and they work together as your official merchant account. One of the largest and most widely used payment gateways is Authorize.net.

All merchant card services charge a gateway fee. Gateways can cost as little as $5 month to $40 a month. The average payment gateway range is about $10 to $20. Think of your gateway and the liaison between your website and the bank.

Online Merchant Service Fees

There are several fees associated with merchant accounts in addition to gateway fees. Merchant services have discount rates, transaction fees, address verification fees and monthly minimums. The average discount rate is usually between 2% and 3%. Online businesses are considered more "high risk" than retail business because you can't authenticate the credit card in person like you can in a conventional store by checking ID. Some credit merchant services will give online stores a better discount rate if they require customers input the CVV2 number, the three security digits on the back of the credit card.

Transaction fees are about the same across the board, between $.20 and $.30 for every transaction you run. An address verification fee is usually required to ensure that every time someone uses a credit card on your site that the address they provide is valid. And the monthly minimum is the minimum amount of credit card business you agree to do every month

Monthly minimums, statement fees and gateway fees do not usually differ from online stores and retail stores.

It's not an easy step to decide to venture out on your own, but if you decide that doing business online is right for you, remember there is a little more to online business than just having a website. Keep in mind choosing the best merchant service is essential to a successful online business.