What are merchant accounts?

To run an online store you will need a merchant account to process the credit card transactions. This is separate from the shopping cart! Many people selling shopping cart & web hosting services will make it look all you need is their service and you will be up and running. In fact, you almost always have to sign up for a merchant account separately. The merchant account will allow you to choose the credit card you accept.

What are the merchant account fees?

Merchant accout fees vary drastically. You should be particularly careful about the monthly fees, especially if you are just starting and will probably not have many sales. This can eat your entire profit! Many of the big banks, like Bank of America and Citibank offer merchant accounts, but usually charge $80-120 per month. Many of the online merchants are as low as $20-30 per month. This is a huge difference. Also, beware of set-up fees - most online merchant accounts do not charge anything, but the big banks do.

Besides the monthly fees, the merchant accounts charge you a couple of transactions fees. There is usually 2.5% - 3.5% transaction fee for using Visa or MasterCard. This can be significant - a $2.50 - $3.50 fee for a $100 sale. Then there is a fixed Visa or MasterCard transaction fee of $0.20 and an additional credit transaction fee of $0.30. So you are already paying $3.00 - $4.00 for something that only $100.

In addition, there are usually monthly minimums of about $15.00. This means if you only sell one item for $100 in a month and pay a $3.00, you will be charged an additional $12.00 to cover the minimum.

All these charges vary greatly between the different merchants. You should do a lot of hunting around to find the best deal for you. One of our favourite merchant account providers is PayPal. They are one of the only companies that offers very good prices all around for a merchant account, plus they provide a shopping cart too. The PayPal shopping cart will take you to a a PayPal site over which you have little control. This just means it will look very different than the rest of your site.