Merchant’s Guide to Payment Processing Secrets: Contracts & Fees

Payment processing is a complex ecosystem that includes processors, providers, contracts, and fee tiers. For ecommerce merchants looking to streamline payments operations, it can be a little overwhelming.

Payment processing is a complex ecosystem that includes processors, providers, contracts, and fee tiers. For ecommerce merchants looking to streamline payments operations, it can be a little overwhelming.

Obtaining a merchant account can be challenging without having deep knowledge of the payment processing industry, but this process can be simplified considerably by asking the right questions. We have put together a guide with payment processing secrets to help merchants navigate this dynamic landscape with ease.

Payment Processing Secrets: Getting an Ecommerce Merchant Account

Getting an ecommerce merchant account often requires merchants to undergo a rigorous review process. Merchant account providers like to get a sense of a business’ credit (including personal credit for the founder), banking history, and chargeback ratio. Our first set of payment processing secrets includes questions merchants should be prepared to answer during the approval process.

  • What industry is your company involved in and what type of business do you conduct?
  • Knowing this information can help determine the risk level of credit card fraud and returns.
  • How long have you been in business for?
  • You’ll have to provide documentation outlining your business journey.
  • Are you in good standing with investors, payment processors and banks.
  • An ecommerce merchant account will look for bankruptcies, defaults and other red flags.
  • Have you had a merchant account terminated in the past?

The owner will also have to offer his or her personal credit history, Employer Identification Number (EIN), business checking account information, business license, social security number and other pieces of business operational information.

Payment Processing Secrets: Underwriting and Approvals

Our second set of payment processing secrets focuses on the underwriting process. The complexity of the process may vary;  is determined by the terms of the partnership as an account that requires a high line of credit will experience a more in-depth one as your business history, credit score and type of account hold more weight.

The underwriting process is often required if you want an individual merchant account, which will provide you with more customization and negotiation options. However, the process can go smoothly and quickly if your business has managed to steer clear of any defaults, bankruptcies or industry-imposed penalties.

It is worth noting that falling into a higher risk bracket does not mean that your application will automatically be rejected. However, it may mean that your ecommerce merchant account may experience higher transaction fees. That said, fees can often be renegotiated over time and with a successful track record. We’ll explore some of these payment processing secrets in the next section.

Payment Processing Secrets: Merchant Account Fees

The third (and perhaps most important) set of payment processing secrets is focused on fees. Fee structure varies across payment providers and often depends on a merchants line of business and primary channels of transacting. In some cases, fees may be higher for ecommerce merchants that sell products or services that are categorized as having a higher risk of chargebacks.

When evaluating contracts, be sure to pay attention to the different fees outlined, including application fees, setup fees, monthly fees, per-transaction fees, cross-border fees for international transactions and rental fees for credit card terminals (where applicable).

When it comes to transaction fees, there are several items to consider. For one, lll payment transactions incur interchange fees. Note that a “transaction” could include a completed sale or a declined card. Both will incur the interchange rate.

Interchange rates are charged by the card companies for use of their cards, though payment processors sometimes layer additional charges on top to cover their services. This is known as interchange-plus or cost-plus pricing. It is often the lowest rate offered, as compared to tiered and flat rate pricing.

Tiered Pricing (also called bucket pricing, standard pricing, or packaged rate pricing) is where processors combine interchange rates into pricing tiers. These tiers are typically designated as “Qualified” “Mid-Qualified” and “Non-Qualified”. Separate from interchange rates, processors place merchants’ transactions into one of these tiers and charge pre-defined rates per tier.

Interchange rates are typically much lower than tiered rates and more transparent; processor markup varies per the processor’s tiers. This makes it difficult for a merchant to know the markup they are charged over the interchange rate.

Payment Processing Secrets: Find the Right Fit

Of all the payment processing secrets, finding the right fit is the most important. Each business has unique needs and merchants should strive to work with a payment processor that has experience working with merchants of all shapes and sizes.

PayArc has worked with merchants across industries to establish stable merchant accounts and grow their businesses. We advise on and provide end-to-end solutions to streamline payments.

Contact us today