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Know Your Payment Processor / Merchant Account

Discussion in 'Business & Tax Advice' started by ClThis, Jan 24, 2012.

  1. ClThis

    ClThis Regular Member

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    Occupation:
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    Merchant Accounts Unveiled

    I have seen an increasing amount of BHW members asking how merchant accounts work, asking where to find them, and openly referring various companies to each other. Working in the industry at a banking level there are quite a few things that I think everyone should know before throwing themselves in with the lions.

    Why would you want to even open an account when you can use PayPal, AlertPay, Money Gram or others? Because a merchant account is an account issued by a bank through a processor ok'd by a issuer (Visa, MC, etc). To make it short, in case you want to stop reading now, a processing account allows you much more flexibility if you open the right one. Also, personally, PayPal and those other guys are fee happy! They take a much higher % and present a much high risk for shutting you down as they are general. For each type of business with a real merchant account you need a MID, or a merchant ID number.

    First off, for high risk accounts you will more than likely be required to do the banking offshore. In some cases you can find domestic solutions, but these are given to individuals and/or companies with strong financials and in stable markets. This doesn't mean you need to be doing over 50k a month! It just means you can't have a 400 credit score and deal in name brand replicas (which are illegal).

    To start this process you may go out and search by asking on a forum like this, a search engine, or a referral from a friend. That "general" first search is going to hurt, I am going to set it right for our industry by defining and illustrating how merchant processing works. and describing the key players involved, as well as some to avoid.

    KEY PLAYERS


    1. Card Holder - This should go without saying much. A card holder is your customer.

    2. Merchant - This would be you, the store owner. Congrats, you now have something to call yourself besides "failing entrepreneur" or "struggling internet marketer" :)

    3. Acquiring Bank (Merchant Bank), Acquiring Processors, ISO's and MSP's -

    4. Issuers - Visa, MC, etc

    HOW IT WORKS


    Assuming you found your direct source, which 90% of you wont because you'll be sold by a 3rd party before you reach one as finding one is a "needle in a hay stack" [Luckily though, there is hope, you have one right here on BHW...for some accounts. Not all], here is how your transaction will work with the parties involved.


    [​IMG]

    The blue arrows represent the transaction passing from the customer to the GATEWAY/TERMINAL, through the PROCESSOR, to the INTERCHANGE (Visa / MC) and to the bank where the customer has money. Once the bank says "OK! THEY GOTS THE MONEY!" The red arrows signal back to through the process to the shopping cart. The ugly colored arrows tell both parties its approved. The light blue arrow is the merchant (you!) giving the card holder (your customer!) a product, service, or whatever you are offering. Lastly, the green arrows are green for a reason, you made the monies. A successful transaction has been made.



    So here is the conclusion. Deal with as direct a source as possible, keep your record clean, and you will have a great and prosperous life. Don't do any illegal or unauthorized mentions with the account because you get TMF'd (black listed) you are gone. No one will open you up one. If you have questions, please ask. This is an open discussion. The reason I decided to publish it is because wrong information gives this industry a bad name and there are a lot of bad apples.

    I myself and am associated with a bank, my company is the processor for a high risk platform so we are the underwriting team who approves the accounts. We do not do them all, we do not accept everything, so please don't come asking me and think its an easy process. It is the best financial decision you can make to operate a real online storefront but it isn't for everyone. This is for people who are asking and I hope it finds you well.

    Thanks
     
    • Thanks Thanks x 11
    Last edited: Jan 24, 2012
  2. TheFinal

    TheFinal Newbie

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    Thanks for the clear up. I don't personally have a merchant account at the moment, however, you're information is good on the subject. What would you say the fee's are for these sort of accounts?
     
  3. quester296

    quester296 BANNED BANNED

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    Thanks for the heads up...Noted that. Thank you.
     
  4. ClThis

    ClThis Regular Member

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    Occupation:
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    Fees determined on both large and small factors. A lot of companies will give you a vanilla offering but those should be taken with a grain of salt.

    Some factors:

    Offshore or Onshore - Be prepared to pay higher fees offshore as well as a potential incorporation fee in order to have a stable banking account located in the country of the bank.

    Holds - You may have a reserve amount that the bank holds and releases at a later date. This is standard in a lot of high risk industries, this amount and time varies on your credit history, industry type, the bank requirements and current climate.

    Rates - Again, this is dependent on the industry and the placement of your account, as well as credit and age of business.

    There is a bank rate/interchange rate that is given by the bank to the processor, the processor is the one handling the risk so in order to take on the risk for your account they mark it up as well. It is, again, largely dependent on many things, but you will get a % + a transaction fee. If you are going through an agent know that you can negotiate these, sometimes. Sometimes the processor tells the agent it has to be fixed at one cost due to the nature of the business or credit history. Things change, when your industry comes under fire from the DEA, FDA, or another agency but is still legal and thus processed by a major card issuer be prepared to see accounts closed, rates higher, and merchants dropping like flies. This is why some industries have bubbles and its great to get in at the start, sometimes its also a good idea to hold on too. Higher rates mean less competition for the merchant if he can afford them.

    Industries need to regulate themselves or the government steps in, it happens in every industry. The best example is the US Banking Industry, Wall Street and Security Trading Firms (all wrapped into one). They couldn't regulate the BS involved with the industry and the US had to step in, take over banks, investigate, and regulate it for them. Take this for our high risk industries, our _____ and _______. If the industries can do this they can survive merchant accounts too.

    From my experience, a merchant account is a life line. Without one you don't have a business. PayPal is good for somethings, so are accepting checks, but neither appeal to the general consumer like old fashion plastic. This requires a bit of transparency as "Middle Men" (movie) is about the only public info people really know.
     
  5. ClThis

    ClThis Regular Member

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    Occupation:
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    Here is another one:


    Was just asked about agents who charge "Application Fees". While it is legal to do that, they are working for you and you may not be approved, most places with direct relationships do not. That is a key indicator, always ask what the application is for if it is mentioned. What do you have to lose right? Potentially time AND money if you aren't accepted.

    The only "fee" you may ever need to pay is a Incorporation fee in the country of bank establishment in order to set up a new corporation that your domestic corp owns.

    So, application fees = indicator to ask why.
     
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  6. mgarett

    mgarett Newbie

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    For high risk merchant accounts you can always use MarketEngines which has been serving merchants for over 7 years!
     
  7. tigertj

    tigertj Newbie

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    perfect!!!
     
  8. bhageshnair

    bhageshnair BANNED BANNED

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    Many agents do lie about having direct banking relationships, but not all.
    I am a re seller with the best MSP's in the industry, and have solutions for almost any kind of online business, provided the merchant is legit.
    I am straight forward with my merchants and tell them that i cannot place them direct with the bank, but i see to it that i find the most appropriate MSP for the merchant type and they get the best rate possible.
     
  9. bhageshnair

    bhageshnair BANNED BANNED

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    Some MSP's charge a setup fees for High risk accounts. I know of a few 3rd party merchant processing company's who charge a bomb setup and annual fees, but their solution is absolutely reliable and solid.
     
  10. redclover

    redclover BANNED BANNED

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    It was a nice instruction but a little smug to assume we have something to
    call ourselves now besides failing entrepreneur or struggling internet marketer.
    Honestly their are people on this forum who far exceed this.
     
  11. ClThis

    ClThis Regular Member

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    Occupation:
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    Thank you for allowing me to clarify, because I was only inferring that if you are ready for a merchant account, which is dependent on your business model, you have graduated to another class of business. I know guys on here making tens of thousands, if not 6 figures, a month doing CPA and I know other guys making tens, or 6 figures a month, with merchant accounts. Not everyone needs one and no one is failing, because you fail when you don't try. It was my nice way of making a joke about what it feels like when you need one, graduating to another level of business because if you need one then you better get one.
     
  12. ClThis

    ClThis Regular Member

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    Then you are a good agent, and I hope your clients respect that. I know a lot of agents over promise, which results in problems for everyone. Shoot me an email, maybe we can talk how to help each other
     
  13. el_capitan

    el_capitan Junior Member

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    Thank you so much for all this useful info.

    What do you suggest someone who is planing on opening an LLC and needs a merchant account but, their credit score is bad. How would one go about moving forward with finding a reliable merchant.

    Thanks again.
     
  14. ClThis

    ClThis Regular Member

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    Credit score does matter regardless of a LLC (which you should still open). Depending on your credit score you may have a reserve on the account for a period of time to build the relationship. I have not seen someone turned down because of a credit score without an option presented to them that could resolve it. The business owner may not want to do a reserve or get a second signor on the account but it is an option, sometimes though you do just get to go forward

     
  15. calvinzplus

    calvinzplus Newbie

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    Thanks you! i have new look on merchant accounts and the use of them.
    it is a very good information for sure.
     
  16. NomenEst

    NomenEst Newbie

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    How easy is this for a business just starting out? Is there a minimum number of sales required for approval?
     
  17. Jammy01516

    Jammy01516 Registered Member

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    Its not easy these days to get a merchant Account...If you are in High Risk business then its more than hard to get good bank to get an account, There is lot of Agents,providers, IPSP etc. who will offer you most favourable and attractive solutions, but those never turned up into a good business.
    Minimum sales not but Banks seeing the Processing Volume you do per month, as most of the Banks these days looking for Merchants who do $100k+ for High Risk Accounts...However, same questions arises here again through which Provider or Agent you go through,instead of depending on Providers or Agent, check the reliability and market position of Bank and Get all details about it before signing the contract or gets too late....

    As per in High Risk Business, These days all Agents/Providers are just having a Big Mouth nothing else who will quote the best and the outcome will be ZERO
     
  18. khoosat

    khoosat Regular Member

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    its a fantastic writeup but one question remains unanswered.
    Why the hell is it so difficult to get a merchant account for adult sites?
    I understand chargeback and all that nonsense but why cant the banks hold the payment for 6 weeks and then start the payouts?
    Why just deny one and all?
     
  19. RSILeads

    RSILeads Registered Member

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    If you need processing for adult, my contact has solutions for adult. PM me for details.
     
  20. unitedsolutions

    unitedsolutions Registered Member

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    its all a game, and as long as you know how to play the game you will be ok. Everything CIthis has said is true, although I don't think its as hard as you make it out to be. Time consuming YES, hard maybe. I work with people who have over 50 different MIDS (aka 50 different accounts) for HIGH RISK.

    Dealing with most "merchant solutions" do not have direct relationships with the banks, but it does not mean they can NOT GET YOU APPROVED. I applied with GMA (direct acquirer) did not approve me financial coaching program, but a third part one did. 100k monthly volume/ 10% reserve (which is great) 5k ticket meaning I can charge up to 5k per transaction. ITS ALL ABOUT CONNECTIONS, KNOWING THE RIGHT PEOPLE...how to you do that.... reaching out to everyone, other sites/ blogs/summits etc.

    Using Paypal and all that is good, but one little hold up or charge back AND YOUR ENTIRE BANK ROLL IS HELD UP. The good thing is that CIthis has mentioned some really important things, such as, the right questions to ask etc.

    IF YOU ARE NEED OF PROCESSING FOR HIGH RISK OPTIONS, PM FOR DETAILS.