Virtually every ecommerce merchant processes credit card payments. We asked Michael Shatz, publisher of The Merchant’s Guide, a resource to help merchants understand credit card processing issues (at Themerchantsguide.com), to share his views on choices merchants must face when deciding how best to deal with online payments. Shatz is a veteran of the credit card and ecommerce industries.
PeC: What should ecommerce merchants look for when they choose a credit card processor?
Shatz: Integrity. Processors should be straightforward in the way they market to, price, service and report to the merchant. If possible, one should choose a registered payment processor that has direct connections to the “associations,” which is an industry term for Visa, MasterCard, AmericanExpress and Discover. Examples of these types of companies are Litle & Co., Chase Paymentech Solutions and First Data. Online reporting is a must-have, and this includes automated online chargeback handling. I would also choose a processor that offers “pass-through” (or “cost-plus”) pricing. This allows merchants to see what they are paying and to whom these fees are going to.
PeC: Which is more important for the merchant: A merchant account provider or a payment gateway?
Shatz: The most important company is generally the payment processor, one that hopefully has direct connections to the associations. Technically, a merchant bank that is a member of the associations provides the merchant account. In most cases, these accounts are now sold, processed and serviced by payment processors. Gateways have customarily represented third-party front-ends, offering value-added services, and then sending the transactions on to traditional payment processors. Today, many payment processors are providing these value-added services themselves. There are certainly cases where gateways offer exclusive features critical to the merchant, in which case the gateway would be the better choice.
PeC: How can a merchant know if he’s receiving competitive rates for his credit card processing?
Shatz: For Visa, MasterCard and Discover, I would consider a base rate in the range of 2.1 percent to 2.5 percent competitive for low-risk products. With American Express, rates are highly dependent on product type, volume and when the merchant chooses to receive its deposits. As an ecommerce merchant, I would be concerned if my rates were greater than 4 percent.
PeC: Should a merchant accept PayPal?
Shatz: Generally speaking, yes. It would be even better to say that every ecommerce merchant should test PayPal. PayPal has a significant number of loyal users, who by nature purchase products and services online. Basic regression testing will determine whether you are generating new revenue or simply cannibalizing your credit card sales.
PeC: What are the most common errors merchants make as they attempt to reduce their credit card processing fees?
Shatz: I think a lot of merchants make the mistake of simply choosing to go with the lowest rate, regardless of who the offer is from. They don’t perform enough due diligence. I also think that a lot of merchants don’t optimize their operations to obtain the lowest rates. There are a number of ways to lower fees simply by changing the way you do business.
PeC: What do you think of Google Checkout?
Shatz: I believe it is a gateway that can offer impressive incentives to a huge internal client base. If they offer merchants value, they may be the right solution.