Merchant Account Services

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Top 5 Reasons to Avoid a Merchant Account Provider

After seeing top lists elsewhere for a variety of other topics, we decided that one would be appropriate for our site. Below are the top five reasons to avoid a merchant account provider:

  1. They do not publicly disclose their rates

    Although there are a variety of potential fees involved with credit card processing, there still is a core set of fees a merchant can expect to pay regardless of the specifics of their merchant account. These fees will be structured the same regardless of which processor the merchant chooses. As a result, there is no reason a merchant account provider should not disclose their rates and fees on their website or any other form of solicitation. When the merchant account provider uses terminology like, “call now for a free quote” or, “plans customized for your business” you know they are really just sizing you up to try to get every last penny out of your business.

  2. They sell proprietary equipment/software

    A common problem merchants run into is there grow unhappy with their current processor and attempt to leave them for another processor. This is when they find out the credit card equipment or software they were sold by their current company won’t work with the new company. The real problem with this is that their current company knew this when they established their merchant account but did not tell the merchant. As a result the merchant has to make a decision: either stay with their current processor whom they are unhappy with or essentially throw away their old proprietary equipment and buy a new one.

    When shopping around for a merchant account provider ask them if the equipment or software they are selling you can be used with all processors. As them if it is proprietary to any processor or processing network. Common names that should immediately set off red flags is LinkPoint and Eclipse.

  3. They obfuscate their fees

    The fees associated with merchant accounts, even though simplified several times over by the processing banks, can still be complex and more then most merchants can understand. Some merchant account providers take advantage of this by trying to position their fees in a way that is very misleading.

    An example is the AVS fee. AVS must always be performed, or more accurately, is always performed for all non-swiped transactions. Unfortunately some merchant account providers prey on their potential merchants by not telling them this. Then when they disclose their fees they separate their AVS fee from their transaction fee. This causes the merchant to think their rates are actually lower then they think they really are. Of course the merchant doesn’t realize their mistake until they get their first statement and at that point they are almost certainly locked into a long term contract. The merchant account provivder can always say they disclosed the fee. The fact that they did it in a potentially dishonest manner doesn’t matter to them.

  4. They have a comparison chart on their website

    Ever see a comparison chart where the company being compared to the “industry standard” just looks like their offer is an amazing deal? Their rates are so much lower then the “industry standard” and must really be a good deal. Right? Not quite. For starters, there is no industry standard. Merchant account providers can charge whatever they want to charge. Each company has different fees that they can choose to charge apart from the typical processing fees. But no provider is required to charge these fees and thus there is no “standard”.

    Naturally, the rates and fees you see listed in the “industry standard” are not accurate. Although technically there can be an industry average for fees there is no way to accurately determine this. This information is not publish and would require hundreds of companies disclosing their rate structures. Needless to say this has not happened and is not likely to happen. And, of course, these numbers are guaranteed to be inflated above any true average or what a merchant can find if they spend more then 5 minutes comparing providers.

  5. They charge you fees that only serve to make them rich

    There are a myriad of fees that a merchant may encounter while accepting credit cards. Most of these are normal and many of them a merchant will never encounter if they process their credit cards properly. Most of these fees are designed to encourage merchants to process their credit cards properly and to cover the costs of handling transactions that are not processed properly.

    However, there are some fees that exist solely for the purpose of the merchant account provider’s benefit. These fees are meant to penalize merchants, punish them, or take advantage of their lack of knowledge about merchant accounts. An example would be a set up fee. Establishing a merchant account is not difficult to do if a merchant account provider is even remotely organized and experienced. And since they stand to make a lot of money from establishing the account there is no need to make the merchant pay for the privilege of making the merchant account provider more money.

    A cancellation fee exists only to lock a merchant into an existing contract. This fee means once a merchant account provider has locked a merchant in, they don’t have to worry about losing the merchant as if the merchant leaves they get paid a hefty sum of money from this fees. It also means merchant account providers will do anything to land a merchant including using some of the tricks mentioned above. A cancellation fee combined with proprietary equipment usually means a merchant is stuck with their provider for years no matter how unhappy they are.

    Lastly is the monthly minimum fee. This fee exists for one reason only: to penalize small merchants. Although it is understandable that without this fee small merchants would be far less attractive to merchant account providers, for how little work is required to establish a merchant account, an efficient and organized merchant account provider can make it cost effective to sign up those merchants without penalizing them for being small.

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14 Responses to “Top 5 Reasons to Avoid a Merchant Account Provider”

  1. Jos

    So, instead of having a Merchant Account Provider, what is the alternative for selling online?

    Is Merchant Account Provider = Merchant Service Provider?

  2. Jim Conners

    A Merchant Account Provider is the same as a Merchant Services Provider. Merchant Account Provider is just a more specific way of saying it.

    You don’t want to avoid all merchant account providers. Just the ones who do any or all of the things listed in above. There are a lot who don’t do any of those and are worth considering should you ever need a merchant account.

  3. Jestep

    Have been debating to whether to comment on this for 3 days now.

    I have to admit that I break the reason #1. There are several reasons that I don’t put rates on a website. The main reason is that it is so easy to beat someone else’s rate on paper, that you loose customers for no real reason. If someone is shopping strictly off of price, they are almost always going to process with a company that deceptively prices their services. An honest company cant compete with this, because their rates are always going to appear higher to the unknowledgeable shopper. At the end of the month, the good provider may e cheaper, but on paper they just dont look it. We have done a ton of testing, and it is definitely a smart business decision for a good provider not to post their rates.

    The second reason not to post rates is that it is exactly what the deceptive companies do. In actuality, I would state #1 as exactly opposite. I would not trust a company that lists their rates unless Ii knew first hand, or from a very trusted friend that the company was ok. The providers that do list their rates are usually the ones trying to rip people off. You always see things like 1.45% and $.19 per transaction pasted all over websites, when in actuality it’s just a debit rate. These sites are the often the same ones with the ‘comparison chart’, so there’s definitely a backup check for those websites. Sure there are a few good companies that list their rates responsibly, but overall if a company lists them, they are probably not being entirely honest.

    Ideally every company would list their actual rates, and everything would be fine but it’s just not the case. Good companies would end up listing their real rates, and bad companies would list lower rates designed to deceive shoppers into thinking they were cheaper. Business owners overall just don’t have enough knowledge to differentiate between real rates and deceptive rates, and no matter how much a company tries to explain the facts it always comes across as self promotion by making your own business model look the best.

  4. Jim Conners

    Glad this was thought provoking. :) (Excellent response BTW).

    You made a good point that I want to discuss further. You point out that some merchant account providers display misleading rates to entice a merchant into believing they are an inexpensive provider. Merchants who do not know better might be, and not too infrequently are, suckered into a bad deal because they didn’t know exactly what those rates meant.

    Now who’s fault is that?

    The answer is where a great debate can begin. My angle on this is that it is the merchant’s fault. Why? It is no big secret that how merchant accounts work is more then most merchants understand. There really is not anyone to teach them the ins and outs of how it all works and what everything means to their business. But is this a good excuse for choosing the wrong provider? Would it be a good excuse for getting a loan with a high interest rate? Would it be a good excuse for choosing a location that gets little foot traffic? Of course not. A smart merchant will research any important decisions they have to make before they commit themselves to anything. Especially if it requires signing a contract.

    I will admit, again, that there are not a lot of resources available to merchants to educate themselves on making a good decision (isn’t that why we both started our websites?) but we both also know with a little bit of time and effort a merchant can learn quite a bit about how this all works and learn of the pitfalls that bite the lazier merchant in the rear. There are enough horror stories available online to at least cause a merchant to pause before making a decision.

    I also believe that the merchant who make decisions strictly on price are frequently the kind of merchants that strain a portfolio. I find they tend to be the biggest pains to deal with. They eat up time during the sales process and for months after their account is established nitpicking every little detail and penny. And, of course, they tend to process virtually nothing to make it worth the while.

    But I also feel listing rates is just one part of the sales process. Good rates (good rates not necessarily being the lowest) combined with a good sales pitch can overcome cutthroat rates offered by others. A good reputation and company representatives that are knowledgeable and can be reached easily are often times given great value by a prospective merchant and can justify a slightly higher cost.

  5. Anonymous

    […] After a recent post on the merchant account services blog, I thought that this was a completely appropriate post about deceptive merchant account fees. […]

  6. Josh Marks

    #5. monthly minimum - I feel that you have portrayed this fee in the wrong manner. I don’t quite understand how a monthly minimum of $20 or any reasonable amount is a ‘penalty’. It costs merchant service providers money to be in business. To be able to provide all of the services that allow a merchant to accept cards a provider has to generate a profit from every account.

    Compare it to any monthly fee you have. How about cable TV? If I don’t watch it I still get charged. Is that fair, yes. Why? Because it provides me with unlimited information and entertainment making my life more convenient. The same goes for a business owner and a merchant account.

    In my opinion it’s a justified fee as long as providers don’t abuse the amount collected each month.

  7. Jim Conners

    You use cable TV providers as an example but it is not an accurate comparison. Cable TV providers don’t charge you a monthly fee and then also charge you to watch TV. Merchant account providers make money every month from the merchant’s statement fee plus they make money every time a merchant processes a sale (and most likely for every transaction). Merchant account providers also have other “legitimate” avenues to make money such as from selling equipment and referring the merchant to American Express and Discover Card. Smaller merchants may not be lucrative individually but having a large portfolio makes them much more attractive as a whole. If a merchant account provider is efficient in establishing merchant accounts their overall costs in boarding these merchant should be negligible.

    Charging a monthly minimum fee may make a smaller merchant attractive to the merchant account provider but that doesn’t make it reasonable for the merchant to accept this fee as being necessary. Plus when there are plenty of merchant account providers who offer merchant accounts without this fee, why should any merchant find it acceptable to pay it?

  8. ShoeString Steve

    Wait, how can #5 be bad? In a previous article on this site, /article/payment-gateways-reviewed/6 , ALL of the payment gateways reviewed have both a large setup fee and a monthly minimum fee. And these are the industry leaders! What gives? If there are merchant services out there that don’t have a setup fee or a monthly fee, and also have equivilent (or lower) per-transaction rates, why didn’t THOSE services get reviewed?

    My budding business is going to be selling software. Hopefully many thousand units. I’d rather pay’s $300 startup fee plus 10 cents per transaction than pay PayPal’s free setup but 30 cents + 1.9% - 2.9% per transaction.

    I’m currently looking at Plug n’ Pay despite their insanely high setup costs all across the board, because their Digital Downloads service would completely automate the fulfillment process for me, thereby eliminating the need for an employee to manually process every sale.

    (While I’m on the subject, does anyone know of any services equivilent to Plug n’ Pay’s Digital Downloads? Basically I’m thinking anything that works for ebook sellers, but isn’t limited to the ebook format, would work great for software sellers, too. I looked around briefly but couldn’t find any alternatives.)

  9. Jim Conners

    Payment gateways are different and separate from merchant accounts. Gateways don’t charge monthly minimum fees. They charge regularly monthly fees for using their services and setup fees are normal. With merchant accounts the monthly minimum fee is not required and is in addition to the monthly fee. It does not all merchants equally (small merchants are the only ones who pay this fee). Also, setup fees are standard for payment gateways whereas for merchant accounts it rarely should be charged.

  10. ShoeString Steve

    Whoops, I just read the “Merchant Account Comparison” which explains the difference between a Merchant Account and a Third Party Processor. Sorry for the confused post. Where does the Payment Gateway fit in compared to a Merchant Account and a Third Party Processor? Does a Payment Gateway require a credit check? Is it even MORE exclusive than a Merchant Account? (It almost seems like it must be, since the flat fees are so high and they don’t change a %.)

    Here I was all excited about using Plug & Pay and recouping the startup cost over time, but now it’s starting to look like I’ll have to settle for PayPal, at least until I get big. :/

    (And this is a relatively minor point, but the Gateway Comparison article identifies Plug & Pay as a Gateway, and they do have a monthly minimum charge for some of the services they offer.)

  11. Jim Conners

    The payment acts as a credit card terminal for websites. It takes the credit card transaction and sends it to the processing bank for approval. It then returns the results to the website. You don’t need one with a third party processor because they act as the gateway as well.

    Setting up a payment is actually the opposite of exclusive. Anyone can get one. No credit check is required. You only need a merchant account to work with the gateway and that’s it.

    As for Plug ‘n Pay, the features they charge minimum fees for aren’t traditional gateway offerings. They are actually special services Plug ‘n Pay offers and bundle in with their gateway. As a result the pricing will be different from their regular gateway services.

  12. ShoeString Steve


    Does anyone know if there is a list of 3rd Party Processors who specialize in ebooks, software, or other digital content delivery? I’d like to compare prices.

  13. Chris Rempel


    Yes,, and serve as payment processors for ebooks, software and other digital goods.

    PayPal actually has very reasonable rates, but they enforce their TOS with an iron-fist, so make sure you’re within those parameters.

    Clickbank has a built-in affiliate network of over 100,000 affiliates, and it’s a great way to generate extra sales that way. Just set up a mirror site of your primary product page. CB also pays your affiliates for you directly, which creates some confidence on the endorsement end (affiliates like it).

    Clickbank has a $45.00 product activation fee.

    2CO is sort of just like PayPal, except their rates are higher and they have a signup fee.

    I’d say you’re better off using a third-party for info products and so on for the first bit, and then once your volume reaches a certain point, it will make more sense for you to get a merchant account.

    See this chart on WilsonWeb to see what I mean:

    Hope this helps


    Chris Rempel
    Accept by Phone, Inc

  14. Justice

    Most Gateways are a revenue source to their creators. When looking for a low-cost gateway, look for a software creator who does more than just create software. In other words, find a company who will be satisfied to make just a normal margin on your processing volume — and not nickel and dime you on the per-transaction side for the privilege of using their Gateway software. Now, the main reason Gateways like can get away with charging a nickel access their Gateway is is providing a service which requires little to no tech knowledge on the part of the merchant. However, you will notice that larger online retailers tend to have their own system in place based on these metrics:

    1. Ease of use for the consumer. [This makes Google Checkout an exceedingly smart choice, although most folks in the payment industry don’t want to admit it - due to what that thought means to their bottom line in the near future.]
    2. A flexible payment software the retailer can tailor in-house to accommodate their industry-specific needs - like you mentioned ebooks.

    The size of the online transaction is vital as well when making your Gateway provider decision. If your average ticket is less than $10, you may be wanting to explore the not-so-public world of micro-payment processing.

    If you are planning to make a good portion of your sales overseas, then you had best understand the PayPal currency conversion factors.

    If you have an in-house tech-savvy person, [who can handle API, JAVA, PEARL, and such] then you could start off with a payment Gateway software made by one of the companies who have other interests than charging you a set up fee or a nickel fee to hit their Gateway. In clear words, there are payment Gateways with a zero dollar set up fee and a zero per item fee; you just pay normal Interchange plus a margin to that company. NobelPay is one such gateway.

    And Google Checkout would be your other viable option - if you are not doing micro-payments. When you start talking about how iTunes makes any money processing micro-payments, you are entering a whole different segment of the payment industry.

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