In 2011, $1.9 trillion were charged in the U.S. alone. Online transactions were a major contributor to that figure. Credit cards are now being used to pay for both large business-to-business transactions, along with $1 bottles of water at convenience stores. Unfortunately, choosing a credit card processor is not a straightforward decision, due to variations in fees charged and services available.
The first step is to research the different types of credit card processors. Your bank is probably the first place to look, as they probably offer a business package that includes merchant services. Most banks do not actually process credit card transactions themselves, but typically outsource the work to a third party credit card processor. The bank will look carefully at your business before they decide whether or not to accept your application. Another alternative is to use an independent sales organization (ISO). These are registered credit card merchant brokers who may represent one or more third party processors. They set-up and service credit card merchants, but do not do the actual processing. An ISO may be less selective than the bank, but probably will charge more. Be very careful when evaluating potential ISO suppliers. Some are reputable, established companies that provide good customer support. Others may be “questionable” operations.
To qualify for a merchant account, the service provider wants to be sure that you are a legitimate business. They will check the credit history of the owners or officers, and require credit references from your suppliers. An important concern for the providers is whether your business is likely to have a high incidence of chargebacks. A chargeback is a reversal of a sale that was initially credited to your account. The chargeback may result from an error made by the cardholder's bank, a misunderstanding by the customer, or fraud. Typically, the sale of tangible products is considered be much safer than the sale of services. Providers will also consider the type of credit card transactions that you will primarily be doing. Card-present transactions are sales where the merchant physically swipes the credit card and obtains a signature in person. These are considered to be much safer than card-absent transactions that occur by phone, mail or online. Being a higher-risk merchant will not necessarily prevent you from obtaining a merchant account, but it may increase your costs.