The Old Joel on Software Forum: Part 4 (of 5)

Merchant Accounts

I've been looking into moving away from "payment processing services" like ShareIt and PayPal, and getting a merchant account that would allow me more flexibility in how I accept payments from internet customers. So far, I've read several difference merchant service companie's policies, and haven't been able to make heads or tails of it. Has anyone ever done this, and can you explain the good, bad, and ugly in a nutshell?

JT
Friday, February 20, 2004

We did it. It's ugly.

Basically, it's difficult to find someone that will give you a merchant account that you can hook into YOUR own store.

Your best bet is to call your bank, Chase, CitiBank, whatever and tell them you want a merchant account and you want to do authorizations via your electronic store which you've written yourself (I'm assuming). If not, no worries because they will have partnered with someone who will give you "shopping-cart" software.

But my advice is to pick a bank and then go through the merchant account services of the bank to find your payment processor. You can' t go the other way around.

Michael H. Pryor
Fog Creek Software
Friday, February 20, 2004

We had a merchant account with Cardservices International. They kind of specialize in mail-order and small shops that normally can't get merchant accounts through their local bank (our bank wouldn't give merchant accounts for mail order or internet).

The good is, it's pretty straightforward, the money goes straight into your bank account, and the fees are only around 3% (compared to 25 or 30% you pay for online stores).

The bad is, you have to sign up to a minimum term (like 4 years at $60 a month service fees), and buy special software or a credit card terminal from them (around $800-$1K). Also you are responsible for customer chargebacks. We didn't get very many, but certain people would buy the product then claim they didn't, or they'd buy with a stolen credit card and the bank would deduct the money out of your account, plus $15 or $20 service fee, and there was nothing you could really do to protest. But that was less than 1% of the sales in our case.

They probably also have an automated system or scripts you can put on your site, but we didn't use that, just the special software that let us take either phone or internet orders (some people still aren't comfortable with internet, so it's nice to have the option to take orders over the phone).

Cubist
Friday, February 20, 2004

Specifically, what things are you wanting to do that PayPal or ShareIT don't allow?

My first merchant account was a nightmare because I wasn't aware that I was signing my life away. Even though I was selling software online, I paid a huge fee for a processing machine that I didn't need. But hey, that was really my fault for being naive.

I'm a bit wiser today, and I still have a merchant account but it's more for my consulting clients than software sales. For software sales, things like PayPal and ShareIT seem to cover the bases fairly well.

Mark Hoffman
Friday, February 20, 2004

My biggest complaint with PayPal and ShareIt is inflexibility. For example, I recently bought some software from a company that sends you a discount code after you download the demo. It's good for only 48 hours, and then it expires. Something like this could be done with paypal, although it would be somewhat difficult to make it work with IPN (though not impossible). With ShareIt, to make it work you would have to go into their web interface and create a new "promotion" by hand, no way of automating it and doing it the moment the potential customer downloads the trial.

My second biggest issue is just the unprofessionalness of it. You never visit a "serious" software company and find them asking for paypal, they always have their online store built as a part of their own site. As my company becomes more and more "serious" (It's been my full-time, only income for several months now), I begin to be concerned about not looking like an amateur.

As for the pricing, I've been looking at some of the authorize.net resellers, and I've found some with pricing that seems reasonable (of course, who knows what's in the actual service contract). For example, one company offers only internet and "virtual terminal" service. No hardware, and no up-front costs. Seems to cost about $25 a month with $0.25 + 2.2% per transaction. Compared to the $2.95 + 5% that ShareIt costs, it's a steal. Paypal is $0.30 + 2.9% (at worst), so if volume is reasonable, a merchant account is still cheaper. (http://www.freeauthnet.com/index.html anyone else is curious).

That's the good. I can't find anything on the web site about a length of service agreement, but of course that doesn't mean it's not in the fine print. Still looking for the bad and the ugly...

JT
Friday, February 20, 2004

http://www.echo-inc.com/echonline_rates.html

With many integration options listed at http://www.openecho.com/

Saturday, February 21, 2004

It seems to me you are setting your self up for a lot of extra work to implement this and you probably still won't have a lot of the facilities your existing providers have (fraud protection or phone orders for instance.)

Wouldn't it make more sense to spend this time marketing and enhancing your product?

Tony Edgecombe
Saturday, February 21, 2004

"Wouldn't it make more sense to spend this time marketing and enhancing your product?"

Yes, but appearances and flexibility for customers*IS* marketing. The first response to this thread was from one of Michael of Fog Creek. Perhaps he would tell us what Fog Creek's rationale was for setting up a merchant account rather than using paypal or something else, and whether it has payed off as expected (or unexpected). Michael?

JT
Saturday, February 21, 2004

A friend of mine ran an online store for over a year. At first he only took Paypal, until he did some web log analysis. He found that a lot of people would browse the store, put things in their shopping cart, go to check out, hit the Paypal page,
...and leave.

When he added credit card processing, his sales increased immediately.

Philo

Philo
Saturday, February 21, 2004

I'd echo the sentiment that Paypal looks unprofessional.

Also, you're much less protected (as a customer) when paying via paypal. If I authorize a payment via visa and then the merchant screws me over (as has happened once or twice) I could write a letter to visa reversing the charge.

To my knowledge you can't do that with paypal.

So... as a customer I avoid anyone who accepts only papal.

As a merchant, we process through NOVA, which we get through our Costco membership.

No monthly charges and about 2% charge per transaction.

I recommend talking to your shopping cart vendor/service provider for suggestions of a cc vendor.

We use
http://www.coolcart.com

I know that they have gateways built to some of the major cc processors. Bruce @ Coolcart might be able to help you out. And his cart is pretty cheap ($10 a month).

The real Entrepreneur
Saturday, February 21, 2004

A customer can absolutely make a credit card chargeback as a result of a problem with a transaction processed through paypal. A common complaint from sellers (typically eBay) who use paypal is they have little defense in these cases.

Doug
Sunday, February 22, 2004

Does anybody have any experience with a reasonable merchant that provides service to Canadians?

I just looked at Nova and they look great! Except they don't serve Canada. :(

Canadian_Vendor
Monday, February 23, 2004