Editor’s Note: This post was originally published on Seattle 2.0, and imported to GeekWire as part of our acquisition of Seattle 2.0 and its archival content. For more background, see this post.
By Dominic Pouzin
Solve the puzzle
Since almost all businesses accept credit card payments, making it happen for your business should be a breeze, right? In fact, it is only after putting together several pieces of a puzzle that you will be able to make it happen. You will need a bank account (into which money will be deposited), but also a gateway account (to make transactions flow) and a merchant account (to debit credit cards). You can get all services from a single provider, or mix and match them. Sometimes it is more convenient (and cheaper) to use a single provider for everything. However, it can also weaken your payment system. If your merchant account provider decides to shut you down due to bad transactions (ex: chargeback), you’ll be glad to have separate bank and gateway providers. By only having to establish a new merchant account, you should be able to restore service a lot faster.
Know who you are dealing with
Hundreds (possibly thousands) of companies offer gateway and/or merchant account services. Unfortunately, many are quite happy to charge you a setup fee, open a merchant account with very low limits, and refuse to return your calls. Therefore it is critical that you check who you are dealing with before opening an account. The Better Business Bureau (http://www.bbb.org/us) is a reliable place to check on most providers. Also consider Google searches using keywords such as “complaints”, “scam” or “rip off”: they can yield interesting information. While some of the rant may just be noise, the law of large numbers should give you an idea of what you are getting into. Nevertheless, be aware that some review sites exist for only one reason: to give a 5 star rating to partners and collect referral fees. Finally, be aware that many providers repackage offers from others after tagging on additional fees. If possible, go to the source and save some money.
Dura lex, sed lex
Or in English, the law is hard, but it is the law. Unfortunately, the entire industry is plagued by fees: application fees, setup fees, technology fees, international fees, transaction fees, minimum fees, reporting fees, and dozen others (this is by no means an exaggeration). The key thing to remember is to carefully review the 5-to-25 page agreement you will be asked to sign (tip: search for “fee”). One common tactic we’ve encountered is to make everything free, but charge a hefty cancellation fee. We found several providers charging 300 dollars for cancelling before a long 3 year period. Ask your provider if some fees can be waived, and get a confirmation in writing. If there is any disagreement, file a complaint with the Better Business Bureau: others will thank you for it.
Know your limits
All merchant account providers will ask you to provide an estimated monthly volume and average ticket price. What they are trying to do is assess risk and decide what limits to put on your merchant account. The risk to the merchant account provider is real. Anybody with a pile of stolen credit cards and a merchant account can debit them and wait for the money to be deposited into their bank account. If the limits you received are too low, consider offering a personal guarantee. This will require a credit / background check, and engage your personal liability. Also be aware that the merchant account provider will probably require you to have an SSL certificate, a return policy, a privacy policy, and a price list. Additional documentation such as a product brochure may also be requested. So apply only when your web site is ready.
Code it
To process credit cards, you must write code that is compatible with the gateway account’s API. Check if the API suits your development expertise. If you run on 64 bit Linux and the API requires you to reference a 32 bit Windows DLL, expect problems. Also consider features such as: account management, transaction reporting, electronic receipts, integration with other products (ex: QuickBooks), service uptime, support for recurring payments, and so on. To process credit cards, you must also comply with specific industry regulations. Your web site will be scanned by security tools to ensure it remains protected. You will also need to decide which level of protection you want to use. Credit card and address verification options protect you against fraud, but can also result in failure to process transactions from international customers.
Tax it
You may be surprised to learn that you will be responsible for calculating taxes and submitting the full amount to the gateway API. Taxes vary by location, industry, and product. This makes it difficult for gateway providers to calculate taxes on your behalf. Due to recent changes in Washington state law, tax is now “destination based”. Practically speaking, residents from one city may be charged different tax amounts from those of another city. Converting an address to a tax rate is a difficult problem. Fortunately, the state has added a Web-based API to convert physical addresses to tax rates. Take advantage of this API to speed up development.
The industry is complex and difficult to navigate. It is also plagued by hidden fees and some level of paranoia (which is understandable, given unprecedented levels of fraud). The largest companies do so much volume that they need not care about emerging businesses. The whole exercise can be time consuming, so start early, and read the fine print. Separating the wheat from the chaff is difficult, but some review sites link to the Better Business Bureau and provide accurate information. And by the way, our own payment system is still not quite ready, so all the best!
