According to the U.S. Census Bureau, there will be a projected 181 million credit card holders living in the country this year. That’s over half the population. I could get into even more detail about the numbers, but it’s pretty obvious that if you don’t allow your customers to pay with credit cards, you’re probably missing out on quite a bit of business.
However, there’s a problem…
Whether you’re just getting started with your first e-Commerce store, or expanding your brick-n-mortar shop into the online world, you’re going to face the same question. Do I sign up for a merchant account right now?
A better question to ask yourself is; “will the increase in sales that I obtain by allowing my customers to pay via credit card, exceed the costs that will be associated with offering that option in the first place?”
Even if you don’t process any transactions for any given month, you still have to pay some sort of monthly fee. There are payment gateway fees, statement fees, monthly minimum fees etc…, so it’s possible that you’ll have to shell out as much as $60/month just for the ability to process credit cards. Not to mention, some providers will require you to leave a percentage of your sales revenue with them as a sort of insurance policy against chargebacks, fraudulent charges or bankruptcy (see “rolling reserve”). To top it all off, there’s always the possibility of having your funds withheld by the bank due to any number of risk-related issues.
As a bootstrapping merchant, just adding an extra $60/month in overhead might be enough to put you out of business, let alone having to cover a rolling reserve. So, you better be sure that you’ll be able to handle the possible financial burden that will accompany a merchant account.
If you’re a small business, and you’re just developing your online presence, chances are that it’ll take some time before you have enough sales or cashflow to justify the cost for merchant services. But the problem is, that without the ability to process credit cards, you’ll probably miss out on those same sales that are supposed to help you grow to that level of justification. It’s a typical Catch-22.
The Third-Party Payment Processor
I personally like taking things in steps. Third-party payment processors will allow you to do just that.
Third-party payment processors like Paypal and Google Checkout allow you to add the Visa and Mastercard payment option to your website without burdening you with the costs of a traditional business merchant account. They just charge you a percentage of the transaction, and that’s it. No recurring monthly fees.
*Note: Paypal does have a merchant account option (Website Payments Pro), but I’m not talking about that, I’m talking about their simple third-party platform (Website Payments Standard). The platform that requires you to send your visitor over to Paypal in order to make a payment, instead of allowing you to process them directly on your own website.
Once you add that functionality, you can then monitor your sales. Have they increased? How many visitors are paying via credit card? Can you afford a merchant account now?
Personally, I would get setup with something like Paypal and let it run for a few months. I’d let my traffic grow, let my sales grow and stabilize, save up some money, then I’d start shopping for a merchant account. That way, you’ll have enough reason, and hopefully enough cashflow to take that next step.
FeeFighters has a pretty cool calculator that’ll help you compare costs between Paypal and a traditional merchant account. Definitely worth a look.
Here are some well known third-party payment processors. Keep in mind that I haven’t done any research on any of these companies just yet, but I do plan on adding reviews for all of them soon:
- Google Checkout
- Amazon Check Out