Wednesday, June 24, 2009

Merchant Services - Holy Cats!

I stopped at the bank today and at least I got an assistant manager. He was a little more knowledgeable then a traditional personal banker but not by a huge amount. One thing I did check out was their merchant services and holy cow its not cheap to start.

Set up: $95
Monthly: $11.95 a month
Transaction Fee: 2.12% + 20 cents

I hate set up fees. What a kick in the teeth to your customers. Hi, we not only want your business but we are even gonna charge you for the pleasure of doing business with us. Normally this would not be so bad but it does not include the Gateway.

The merchant is who actually processes the money. A Gateway is who provides the application to actually accept payments online. Think of your bank as the merchant, and that little terminal you slide your card through as the gateway.

The Gateway everyone seems to use is authorize.net. Their costs look like this:

Set up: $150
Monthly: $19.95
Per Transaction: 30 cents

So if I use a merchant processor, plus a gateway, I am looking at a set up of $245, a monthly fee of $31.90, plus transactions of 2.12% plus 5o cents. Holy cow this just doesn't seem cheap.

The other options I am looking at include:

Yahoo Merchant Solution

Yahoo hosts the site and acts as the gateway. All you need is a merchant account.

Set Up: $0
Monthly: $39.95 ($25.97 for first 3 promotional)
Per Transaction: 1.5%

So with a merchant account I am looking at $95 to set up, $51.90 a month and a transaction fee of 3.62% plus 20 cents. At first glance it seems high, that does include hosting with 99% uptime. Less I have to worry about and it allows you to take paypal as well I believe.

Webstore by Amazon

Amazon hosts the site and takes the payment for you. No merchant account needed and no gateway needed.

Set up: $0
Monthly: $59.99
Per transaction: 7%

What I like about this, no merchant account needed. It includes hosting and processing of the payment. Also you can interface it with Amazon's fullfillment system too.

Shopify

I found this one too and depending on the number of transactions and monthly fee I thought it would be competative with Yahoo. Unfortunately I think you need a gateway here as well. I will display just the cheapest option.

Set up: $0
Per Month: $24
Per Transaction: 2%

So with merchant services we are looking at a $290 set up fee, $55.90 a month and 4.12% + 40 cents per transaction. They also host the site for you but it seems a tad pricey.

PayPal

Paypal is appealing in many respects. I do worry about the hold on accounts that they are notorious for but they are also competitively priced, and act as the gateway too.

Set up: $0
Per Month: $30
Per transaction: 2.9% plus 30 cents (as volume goes up, price goes down)

Of course if I wanted buyers to go to a PayPal hosted website I could avoid the$30 fee but I just think it looks more professional if it is done on your own site. If you have a merchant account you can use their gateway which seems to price about the same but does allow you to offer paypal.

First Data

While First Data has solutions, I can't speak to their pricing right now.

Best Option

I had a gut feel what would be the best way to go but to be sure I ran the numbers based on what I think my product will cost. To be candid, I was frankly suprised at the results.

If you take out the upfront costs (since they are sunk), hosting yourself is always cheaper with a traditional merchant account. Of course there is more work and development costs upfront too. I thought PayPal would be cheaper but it is not. Now if you amortize those costs over 12 months, PayPal looks cheaper but over several years, PayPal does not come out ahead. This frankly suprised me.

If you want to go with a hosted solution, Yahoo seems to be the way to go, up through, in my case, around 300-400 transactions a month. After that, it is cheaper to go the Shopify route. I knew Amazon would be a little more expensive but was frankly suprised at how much more expensive. On low volume sites they are competative but at a certain point your costs almost double.

To be candid, I was leaning towards Amazon given the easy check out and good fraud protection but after seeing the numbers I am leaning towards the Yahoo route. While it would be cheaper to host it myself, I worry about my technical aptitude. Now if you have multiple sites you want to host, the numbers would need to be rerun as Amazon lets you host an unlimited number of sites with your hosting account. Since I am just running one, it is not competative for me.

I created an excel sheet comparing merchant costs if anyone wants to share. Just leave a message and I will send it along. Not very sophisticated but then again, I am not an excel guru. What have your experiences been?

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