Charging Ahead

Once you understand how the merchant card approval process works, the next step is finding a place to apply. Look for a credit card processor in your own backyard, advises William Murray of Network Consulting Service. "Your banking relationship is what you've got going for you if you deal with a commercial bank," says Murray, whose Sterling, Virginia, company publishes a newsletter on the credit card industry.

If your bank, like Greenlee's, turns you down, consider independent companies. After being turned down by two big banks, Greenlee went to Commonwealth Bank, a 55-branch institution based in Norristown, Pennsylvania. By this time, he was disillusioned with the whole process and about to give up. "They told me they didn't do merchant card processing themselves but could refer me to Credit Card Processing Services, who did it for them. All I needed to do was open a business account at the branch," recalls Greenlee.

In addition to proof of business ownership and a credit check, Greenlee showed his product catalog and verbally explained his marketing plan. He got a rush approval in five days with cheaper rates and no long-term contract.

While independents, which can be found in the Yellow Pages, often give the best rates because they have lower overhead, Murray cautions their application process tends to be more time-consuming, and start-up fees are sometimes higher. Going directly to companies like American Express and Discover could be cheaper, he says.

When you find a processor who seems willing to work with you, there are a number of fees you can expect to pay--all of which are negotiable except for the discount fee.

• start-up fees from $50 to $200

• equipment costs of $250 to $1,000, depending on whether you lease or buy a handheld terminal or go electronic (Murray advocates purchasing outright)

• monthly statement fees of $4 to $20

• transaction fees of 5 cents to 50 cents per purchase

• the discount rate--the actual percentage you are charged per transaction based on projected card sales volume, the degree of risk and a few other factors (the percentage ranges from 1.5 percent to 3 percent; the higher your sales, the lower your rate)

• chargeback fees of up to $30 per return transaction

• other miscellaneous fees, including a per-transaction communication cost of 5 cents to 12 cents for connection to the processor, a postage fee for sending statements, and a supply fee for charge slips

This article was originally published in the April 1997 print edition of Entrepreneur with the headline: Charging Ahead.