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This article was originally written in 2002, and slightly tweaked thereafter. These days, most small site owners are best served getting using Paypal to accept credit cards..

A Creditable Saga

As you might imagine, most of the contributions I get for this silly little site are in the form of credit card transactions. For the longest time, we were doing these manually with one of the little card-swipe machines. This worked fine, but I wanted to automate it some more, because my office manager told me that if she had to type one more !&*#*& card number into that little machine, she was going to take an axe to both it and me.

Thus began my adventures in card processing. Over the past 3 years I have used 3 different card processors, with entertaining results.

I started out with Total Merchant Services. They worked very well for a while, then got into a nasty cycle of accidentally double-charging people. The day they did this to all 20 contributions was the day I started looking for a new processor.

Next I used Anacom. I loved these guys. Unfortunately they went titsup in the summer of 2001. Conveniently, they did this while I was in Japan. This caused a high-speed search over a low-speed modem for a new processor.

Which is how I found Authorize.net and their merchant account partner, Humboldt Bank. So far, they've been great. My major gripe is that they have occasional 5 minute outages where you can't charge cards. I run into this problem maybe once a month, it's not a big deal.

How it works

In order to process credit cards online, you need three things. The first is a Merchant Account with a bank. Next, you need accounts with the various credit card companies (like VISA, American Express, etc.). And finally, you need an account with an Online Credit Card Processor.

The Merchant Account is the key element. It is what ties everything together. Once you have a merchant account, and accounts with the credit card companies (these get set up at the same time your merchant account is created), you can charge cards.

No matter how you charge a card (online, using a card swipe machine, or even calling it in over an 800 number), the charge is routed through a clearinghouse. The clearinghouse is sort of the spider in the center of the web. It forwards your charge request to the right credit card company (or bank) for approval, sends back the results, and generally keeps track of everything.

Assuming the charge is approved, the money (less fees), gets deposited in a bank account of your choosing a few days later.

The Online Credit Card Processor is just another way of telling the clearinghouse to process a charge for you. Instead of using a card swipe machine, you do it over the net.

Authorize.net provides several interfaces to this process. For example, you can use them as a souped-up web-based version of a card swipe machine. Or if you're a bit geeky (like me), you can interface their systems to the final checkout stage of your shopping cart using some fancy HTML. And if you don't have a shopping cart, they can provide one for you. Authorize.net also provides a good merchant interface for checking on the status of charges, and so on.

How much does a Merchant Account cost?

Fees and charges vary depending on many factors, including how many cards you process, what the average charge is, and what your chargeback (disputed charge) percentage. The numbers listed below are the current basic fees charged by Humboldt and Authorize.net. If you do a good volume of business, and you don't get many chargebacks, you may well be able to negotiate a better deal.

First of all, on every charge, a Discount Rate percentage (2.4%) is deducted right off the top. This is how the credit card companies and clearinghouse make their money.

Authorize.net will charge a fixed Gateway fee of $0.30 every time you use them.

There is a monthly minimum of $25.00 for the combined Gateway and Discount Rate fees.

Humboldt Bank will charge you a statement fee of $10.00. Depending on who services the merchant account, there may also be a gateway fee.

You will also have to pay a Merchant Account application fee if you do not already have a merchant account. These have been dropping over time, currently Humboldt is charging $145. This is a one-time cost.

The bottom line is, even if you don't make a single charge, being able to accept credit cards over the net is going to cost you $35.00 a month. So unless you expect to do $500 a month or more in charges, it may not be cost effective. So depending on your expected charge volume, you will fit into one of two categories:

If you expect to sell more than $750.00 a month...

Then you should apply for a merchant account. Click here to visit Humboldt and fill out an application. When they contact you, be sure to inquire about any special deals they might have going.

If you expect to sell less than $750.00 a month...

Then you should consider a non-merchant account solution. These intermediary services do the charging for you, but charge a higher fee (usually around 10%). You also don't get the money quite as fast. On the other hand, the application fee and monthly minimums (if any) are much lower than with a traditional merchant account.

There are two such services that I have heard good things about, though I have not personally used them.

If you are selling digital products (ie: delivered over the internet), then you should consider ClickBank. They charge a $49.95 application fee, a $1 per transaction fee, and a 7.5% discount rate. So, on a $20 item, you'd pay $2.50 ($1.00 + $1.50) in fees. There is no monthly minimum.

If you are selling physical products (ie: you're sending a box somewhere), then look into CCNow. They charge a monthly minimum of $9.95, plus 9% of charges over $100.00 (in other words, the first $100 in charges every month is covered by the monthly minimum). There is no application fee.

Finally, consider PayPal

While not as popular as credit cards, PayPal is a quick and inexpensive way of accepting and making payments. Fees for commercial users are similar to credit cards, with no monthly charges, and no application fee. While I wouldn't recommend using PayPal all by itself, I do strongly recommend that you offer PayPal as an option. I get about 10% of my contributions through PayPal. Over the years PayPal has expanded to offer such services to merchants as directly accepting credit cards and providing shopping cart services.

If you are just getting your feet wet and don't want to spend any money out of pocket, start with PayPal.

One final note: If you open an account after using some of the above links, I may get a commission. All of this money will be donated to charity.

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