Home based business merchant account - a quick guide
For a home based business obtaining a merchant account or a method of accepting online credit card payments is one of the initial expenditures. Considering that many internet home based businesses are started with low capital, in some cases virtually no capital, a merchant account is a large cost. I deal with business start-ups on a weekly basis and have hence put my knowledge to paper in this fast and rough guide to deciding on your home based business merchant account.
Deciding on a bank or service to use for your home based business merchant account
It is not necessary to obtain a merchant account for your home business with your bank. In fact in many cases you do not need a merchant account at all as there are alternative services available. Let me give an overview of each option:
Bank merchant account
These are not easy to obtain. Banks are not keen to issue an internet merchant account in the same way they issue shop floor accounts, hence the rise of alternative services. However things have improved and if you have start-up capital for your business you will probably find that in the long term this a cheap option.
In theory a home based business merchant account itself is not all that is required. A payment gateway is required. This is a service which allows your account to be accessed through the internet. Sounds complicated? It is technical rubbish. Your bank should be able to offer a complete package which includes both so that you do not need to worry about it. The reason I am making you aware of this is that the bank may bring it up. Also you may find a more competitive Payment Gateway company than the service offered by your bank. In which case your home based business merchant account would be with your bank and your Payment Gateway would be with another company.
Worldpay bureau account
Worldpay is probably the most popular service for small and medium businesses to obtain a merchant account. They provide you with everything required and a host of features. You can take payments online or by telephone, you can issue refunds and most importantly you can charge recurring payments for services such as subscriptions. You do not need to worry about a Payment Gateway as the service includes this.
Worldpay are well advertised and well used. But their popularity and the reputation that bank merchant accounts are difficult to obtain has blinded people to the fact that they can often get a better deal with a bank. Worldpay are expensive. They have standing yearly charges and an expensive commission rate.
They are however reputable, provide a comprehensive range of features and other than expense they have no drawbacks.
PayPal
Originally designed as a service to allow people to send money to each other using a credit card. Joe makes a credit card payment to PayPal and specifies that it should be sent to Mark. Mark receives and email to say his money has arrived. He logs into his PayPal account and the money is there minus PayPal’s commission. Simple. PayPal later streamlined their service to allow businesses to use the service.
PayPal have no standing charges and anyone can open an account with them and start trading. They have a reasonable rate of commission.
The difference is that anyone can open an account with PayPal and therefore customers have no guarantee of where their money is going. A bank or WorldPay would verify a business before allowing them to trade. PayPal does not. There are other drawbacks. You cannot issue refunds using PayPal. Also the payment procedure is not as simple as other services and can deter customers.
But the largest drawback to using PayPal as your home based business merchant account is their reputation. Our dealings with PayPal have never been good. They operate unprincipled policies which are a dangerous deal for businesses. The court cases against them have been numerous. I myself have lost significant amounts of money because of their policies. Dealing with PayPal is a necessary evil. Unfortunately no other company offers such a cheap and universal service.
NoChex
The NoChex service is much like PayPal’s in the way it works. Using NoChex as your home based business merchant account has advantages over PayPal: their commission rate is cheaper, their check-out procedure is simpler for customers, and most importantly their business policies are not a threat. However they have some disadvantages. NoChex will only accept up to £100 from a customer per day, and only from UK credit/debit cards. So if your orders average over £100 NoChex will be of no use to you.
Our systems use a PayPal/NoChex combination. If the amount is under £100 then the customer is makes payment through NoChex. Otherwise the system presents the customer with the PayPal check-out.
Conclusion
Where a merchant account is too expensive for your home based business then consider using PayPal or NoChex. Where there is capital and extra features are required then speak to your bank. If the bank refuses you try WorldPay.
Please feel free to email me at t05@kenet.co.uk if you have any questions. Advice is free and I am happy to help.
