Creating a Merchant Account for Your eBay Business

By Marsha Collier

If your eBay business is bringing in more than $20,000 a month, a credit card merchant account may be for you. At that level of sales, discounts kick in and your credit card processing becomes a source of savings to your business rather than an expense. Before setting up a merchant account, however, look at the costs carefully. Charges buried in the small print make fees hard to calculate and even harder to compare. Even those who advertise low fees often don't deliver. Be sure to look at the entire picture before you sign a contract.

Keep in mind, too, that when you have a merchant account, your provider may choose to create a reserve account for your incoming funds. These reserves may be based on the type of merchandise you sell or your chargeback history, or just pop into existence because your provider chooses to have them. In some cases, as much as 20 percent of incoming funds are held in reserve.

The best place to begin looking for a merchant account may be your own bank, where they know you, your credit history, and your business reputation and have a stake in the success of your business. If your credit isn't up to snuff, try building good credit before pursuing a merchant account.

If your bank doesn't offer merchant accounts for Internet-based businesses, find a broker to evaluate your credit history and hook you up with a bank that fits your needs and business style. These brokers make their money from your application fee, from a finder's fee from the bank that you finally choose, or both.

After you get a bank, you'll be connected to a processor, or transaction clearinghouse. Your bank merely handles the banking; the clearinghouse is on the other end of your Internet connection when you're processing transactions, checking whether the credit card you're taking is valid and not stolen or maxed out.

The next step is setting up your gateway, the software (ICVerify or PCAuthorize, for example) with which you transmit charges to the clearinghouse. Some gateways use HTML websites and take the transactions directly on web-based forms (Cybercash or VeriFone, among others). Web-based gateways connect your web forms to real-time credit card processing.

Various possible costs associated with setting up and maintaining a merchant account are outlined here.

Possible Internet Merchant Account Fees
Fee	Average Amount
Setup fee	$25.00 to $250.00
Monthly processing fee to bank	2.5% (1.5% to 5%)
Fee per transaction	$0.20 to $0.50
Processor's fee per transaction	$0.35 to $0.50
Internet discount rate	2% to 4%
Monthly statement fee	$9.00 to $15.00
Monthly minimum processing fee	$15.00 to $30.00
Gateway monthly processing fee	$20.00 to $40.00
Application fee	$50.00 to $500.00
Software purchase	$350.00 to $1,000.00
Software lease	$25.00 per month
Chargeback fee	$15.00

Remember that some merchant accounts charge you some of these fees and others may take a bunch of little swipes at your wallet. Carefully read everything a broker offers. Be sure you aren't missing any hidden costs.