How to become a credit-card merchant – Working Smarter – Column

Paul Edwards

Businesses can increase income by offering customers the ability to say “charge it” with MasterCard, Visa, American Express, or Discover cards. In fact, credit-card industry experts claim that taking charge or credit cards can increase a company’s business by 10 to 50 percent, depending on the type of business and its particular clientele.

Jack Rickard of Boardwatch magazine, which covers the electronic bulletin-board industry, says that accepting Visa and MasterCard is a must for making a bulletin-board system (BBS) into a profitable business. “We very conservatively project that any BBS with cash flow based solely on mailed checks will, at a minimum, increase subscriptions fourfold by taking MasterCard and Visa,” says Rickard.

But banks usually categorically deny vendor status to home-based businesses. Bankers are closemouthed about the reasons for this policy; we’ve been unable to determine whether the source of this policy is the banks themselves, the federal examiners who regulate banks, or the Visa and MasterCard organizations. Whatever the cause, it’s a fairly blatant form of discrimination. However, we do know that individual banks can and do make exceptions.

While clients or customers are more likely to have a Visa or MasterCard, you may also be able to benefit by taking charges from holders of American Express and Discover cards. Marketing Week (in its January 7, 1991, issue) reported the following market shares for each of the principal credit and charge cards: Visa–45 percent; MasterCard–28 percent; American Express–22 percent; Discover–5 percent.

An American Express merchant account ([800] 528-5200) is easier to obtain than a Visa or MasterCard account. The Discover card ([800] 347-6673) is reportedly as difficult to obtain as Visa or MasterCard.


Here are three basic avenues for securing a Visa or MasterCard merchant account.

1. Financial Institutions. Since banks are the most frequent source of merchant accounts, try your own bank first. Your bank already knows you as a customer and may therefore make an exception for you. If your bank denies you an account, try small independent banks. Banks in smaller communities are also more apt to work with home-based businesses.

When you approach the bank, ask to speak with an officer. If he or she resists, offer to buy a $1,000 certificate of deposit, to be pledged against potential credit-card losses. According to Larry Schwartz and Pearl Sax, founders of the National Association of Credit Card Merchants, which helps companies use credit-card systems, banks need reassurance that handling your business will be both safe and profitable. The $1,000 you might tie up in a certificate of deposit in a year is about what you might end up paying in fees if you go through a bank agent, as described below.

You may find financial institutions other than commercial banks more willing to work with you. Savings and loans, thrifts, and even credit unions sometimes offer merchant accounts.

2. Business Organizations and Trade Associations. A second avenue for getting a merchant account is through membership in business organizations or trade associations, many of which provide access to Visa and MasterCard accounts as a member service.

Examples of organizations that may be helpful are the Retail Merchants Association, the Direct Marketing Association, and others specifically related to your industry. To find trade associations in your field, use Gale’s Encyclopedia of Associations, available at the reference desk in most libraries or on-line through Dialog or CompuServe’s IQuest reference database service.

3. Independent Sales Organizations. Still another way to get a merchant account is to work through an independent sales organization or bank agent. Independent sales organizations act as intermediaries between small businesses and banks. These companies derive their income from selling electronic point-of-sale terminals to use in processing credit-card charges–plus a percentage on top of the transaction fees charged by the bank. Therefore, you can expect to pay a bank agent significantly more for a point-of-sale terminal ($1,000 vs. several hundred dollars) than you would if you were buying one from another source. Likewise, you’ll pay 4 to 7 percent on transaction fees, compared with the 2 to 5 percent you might expect to pay a bank.

The following independent sales organizations will work with home-based businesses: Bancard ([303] 530-0264; [800] 666-7575); Cardservice International ([818] 593-3500; [800] 456-5989; Shawn Skelton); Data Capture Systems ([605] 341-6461); Datacap ([818] 331-1003; Tim Mahan); International Bankcard Systems ([303] 691-2513; Diana Summers); R. E. Mulhern Co. ([800] 245-2558; Victor Crofts).

Regardless of the source from which you seek to obtain merchant status, chances are you will need to meet face to face with an official before your application is approved. Remember that he or she is looking for assurance that you and your business will be stable and successful.

COPYRIGHT 1991 Freedom Technology Media Group

COPYRIGHT 2004 Gale Group

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