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Can somebody explain to me how reselling merchant accounts work?

Discussion in 'Payment Processing' started by Knertified, Jan 4, 2006.

  1. #1
    I understand the difference between payment gateways and merchant accounts. However I don't understand the process involved in reselling merchant accounts. I assume this how to go through a bank of some sort.

    I wan't to start reselling merchant accounts with payment gateways. If i want to offer merchant accounts, how does it work?

    My two guesses are:

    1. Each new customer needs applys for a merchant account and I setup them up as child accounts under my main parent merchant account with a bank.

    2. Each new merchant account is virtual and all transactions are posted to my 1 bank merchant account. Each night i split up the transactions and deposit the funds into the customers checking account.

    Can someone shed some light on how this works? :)
    SEMrush
     
    Knertified, Jan 4, 2006 IP
    SEMrush
  2. Juls

    Juls Well-Known Member

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    #2
    heh no it doesn't work like other of your two guesses.

    Basically, if you want to resell merchant accounts you need to find a merchant account affiliate program or a merchant reseller account.

    You would market your services/products and get them to sign up.

    They would fill out the necessary paper work and you or they would submit it to the company you work with for approval.

    I believe the company would then take on all further communication with the customer.

    Hope that helps.

    Maybe someone who actually does it can help you out better.
     
    Juls, Jan 4, 2006 IP
  3. jestep

    jestep Prominent Member Premium Member

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    #3
    There would be a few options for you depending on how much work you want to put into it.

    The easiest would be referring your customers to a merchant account provider. This would involve very little work on your part and you would normally be paid on a per account basis. For example, my company pays referrals about $50 / account.

    The second options which is much more complicated, would be a reseller for a merchant account provider. With a setup like this, you would take all of the steps to qualifying and having your customers fill out applications, etc. Then you would submit the merchant account application as yourself as the agent, to the provider you are reselling for. You would be responsible for more, but not all customer support, and other factors.

    With a setup like this, you would make a residual income contract with the provider. You would receive a percentage of the processing fees collected by the merchant provider. Over time these fees can really add up, but it definitely takes a lot of work on your part. We have several resellers making 5+ figures per month, but they do it full time. Our part time resellers normally make much less, but still can be a decent paycheck each month. It does take a while to get a good revenue stream, but once you have customers you will make money as long as they are processing.

    What it really comes down to is how much time you are looking to put into it, and how easy it id for you to gain merchant account customers. Small town resellers seem to have very good results, while resellers that live in cities have huge competition.

    As far as banks go, they normally dont have resellers. They are resellers for a merchant service provider. Processing banks are completely different than normal banks. Most banks refer businesses to merchant account providers, and not the other way around.

    Let me know what else you want to know about it.
     
    jestep, Jan 4, 2006 IP
  4. Knertified

    Knertified Guest

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    #4
    Thanks for your response Juls, I think you are referring more to a reseller of a merchant account. I actually was looking into combining a merchant account and a payment gateway into one product for a customer (like most merchant account websites do). I'm just trying to figure out how to get a merchant account for a customer. I wanted to host the solution on my own servers and write the software apis to combine them together. However, if its not cost effective now, I would go the reseller route instead.

     
    Knertified, Jan 4, 2006 IP
  5. Knertified

    Knertified Guest

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    #5
    jestep, thank you for your response you and juls have both shed a little more light on the subject. When you say "merchant account provider"... Who is that? Thats what I don't understand.. is it normally a bank?


     
    Knertified, Jan 4, 2006 IP
  6. jestep

    jestep Prominent Member Premium Member

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    #6
    Sort of. I'll try to keep this simple to avoid confusion.

    There are 2 types of banks related to credit card processing. Your normal everyday bank (Washington Mutual, Bank of America, etc.).And, then there are processing banks, who strictly provide access to credit card processing services.

    A merchant service provider(MSP) is a company who's only purpose is to provide credit card processing and other merchant services. The MSP signs a contract with a 'processing bank' that lets the provider sell merchant accounts.

    Some normal banks provide merchant services as you are aware of. The banks that do provide merchant accounts, sign the same contract with the 'processing bank', as did the MSP.

    Essentially a normal bank and a MSP, provide the exact same thing as each other.

    Here's where it gets a little complicated. It is extremely expensive to become a registered MSP. Banks and MSP's have to pay the same amount, which costs tens of thousands of dollars. Most normal banks dont have the time or money to invest in providing merchant accounts. Banks that do actually provide merchant accounts themselves are Wells Fargo, Chase, and one or two other big banks. The rest just refer their merchant account customers to other banks or MSP's.

    My company is a MSP, as are companies like Ipayment, United Bankcard, Hartland Payment Systems, and other companies like these.

    Now, the benefit of processing through a MSP vs a normal bank, is the cost and quality of service. A good MSP is cheaper than any bank, and will provide far better support. Other than they the two are just about the same. Banks have customers already so they're not concerned about making their services cheap. Also, many businesses never look beyond their bank, so the bank can charge a lot without the merchant ever knowing they could be saving a lot of money.
     
    jestep, Jan 4, 2006 IP
  7. Knertified

    Knertified Guest

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    #7
    When you say "pay the same amount". What are you referring to, regulatory fees and taxes to the government or something else?

    Again thank you for a great response.
     
    Knertified, Jan 4, 2006 IP
  8. jestep

    jestep Prominent Member Premium Member

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    #8
    It would be more or less fees for registering with Visa and MasterCard, and regulatory fees. Taxes and anything government related would be completely separate. These fees are directly with Visa, MasterCard and any associated processing bank.

    Relating back to your original question. If you were reselling for a MSP, you wouldn't need to pay any of these. That is something that the MSP would do. You would be signing accounts through the MSP, and you would be the representing agent for each account you sign. The MSP would split revenue collected from your merchants, with you.
     
    jestep, Jan 4, 2006 IP
  9. Knertified

    Knertified Guest

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    #9
    Okay I understand now. So what your saying is most of these people are reselling MSP services and the x.x% + .xx cents/transaction is split somewhat between the MSP and reseller. I assume this would take a lot of customers making a lot of transactions to make it worth while for a reseller as you suggested. I'm assuming you would need a customer base atleast within the 100's to start seeing good income from an MSP, or am I off here?

    Thanks again




     
    Knertified, Jan 4, 2006 IP
  10. jestep

    jestep Prominent Member Premium Member

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    #10
    Thats probably about right as far as numbers go.

    The processing bank gives the MSP a buy-rate. Basically the cost per transaction that the MSP is charged. Visa and MasterCard charge the processing bank a slightly lower rate called the interchange rate. The amount that a reseller would make would depend on how much they mark up the buy-rate. Some people that provide very good support can get away with a decent sized markup because their customers see the extra value in dealing directly with them. Anyone that has had any major problems with their credit card processing would agree that paying a bit more for better support is definitely worth it.

    Overall, Visa and MasterCard take somewhere around 2% and $.19 / transaction for keyed entry transactions. After markup, most businesses are setup around 2.3 - 2.5% and .25 - $.30 / transaction.

    Assume that a business processes $5000 in a month, with 50 transactions, and is setup at 2.3% & $.25 / transaction.

    Visa and MasterCard would take (2% x $5000) $100 + (50 x $.19) $9.50 ~ $110.
    The MSP would take (.3% x $5000) $15 + (50 x $.06) $3 ~ $20.
    If you had a 50/50 split, you would get about $10 for the month for that merchant. It is definitely a business that requires a huge amount of merchants to make a profit, but once you get a decent number of merchants, you can pretty much be guaranteed a decent check every month. Some businesses pay less and some pay more, but generally you would expect only a small amount per month from each merchant.
     
    jestep, Jan 4, 2006 IP
  11. Knertified

    Knertified Guest

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    #11
    Your example below makes good since but I had a couple additional questions if you dont mind:

    Is 50/50 with am MSP an industry standard?
    Is there any other fees associated with working with an MSP like quotas?
    Are the statement fees and minimum charge fees handelled by the reseller only, or do the MSP's require a minimum per resold merchant account?

    Again, thank you for the good information.


     
    Knertified, Jan 4, 2006 IP
  12. jestep

    jestep Prominent Member Premium Member

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    #12
    The split depends totally on the MSP you are working with. Some do 50/50 with lifetime residuals. Some do residual income as long as you meet a quota per month, some do completely different things. It really depends on the MSP. Overall I would say 50/50 or something similar is the most common. If you have a large volume of accounts per month, and you keep up on your own support well enough, you can probably negotiate a better split.

    As far as quotas, they are usually not required, but a MSP always likes to see at least a few accounts per month. The MSP invests time and training in the reseller, so they would like to see some continuous return, even if it is small.

    As far as monthly minimums and statement fees go, it depends on the processing bank a lot. We are registered through 5 processing banks, and each one has different buy rates and fees. Normally there is a $5 - $10 statement fee. 3 of 5 processing banks have a monthly minimum, and 2 banks have yearly fees. Also, 2 banks have ugly early termination fees. Some banks are better for retail businesses, some are better for internet, and some for business owners with poor credit history. Basically, the more options for processing banks you have, the more different people you can cater to.

    Personally I try as hard as possible to set merchants up with no termination fees, or monthly minimums. I believe that if a merchant is unhappy with the service that I provide them, then they should not be forced to remain processing with me. Basically if I fail to do my job to their satisfaction, why should they have to pay to stop using my service. There are a lot of companies that don't think the same way that I do. (Cell phone companies....)

    In general you should expect a small monthly minimum and a small statement fee. Also, there are a few mandatory fees that all merchant accounts have. Voice authorization, Voice AVS, Chargeback Fees, downgrade fees. and a few others are applied to every merchant account. They are assigned by the processing banks or Visa and MasterCard and there is really no way around them.
     
    jestep, Jan 4, 2006 IP