Shopping for a merchant account is a confusing process.

And, unfortunately, many merchants do themselves a disservice by going shopping without first understanding what they're shopping for.

It's simply not enough to research the rates of banks and independent sales organizations (ISOs) to find out which are lowest.

You must know the types of accounts available to determine which is right for you.

Make Sure It's a Match

Why not just shop for the lowest rates?

Because the accounts that are the least expensive to use won't necessarily be right for your business.

Retail/card swiped accounts often have the lowest rates but carry requirements that, if unmet, will result in additional fees, surcharges and penalties. For example, if you're signed up for this type of account but not able to swipe a card electronically, some processors charge you as much as 1% to 2% more.

In the business, these are known as nonqualified or midqualified transactions. This means that because the transaction doesn't meet all the requirements, it doesn't qualify for the best rates.

The net effect can be a monthly bill that's much larger than you expected, leaving you wondering what happened to that great deal you thought you were getting.

Always make sure you're using an account that's right for your business.

Crucial Distinctions

What account types exist? This would be easier to answer if everyone in the merchant services business used the same terms and structured pricing in the same way. Naturally, life is never so easy. Nevertheless, please allow me to oversimplify and say that, in general, merchant accounts are classified as one of the following types:

Retail/card swiped accounts are designed with the typical brick-and-mortar merchant in mind, one who can swipe the card through an electronic reader as proof that the card was present.

Retail/keyed entry accounts are designed for situations in which the card is present but the merchant is unable to electronically swipe the card.

Rates for these accounts are generally higher than those for card swiped accounts, but can be lower than MOTO/Internet rates. Remember: Retail/keyed entry accounts require that the merchant obtain a manual imprint of the card in addition to the customer's signature.

Examples of merchants that fit this account type include mobile merchants, such as locksmiths and arts and crafts dealers.

Mail order/telephone order/Internet (MOTO/Internet) accounts are for those merchants who don't usually see their customers and can therefore obtain neither a swipe read nor an imprint of the card. Not surprisingly, these transactions carry more risk and are therefore more expensive.

But here's the clincher: Often, retail/keyed entry account rates and MOTO/Internet account rates are lower than rates for transactions processed through a retail/card swiped account that fail to meet the processor's requirements.