Multiple Merchant Accounts May Help Save on Processing Fees

Update:

This article was written with respect to the tiered merchant account pricing model. The information in this article does not apply to an interchange plus or flate rate merchant account price models.

Interchange-based pricing structures such as those mentioned above pass actual interchange charges to merchants with a fixed markup. This eliminates the need to obtain multiple merchant account to avoid mid and non-qualified downgrades and subsequent surcharges. However, multiple merchant account may still be necessary with respect to risk assessment for businesses that have a significant volume of both card-present and card-not-present transactions.

Getting multiple merchant accounts may seem counter-productive when you're trying to save money on merchant account fees, but for many businesses another account would actually lower credit card processing charges.

Lower processing fees due to mid and non-qualified surcharges.
The largest cause of avoidable processing expense is downgrades due to mid and non-qualified surcharges. Exactly why credit card transactions downgrade is beyond the scope of this particular article, but downgrades are unmatched when it comes to inflating credit card processing expenses. You can learn more about downgrades through some of the other articles here, but for now I'll discuss why another merchant account can help you avoid these costly surcharges.

Card-present and card-not-present are the two general categories of merchant accounts that the more specific types of accounts fall under. Card-present merchant accounts are used by businesses that process a credit card transaction when the customer and their credit card are present. Retail stores are the most obvious example of a card-present merchant. Card-not-present merchant accounts are used by businesses that process transactions when the customer and their card are not present. An e-commerce business is a great example of a card-not-present merchant.

Now that we've got the formalities covered, you're probably wondering what mid and non-qualified surcharges have to do with saving money by getting multiple merchant accounts. For businesses that accept a substantial number of both card-present and card-not-present transactions, having two merchant accounts will decrease surcharges due to downgrades. When a card-not-present transaction is processed through a card-present merchant account, the transaction will automatically downgrade to the mid (or most likely) non-qualified discount rate tier. Using multiple merchant accounts allows a business to process transactions through the proper type of account thereby avoiding expensive surcharges and downgrades.

Some business owners are apprehensive about getting multiple merchant accounts because they don't want to double fixed monthly fees such as a merchant account monthly minimum or merchant account statement fee. This problem can often be avoided by getting both merchant accounts through the same provider. When you buy in bulk, it's usually possible to negotiate lower fixed monthly fees for each account.

Multiple merchant accounts will help you avoid losses due to processor downtime.
Although it's not common, credit card processors and acquiring banks sometimes experience problems that cause intermittent service disruptions. For the merchants that depend on them, being unable to accept credit cards for any length of time often means lost revenue.

By getting multiple merchant accounts through different processors, you can protect yourself against service disruptions due to downtime. However, the cost of having two merchant accounts to protect against service outages won't outweigh the benefits for all businesses. Processor service outages aren't common and monthly fees will have to be paid for each merchant account that you have.

To figure out if having a second merchant account to protect your business against service disruptions would be beneficial, subtract the sum of monthly charges for the dormant merchant account from a hypothetical 24-hour period of not being able to accept credit cards.

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On May 29, 2009 Ben said:

An important point has been brought to my attention regarding this topic. Visa and even various merchant service providers have regulations on exclusivity regarding multiple merchant accounts. While it is possible and sometimes necessary to have multiple merchant accounts, there are a few guidelines that you must adhere to in order to remain compliant. These regulations may vary from one merchant service provider to the next, so be sure to check with your representative before opening more than one merchant account.

• The benefits of multiple merchant accounts apply to accounts on a tiered pricing structure where rates differ substantially for card-present and card not-present accounts. Multiple merchant accounts of the same type should not be opened.


• Multiple merchant accounts must share the same exact DBA and legal business names.


• Multiple merchant accounts must be opened through the same merchant service provider.

Again, these regulations may vary from one merchant service provider to the next. When in doubt, ask your rep.

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