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Internet Merchant Facilities

Discussion in 'Guest Articles' started by FirstPageResults, Mar 1, 2012.

  1. FirstPageResults

    FirstPageResults Membership: VIP

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    auDA Member:
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    Pred is one of the founding partners of Fat Zebra. They specialize in making online payments simple!

    Here is a brief summary of what’s involved in setting up a facility.

    If you have any questions or comments, please feel free to post.
    ------------------------------------------------------------

    Internet Merchant Facilities

    Hi All,

    I have recently received a lot of requests from users wanting to understand what’s involved with setting up an Internet Merchant Facility –
    and what are the costs. There seems to be very little information on the forums about this so we thought we should fill in some gaps.

    Firstly, it is important to understand what an Internet Merchant Facility is and when is it required.

    • IMF’s are different to traditional merchant facilities in that they consider additional risk factors inherent to online shopping and card
      not present transactions. These risks are also reflected in the pricing structures of these types of facilities and also undergo a different
      and more stringent application process.

    • IMF’s are required for anyone looking to accept payments in an e-commerce environment (this includes online retail, billing systems,
      recurring transactions and so on).

    The application process for an IMF will vary from bank to bank, however will always allow the bank to determine the risk involved.

    Generally speaking, merchants who accept payment after receipt of goods will be lower risk than those who charge in advance. Industry code
    will also add risk, as will trading history and anticipated transaction volumes.


    So what fees can you expect?

    It’s safe to say that most banks will charge you an establishment fee. This is most likely to be anywhere between $99 - $200.

    We then have the monthly fees. These vary with the Banks, however will usually consist of:

    • Monthly Facility Fee (can range from $20 - $40 per month)

    • Minimum monthly MSF (Merchant Service Fee) which can range from $20 - $30

    Then there are the transactional costs which include:

    • MSF on sales - usually between 1.1% to 2%

    • Transaction fee - Some banks charge this, while others just stick with the MSF. This can vary from $0.10 to $0.30 depending on bank
      and includes approved, declined and pre-auth transactions.

    • There can also be an additional fee for international cards.

    It’s important to understand that these figures aren’t concrete - you can easily negotiate some good rates with the banks if you approach them
    well prepared, and don’t be afraid to shop around.


    How to apply for an IMF:

    In order to apply for an IMF you will need to contact your bank or business banker direct, or ask your gateway to get you in touch. Whichever path
    you take, it helps to be prepared with a few essentials that will help you speed up the process and hopefully lower the fees.

    These essentials include:

    • Description of business - What do you sell or what is your service? what is your experience in this industry?

    • Anticipated transactions - How many transactions per month are you looking to process and what is the average transaction amount?

    • When is payment made? Are you accepting payment before goods are shipped or service is performed or after? This is also referred to as
      Merchant Prepayment Exposure.

    • Terms and conditions - Every bank will want to review these.

    • Refund policy - These are a must for every IMF.

    • Business plan - This is important for new business. Established businesses can get away with providing their settlement account details to
      show trading history with the bank.

    • Financials - Some banks might require last 2 years financials as a part of their application process.

    • Security - Details of what you are currently using to keep your payment page secure eg. SSL.

    • Website url for review by the bank.

    Collecting this information will help you and the bank better understand what you are trying to achieve. It will also help the bank understand what
    you will do, or what you are doing to reduce the risk associated with these accounts.

    Any services that have a large prepayment exposure should focus on how they will manage cash flow over the prepayment period. This will allow
    the bank to gain an understanding of any risk to the end consumer and any potential chargebacks.

    In short, you want to answer any questions the bank might have first time around.

    I hope this helps. Please post any comments or questions you may have.

    Thanks.

    Pred @ Fat Zebra

    Pred is one of the founding partners of Fat Zebra. https://www.fatzebra.com.au

     
  2. Ashman

    Ashman Membership: Trader

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    Payment Gateway

    How does a merchant facility compare with a payment gateway? Wouldn't it be cheaper to use Paypal.com or Authorise.net to accept credit card payments and to process recurring payments?

    Ash
     
  3. fatzebra

    fatzebra Membership: Community

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    Hi webpark,

    Payment Gateways require an Internet Merchant Facility (IMF) to transact against. The IMF is a specific account provided by the bank to allow merchants to transact online, or in a Card Not Present environment.

    PayPal doesn't require this as it is a master merchant which means it clears and holds the funds for their merchants.

    As for cost, PayPal will charge 2.4% of the transaction value + $0.30 fee per transaction.

    Payment Gateways tend to not charge a percentage and can charge anywhere from $0.15 - $0.50 per transaction.

    Hope this helps.
     
  4. Designer

    Designer Membership: Community

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    @fatzebra - What online payment options are there if you can't get a merchant facility? I know there is Paypal, but wondered if there are others? A young friend just starting out on the www was knocked back by his bank. Tried another, and they required $5000 security deposit. Is this normal?
     
  5. fatzebra

    fatzebra Membership: Community

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    Hey Designer,

    Unfortunately I think PayPal is the only other option in OZ.. I know Stripe is a good one, but not yet available here.

    As for your friend, I would have them look into what has knocked them back on the application. Security bonds are usually required if payment is made before the receipt of goods. You could try reduce this amount if you have a solid business plan on how your stock control works and the shipment process once payment is received.

    The other option is to look into other banks and see what they say? I am more than happy to discuss and see if we can help get them in touch with someone who can help?
     
  6. johno69

    johno69 Membership: VIP

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    auDA Member:
    Yes
    PayMate is another option but afaik it's pretty much the same as PayPal.
     
  7. findtim

    findtim Membership: VIP

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    i've got a client right now who has chosen eway as the gateway

    $350 p/a , 50cents a transaction, pushing it through to their bank who then charges them .5% on each transaction

    NOW, these guys are not doing LOADS of transactions but each one is probably $3k at a time so for them the numbers add up.

    what i'm saying is paypal is GREAT when you do not have any sales and are building, but then you need to see the next steps.

    I generally take my ecom clients through a variety of steps depending on how "professional they want to LOOOK.

    no-pro, go ebay and come to me when you are making money.

    semi-pro, website shopping cart via paypal ( high % cost)

    mid-pro, cart to eway ( low % cost but cart setup $$ )

    pro-pro, cart to you own bank processing, which can have many variances

    its all about turnover, its ALL ABOUT the break even point on sales volume and the time to manage it.

    tim
     
  8. fatzebra

    fatzebra Membership: Community

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    I think Paypal also has it's place on mid/pro-pro sites as it provides a means of payment which some would feel more comfortable with. It might be more expensive in some cases, however could help convert sales which you might not otherwise get.

    We work with sites which process upwards of 15,000 transactions a month and still use a third party gateway and Paypal.

    More to the point, the pricing you get on your merchant facility will only be sharp if you approach the banks prepared. The gateway you use wont have any influence on the pricing unless there is an agreement in place between the gateway and Bank. I would also suggest that you review the pricing every 12 months. If your turnover has increased, and your history is good, you might be able to get better pricing.
     
  9. Timmy

    Timmy Banned

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    RBSWorldPay is an alternative to Paypal... Sign up costs $xxx-$xxxx from memory and is a little convoluted but definitely worthwhile if you have limited options.
     
  10. findtim

    findtim Membership: VIP

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    i had no business plan and no sales and the commenwealth gave me an account for a brand new website! that was 5 years ago and other then their bill i have had no contact from them although last month they sent me a letter saying i HAD TO INSTALL a "csc" function ( thats the one that takes the 3 digits off the back of the card.

    I'm presently doing an ecom for a client who is with NAB and the BULLS*&T NAB want me to do on the site is incredible,

    "ABN must be place here..." , " must mention prices in AUD here, here and here...." , must state price includes GST, here, here and here...." they have even gone to telling us what we need to write on our delivery terms and conditions page !!!!!! who the F do they think they are?

    tim
     
  11. acheeva

    acheeva Membership: VIP

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    They are the ones who carry the burden when businesses go belly up & credit card purchasers want a refund (e.g. Air Australia a few months ago)
    It is the price we pay to give consumers the confidence to shop online
     
  12. findtim

    findtim Membership: VIP

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    good call, topic conceded

    tim
     
  13. acheeva

    acheeva Membership: VIP

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    PS...It is also a reason why starting with PayPal can be a good idea

    If you can establish a reasonable volume with minimal claw backs then the banks will want your business instead of making you feel like you have to beg or lodging a massive surety