Credit Card Companies make money in a variety of ways. Here are the four most common:
One: The most common way credit card companies make money is through fees, such as the annual fee, overlimit fee and past due fees.
Two: Another way credit card companies make money is through interest on revolving loans if the card balance is not paid in full each month.
Three: As explained above, the card issuer (the bank that issued the card and/or the issuer network, be it Visa, MasterCard, Discover) makes a percentage of each item you purchase from a merchant who accepts your credit card. The rates range from 1% to 6% for each purchase.
Four: The card issuer can also make money through ancillary avenues, such as selling your name to a mailing list or selling advertisements along with your monthly billing statement.
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For start-ups, very small businesses, or home-based businesses, it is not always a given that your business will be granted a merchant account. It may be best to apply for merchant account status with the bank with which you already do business. Banks view granting a merchant account as an extension of credit and will evaluate your business as such. Your business generally has to have been in business for up to 2 years.
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Internet merchant accounts and brick-and-mortar merchant accounts are two different animals. If you are going to operate an e-commerce business (online), then you need at least one Internet merchant account. An Internet merchant account is simply designed to process online credit or debit card payments, which usually involves higher fees to you, the merchant. There are online payment processing services that can handle setting up Internet merchant accounts for you. Alternatively, you can get your Internet merchant accounts through your bank or independent sales organization where you got your brick-and-mortar merchant account.
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- No cancellation fees: Brad Franzen says that owners should never sign a merchant account contract that charges cancellation fees. Without these fees, business owners can cancel their accounts and go with a lower service provider without having to pay a hefty cost to do so.
- Remember to choose a secure merchant services provider that offers a PCI compliant payment gateway, along with integrated payment services to optimize your processing solutions. Also, ensure that your processor offers flat rate pricing and in-house customer support.