Ask HN: How to setup a merchant account for a new startup?

https://news.ycombinator.com/item?id=1680067

by Osiris • 16 years ago

52 32 16 years ago

news.ycombinator.com

I'm working on a startup to sell physical goods. We'd like to setup a pre-order page to accept payment information but not bill the individual until the shipment has been made (we're shipping in about 4-6 weeks). Of course after we're shipping I think that we'll have higher conversion rate if we have a true credit card processing system rather than relying on a third-party.

I've only done payment processing through PayPal and Plimus.com. I've read about the complexities of setting up a true merchant account for credit card processing, but it still seems a bit complicated to me.

Can anyone recommend a payment gateway and processor for someone new to the process?

karzeem• 16 years ago

http://www.braintreepaymentsolutions.com

tgriesser• 16 years ago

I agree with this, braintree is by far the best payment solution I've seen out there, apparently used by many of the big web companes (github, 37signals) and it shoulders the majority of the pci compliance work - which can be a big concern as credit card companies are becoming stricter about these requirements and many hosting and ecommerce setups are not even close to pci compliant

RiderOfGiraffes2• 16 years ago

How does this compare with https://www.wepay.com/ ?

edash• 16 years ago

WePay is a consumer product that bridges the gap between Paypal and something like BillMonk (https://www.billmonk.com/) or Expensure (http://expensure.com/). With WePay, you can both keep track of and calculate group expenses as well as actually exchange money among a group and make use of it.

You would never want to use WePay to process or receive payments for your product or service.

Braintree serves as a combination of both a merchant account and a payment gateway. For examples of traditional merchant accounts, you could peruse Fee Fighters (http://feefighters.com/ - formerly transfs.com). The most common and most widely known payment gateway is Authorize.net.

steveklabnik2• 16 years ago

I am also a satisfied BrainTree customer. They care about developers[1], they get back on support requests really quickly, and are just all around good to work with.

1: http://www.braintreepaymentsolutions.com/devblog 1: http://www.braintreepaymentsolutions.com/gateway

Osiris2• 16 years ago

Having not done a merchant account before, I'm willing to pay a (reasonably) little extra for ease of setup and use. BrainTree looks great in that it has the merchant account and gateway all in one solution.

How do their rates compare in your experience? Their website just claims they are "competitive", though they are explicit about all their pricing, which is nice.

RiderOfGiraffes2• 16 years ago

BrainTree looks and sounds fantastic. I've just spent 5 minutes on their web site and understand more in that 5 minutes than in 3 months of poking around and reading about on-line payment systems.

But I'm in the UK.

Bother.

pbz2• 16 years ago

How is it better than Authorize.Net? Thanks.

timf• 16 years ago

Everything looks great except for the $110/month minimum bill (even if you have zero sales), wish the $35 monthly fee was all there were when starting out. Or go even lower with an email-only, non-timely support option.

GnarfGnarf• 16 years ago

It is complicated. It can take several weeks to understand and evaluate all the options. Beware of payment gateways with easy initial terms, but high fees, and high penalties for quitting.

We use an eCommerce solution that talks to Authorize.net, who relay to Chase, who deposit to our local bank. Authorize.net have good support, and a good Web interface.

midnightmonster• 16 years ago

No kidding. Accidentally signed up for a 3-year contract once.

desigooner• 16 years ago

I'm helping my friend's sister setup a website for the new business she's getting into (Vegan Bakery products). I was about to start a post today or tomorrow but I figured I'll piggyback on this post.

The e-commerce section is mostly out of convenience for local customers initially (put in an order, pay for it and pick it up when notified), with plans of delivery down the road.

Is paypal a good option for her to start with or is she better off with a payment processor who's not paypal.

tlb• 16 years ago

Devpayments.com rocks. It's an order of magnitude less hassle than any other system I've used. Anybots processes robot sales & billing through them.

auston• 16 years ago

I recommend that you find an ISO (Independent Sales Organization) [pdf list from visa: http://usa.visa.com/download/merchants/list-of-registered-in...] their success (commission) is tied to you - so they're motivated to get you a merchant account.

A while back one of the people on this site wrote a pretty decent guide to getting a merchant account: http://danieltenner.com/posts/0006-how-to-get-a-merchant-acc...

Other than that, MAKE SURE YOU NEGOTIATE or you will more than likely get raped.

joshklein• 16 years ago

I used Paypal's Merchant Account. I was already familiar with their consumer version, and the rates are relatively in line with what you'd expect. Most importantly: it was easy to do, I didn't have to talk to anyone on the phone, and it took very little thinking.

I decided I'd do whatever the easiest option was until I was actually making money; then I could switch to the best option. Don't optimize too early - every minute research merchant gateways is a minute not spent selling.

tzs• 16 years ago

One thing you want to keep in mind is that it is a pain in the ass to store credit cards. If you handle credit cards at all, you will have to follow the PCI requirements (available at https://www.pcisecuritystandards.org/). If you are not storing cards, but just passing them right on to some other entity (a third party checkout service, for instance), things aren't as onerous as they are if you are actually storing cards in your database.

If you are going to accept that card now but not charge it for 4-6 weeks, then it would seem at first that you would have to store the cards. For short delays between receiving a card and charging it, one can do an AUTHORIZE first (which returns a reference number from the gateway/processor), and then later do a CAPTURE to actually get the money. For the CAPTURE you specify the reference number of the AUTHORIZE, rather than give the card number, so you can forget the card as soon as you do the AUTHORIZE.

The problem is that AUTHORIZE transactions time out after something like 30 days. Oops.

Some gateway/processors support doing a new charge on a card that you have previously done a transaction with by giving them the reference number for that transaction. They store the complete information for the original transaction, and copy the relevant fields to your new transaction. Payflow Pro (now part of PayPal) supports this, and pretty much any kind of prior transaction can be used. Thus, you could get away without storing cards using Payflow Pro by doing this:

1. Do a $1 AUTHORIZE.

2. VOID the AUTHORIZE. (So as to not tie up $1 of the customer's credit for a month...although I doubt the customer would actually notice that).

3. When you are read to ship, do a new charge, referencing the AUTHORIZE for the cardholder information.

I thought that all the gateways/processors supported something like this, but in a quick (very quick) check of Authorize.net's documentation I did not find it.

If we were selling physical products, I'd do something like the above to avoid storing cards. However, we sell a subscription service, and so need to be able to re-bill customers. The problem with letting, say, Payflow Pro handle the card storage is that it means we are locked into re-billing through them if that's where we did the initial transaction.

BTW, the reason I say "gateway/processor" in everything above is that even though I've been involved in dealing with our payment handling at work for a few years, I still am unclear on just how the payment industry is actually set up. There are a lot of companies that provide multiple services related to payments (gateway, processor, merchant bank, etc.) that things get muddled, and a lot of writing on the subject mix up the various roles. (I think some of this is on purpose to make people think that they need to get all the parts of payment processing from the same company).

pbz2• 16 years ago

Authorize.Net has something similar: http://www.authorize.net/solutions/merchantsolutions/merchan...

tildeequals2• 16 years ago

Here's a matrix showing which gateways support storing credit card info on the gateway (see "Card Store" column): http://wiki.github.com/Shopify/active_merchant/gatewayfeatur...

dangrossman2• 16 years ago

The $1 authorization thing isn't permitted by Visa or MasterCard anymore. Authorizenet supports the new $0 authorizations they require you do when only verifying a card, as long as the backend network your bank uses supports it, which most do now.

callmeed• 16 years ago

I recently blogged my experience here:

http://callmeed.posterous.com/choosing-a-cmbb-stack-for-my-s...

A couple things to always check/ask:

- Is the data portable/exportable? If not, then you're in for a headache down the road should you want to move to a different provider (i.e. possibly forcing customers to re-enter their billing info). I almost made the mistake of choosing a merchant that doesn't allow this, and it's the main reason I ended up using BrainTree.

- Get the details on rates/fees. Some merchants will quote you a low rate but you have to be aware that rates can vary slightly depending on other factors. Just don't get too hung up on choosing the lowest transaction rate.

sr3d• 16 years ago

Great post. You have probably saved me quite a bit of research time.

nfriedly• 16 years ago

Stay away from charge.com / secure pay / pipeline data (all the same company, they might have additional names.) If I hadn't closed my bank account, they'd still be direct-withdraw billing me months after I've canceled my service with them.

tildeequals2• 16 years ago

SHORT ANSWER: Authorize.net and Paypal are the most popular gateways, and therefore have the most community support. To find a processor, I would use http://www.transfs.com/. We used TransFS last year and they helped us find an inexpensive processor.

LONG ANSWER: The number of players you have to go through in order to process credit cards is pretty crazy. Here's how I'd summarize the different people you might have to deal with.

1. There are credit card companies, like Visa, Mastercard, and American Express. You're affected by their fees and policies. For example, we found out that Visa has been enforcing a policy where they don't allow the capture amount to be different from the auth amount, except for merchants that get tips like restaurants and salons.

2. There are credit card processors, also known as ISOs (for Visa) and MSPs (for Mastercard). They are responsible for communicating your charges to Visa and Mastercard. They're also responsible for figuring out how risky you are as a vendor. If you charge $100, and the buyer claims that the $100 charge was fraudulent or unsatisfactory (also known as a chargeback), and then you go bankrupt and refuse to remit the $100, the credit card processor is stuck with the bill.

3. Credit card processors use gateways like Braintree and Authorize.net to interface with your software. It's much easier for them to use a well-known API than writing their own API.

4. Merchant accounts are accounts where your money get stored immediately after the merchant charges the clients' cards. For most small merchants, the way it works is that the credit card processor has a merchant account on the merchant's behalf, and the funds get deposited from the (credit card processor controlled) merchant account into the merchant's checking account 24 to 48 hrs after the transaction. In other words, if you're just starting out, I don't think you need to worry about getting a separate merchant account from a bank. However, if the merchant is big enough that the float on the funds during those 24 hours actually matters, he or she might get his own merchant account.

5. The process for applying to a credit card processor (2) is fairly complicated. There are people who help you with this - you can call them agents. These agents get paid by the credit card processors for bringing them business.

6. Finally, another tier has emerged recently to help agents attract business - we can call them agent referrers. Agent referrers help you figure out credit card terms and will refer you to both independent agents (5) and credit card processors (2) like Paypal. They endeavor to make the process transparent for you.

We found an agent (5) and a processor (2) through an agent referrer (6) and were quite happy with the process. The referrer was www.transfs.com, and the agent turned out to be www.cocard.com. Transfs.com was extremely clear about the fees we'd incur. I'm not even remotely affiliated with either company except as a client. Before that, we tried a couple different agents and we also tried contacting our bank to see if they could set us up with a merchant account, but both of those approaches were dead ends.

I hope that all helps.

portman• 16 years ago

I know this isn't what you asked, but I would recommend using PayPal for your pre-order page.

First of all, your merchant account application will take at least 10 business days to process, and secondly you're probably looking at some kind of application/setup fee.

Much better to use PayPal at this point in your company's trajectory and then transition to a merchant account once you hit a few thousand in revenues per month.

Just my $0.02.

kingnothing• 16 years ago

http://www.paypalsucks.com/

Osiris2• 16 years ago

I thought PayPal didn't offer pre-order services? You had to complete the charge immediately upon the customer putting in the credentials. Is there a service they offer that allows pre-orders?

mattcrest• 16 years ago

I'll throw in a recommendation for PayLeap (http://www.payleap.com) as a combo gateway/merchant account.

As for the the delayed billing, something like OpenGateway (http://opengateway.net) might work. It is set up for subscription payments, but there's a way to work around it. You could essentially set up the initial payment with a 30 day free trial (although don't really call it that), then automatically bill after the trial period. And instead of then billing every 30 days like a traditional subscription, you make set it up so it only charges once (no repeat).

I recently used these two in conjunction and have had great support from both companies. PayLeap has superb phone and email support and OpenGateway has solid email/web support. Also worth mentioning, I'm not an experienced ecommerce or subscription guy, but both systems were pretty easy to work with.

brass_cannon• 16 years ago

For someone new to the payments industry such as yourself, I can't stress enough the following points:

-Get with a provider who has a good reputation for honesty, and won't aggressively sell you on deceptive rates. More often than not, the rates you're looking at when talking to a sales rep are not the rates you'll actually be charged. Discount rates, Misuse of Auth fees, NABU fees, APF fees, etc. are all easy for a provider to mask and confuse new merchants with.

-Get with a provider who has a reputation for excellent support. You'll have questions, to be sure. Collecting money from your customers is the most important part of your business; Make no doubt about it.

-Get with a provider who has a good strategy for dealing with PCI compliance. If you're storing cards in your database, or even just passing secure data through your server, PCI can be a very significant burden.

-Get with a provider who can get you up and running quickly. The more time you spend researching this decision, the more time you're not selling. The underwriting process is not likely to differ much between providers (with the exception of PayPal, who seems to do their underwriting after the fact - but that's an entirely different and frightening subject), but there are some truly frightening APIs out there, and a couple very good ones.

The process you describe is what many merchants do. They validate the card info when the user signs up / orders the product, and charge when it ships. Any gateway should be able to support this model, some do it more elegantly and intuitively than others.

This is right in my wheelhouse - I work in the industry. Stick to the above points, and you should be okay.

Revisor• 16 years ago

Thanks for the rules. Despite your claimed attachment to one provider, can you please recommend some specific providers?

AndyKelley• 16 years ago

I'm using [Amazon FPS][1], and I'm pleased with the results. It allows you to perform a checkout without ever knowing the person's credit card details, get a token for recurring payment, or just one time payment.

Pricing: 2.9% + $0.30 for credit card for transactions above $10 and 5%+$0.05 for credit card for transactions below $10.

[1] http://aws.amazon.com/fps/

dangrossman2• 16 years ago

If you can avoid touching credit card numbers yourself, do so. It's worth it. If you want to store these numbers until you're ready to charge them, the PCIDSS requirements to do so are very onerous, and the penalties for failing to follow them very serious (we're talking $500,000 per incident plus other damages).

To start with, you can never store credit card data on a server which is connected to the open internet. Just to get started you need a separate server, on a separate network, and a whole series of logging and access control procedures.

Ask HN: How to setup a merchant account for a new startup?

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