Several years ago, the only way that most eBay sellers could accept payment was via check or money order. Merchant accounts, which allow sellers to accept credit cards, were too expensive and had many requirements that home-based businesses could not meet. Then along came Paypal, which pioneered a method for individuals and small businesses to accept payments electronically.

Large banks took notice, realizing that by ignoring the eBay seller, they were turning their backs on a lucrative source of income. Now, merchant accounts are cheaper and easier to get.

Why would you want your own merchant account when you can accept Paypal, Billpoint, C2it, Paydirect, etc., with no setup or monthly fees? There are at least two reasons.

First, having your own merchant account gives you credibility. Payment service accounts are too easy to obtain and too easy for a crook to hide behind.

Second, having your own merchant account gives YOU control. When you charge the card, you can use the Address Verification System (AVS) and know immediately if the name and address given you matches that of the card. Though this does not guarantee that you will never have a charge back, it will eliminate the situation where someone is using a stolen credit card to order merchandise. And if there is a charge back, the credit card company contacts you, not a payment service middleman.

Payment services don't have any real incentive to fight charge backs. It is much easier for them to accept the charges and pass the cost on to the seller. There are horror stories of sellers who were charged back without any contact or explanation from the payment service.

If you decide to get a merchant account, you first have to fulfill certain basic requirements for creditworthiness. You then have to pay one-time setup fees up-front and ongoing annual and/or monthly fees.

Here are the fees you can expect to pay with a merchant account:

• Application fee: (about $100) a fee which covers the cost of your application and doing a background check on you. Most companies are now waiving this fee.

• Setup fee: (about $200) a fee to set up your account. Many companies are waiving this fee as well.

• Licensing fee: (about $50) a fee charged for the license you are granted to charge credit card.

• Software or equipment: A one-time charge or monthly lease of the software or terminal you will need to process the transactions.

• Statement fee: (about $10) a fee for providing a monthly statement. Some firms only charge this for months in which you have activity. Others charge it every month.

• Gateway fee: (about $15) a monthly fee for providing the gateway between you and your merchant bank.

• Transaction fee: (about 30 cents) a fee charged on every transaction. Some firms build this into the percentage.

• Percentage: (2.2% - 3.75%) a percentage of the sale price which is charged to you on every transaction.

• Minimum: (about $25) Most firms require a minimum of $25 in charges every month (roughly $1200 in transactions). You are charged $25 even if you don't reach that transaction level.

Close to three years ago, when I first started selling on the Web, I investigated merchant accounts. The requirements were pretty high, but having been in business for almost 20 years, this was not a problem for me. Fleet Bank's representatives visited my office and took note of the value of my inventory. They checked my business records going back several years and contacted my references.

The costs were steep, though. Most of the plans advertised on the Internet started at $50 a month, with a minimum 48-month contract. On top of that, there were other smaller monthly fees. The cheapest plan I found was from my own bank, Fleet. The software was a one-time purchase of $395. There was a one-time application fee of $195 and an annual fee of $50. My monthly statement fee was $7.50 and only applied for months in which I had transactions. Since the software talked directly to the merchant bank, there were no gateway fees. I was charged about 2.4% plus 30 cents a transaction.

It seemed like a good deal at the time, but it was not a perfect system. The software called the processor directly through a dedicated modem connection. It sent all the transactions to the processor, retrieved the responses and then disconnected. Because it did not work over the Internet, it meant I could only use it on one computer, there were no reports available online, and I had difficulties with software sometimes, particularly when I upgraded computers and switched modems. The lack of an Internet connection caused other inconveniences as well, so, with the advent of online payment services, I decided not to renew my merchant account when it expired.

For the next year or so, I accepted electronic payments through various payment services such as Paypal, Billpoint, Paydirect, C2it and the defunct Moneyzap, Exchangepath, Payme and Payplace. But as some of these services shut down and problems with others became more evident, I decided to try accepting credit cards directly again. I first opened an account with Propay. But because Propay sets limitations on how much I am permitted to charge per transaction and per month, and because I found it to have serious flaws in its AVS (verification) system, I decided to look into obtaining my own merchant account again.

In searching the Net and speaking with other emerchants, I discovered that, like almost everything else on the Internet, the processors often promise more than they actually deliver. Here is a comparison of two offers:

Charge.com	Merchante-solutions.com
no application fee	no application fee
$195 startup fee	$179 startup fees
licensing fee included	$50 licensing fee
$15 monthly gateway fee	$19.95 monthly gateway fee
$10 monthly statement fee	no statement fee
2.35% + .30 a transaction	2.4% with no transaction fee
"free" shopping carts	paid service
"free" electronic checks	not available

When you compare the two services, the fees seem very close. After about 6 months, Merchant e-solutions becomes slightly cheaper. But Charge.com offers free shopping carts and free electronic checks.

I would have looked around a little longer, but Charge.com had one promise that clinched it. They promised that if I found a cheaper deal, they would refund the difference plus $100. So I went with Charge.com. I filled out the form on the Web site and received the application a few days later via Fedex. I filled it out and was approved about a week later. No one called or visited my office.

I was now ready to accept credit cards. I wanted to set myself up with the free shopping carts and electronic checks. A closer look at these offers took some of the polish away. The "free" electronic checks weren't quite free (you pay $25 for 300 blank checks, which you must print and then bring to your bank but this is still cheaper by far than any of the other electronic checking options), and the "free" shopping cart capability is actually a freeware program that requires extensive programming knowledge.

Someone told me about a service called Aaacess.com also called First Alliance . This site promised no setup fees, no software fees, no application fees. I called them and was told that this was the case. I called Charge.com and asked them how I could claim my refund for finding a cheaper service. They then claimed that their refund offer is only if I can show them a lower advertised price. "Free" and "no fee" did not constitute an advertised price, according to them. We went round in circles for a while and I realized I was getting nowhere. So I emailed the person from Charge.com who first contacted me and expressed my disappointment. She responded that if I cancelled my Charge.com account, she would refund my $195. So I cancelled my Charge.com account and opened one with First Alliance.

Once I received the application from First Alliance, I discovered that they had forgotten to mention a $49 licensing fee to authorize.net. This despite hours of conversation and emails asking them to detail every charge. Still, $49 was a lot less than $195. So I opened the account. But the Aaaccess account has a $10 gateway fee, $10 monthly statement fee and $25 monthly minimum. I found that I could not justify spending $45 a month on a merchant account. Six months later, I found two companies offering no fee, no minimum merchant accounts (see the link below). I tried to close the Aaacess.com account and that is when they hit me with a $250 cancellation fee. This was never mentioned in our exhaustive discussions and I found no mention of it in the paperwork I held. I called, emailed and faxed them asking them to send me a copy of any document I had signed agreeing to this fee. They ignored my request but deducted the money from my bank account. When I finally did get through by phone, I was given another phone number to call which appears to be disconnected. I will be posting regular updates to my attempts to recover this money which was extorted from me through either trickery or outright fraud.

I learned that it pays to shop around for merchant accounts, to ask a lot of questions, to read all the fine print on the application, and not to believe that "free" means free!

Now that I have worked with several companies, read my latest update Merchant Account Update for the full story and information on how you can get your own merchant account.