A merchant account provider is a company that establishes the working relationships between and among merchants and financial institutions, primarily concerning the use of credit cards. In marketing terms, merchant account providers are in the business of providing a competitive edge to businesses with dynamic, secure and electronically speedy payment processing options.
Business trends and modern commercial standards testify to the fact that electronic transactions have the widest consumer reach. It is essential for all sizes and types of businesses to have effective payment-processing methods. Merchant Account Providers, with knowledge and expertise in all the varied means of processing payments, can offer merchants various account setups that are best suited to their current and future business needs.
In addition to “brick-and-mortar” (onsite) transactions, Merchant Account Providers offer e-commerce capabilities supported by latest online security and processing technology. A reputable provider can help a business get recognized by more online shoppers. More importantly, businesses get services tailored to their specific situations. For example, restaurants can opt for special credit card processing that accommodates tips.
Merchant Account Providers can be extremely helpful to new businesses, in particular, since they have wide-ranging expertise in the field of commerce. Choosing the right provider can make all the difference in the world, so the decision should not be made rashly or quickly.
Processing Cards Using Gateways
Although credit card processing methods will vary by industry, a majority of today’s credit card transactions are sent electronically to merchant processing banks for authorization, capture and deposit. Either the credit card’s entire magnetic stripe is read by “swiping” it in a card terminal/reader, or the card data is keyed manually into a terminal, computer or website. It is best to swipe a credit card, of course, because the rate for the transaction is the lowest available, and the incidence of credit card fraud is greatly diminished.
A payment gateway – an e-commerce service that clears payments for online sellers – is the virtual equivalent of the physical POS (point-of-sale) terminals used at most brick-and-mortar outlets. Some merchant account providers do operate their own payment gateways, but the majority of provider firms use third-party gateways. There are normally two components to the gateway: (1) a “virtual terminal” where the merchant signs in and manually enters credit card numbers and (2) a shopping-cart on the merchant’s website that connects to the gateway for real-time processing, 24/7/365.
Selling the Sellers
Merchant accounts are marketed to businesses in two primary ways. In the first case, a merchant is contacted directly by a processor or its sponsoring bank, while the second way is for the contact to be made by an authorized agent for the bank. In the latter case, the firm must be directly registered with both Visa and MasterCard as an ISO/MSP (Independent Selling Organization/Member Service Provider). Marketing guidelines are developed by card issuers (Visa and MasterCard) and their various rules and regulations are strictly enforced.
“Member” banks, ones that have merchant processing relationships with Visa and Mastercard, are also empowered to issue merchant accounts directly to merchants. Some times a bank may limit approval to merchants in its primary geographical area, those with physical retail storefronts or businesses that have been in business for a minimum number of years. Such qualifying characteristics are entirely up to the banks, which devise them as means of reducing risk and may, therefore, change the “rules of the game” from time to time.
Finally, the ISO/MSPs can also market merchant accounts, as long as they are sponsored by member banks. This sponsorship is interpreted as meaning that the bank vouches for the financial stability and ethical suitability of the ISO/MSP that performs the marketing on its behalf. Any such ISO/MSP is also required to pay a registration fee to Visa and MasterCard for the use of the logos, and follow card association guidelines for marketing merchant accounts.
To verify if an ISO/MSP is in full compliance with Visa and MasterCard, you can search its website (and/or other marketing materials) for a statement that the company is “a registered ISO/MSP” of a particular bank that is “FDIC insured.” This legal notice must be “clearly visible” or the ISO/MSP will face a fine of up to $25,000. In most cases where there is no disclosure, the company is most likely uninformed, unscrupulous or downright crooked. Unlicensed, unregistered account providers are featured in some of the worse horror stories ever told by modern merchants. Use your head, get referrals and choose wisely when you’re ready to decide on a merchant account provider for your own firm.