Merchant Accounts

A merchant account is a bank account that is opened by a merchant through a bank or other institution that is a member of the major credit card network. It allows these merchants to accept credit cards from consumers for a variety of sales transactions. A merchant account is also seen as a contract made when an acquiring bank provides a line of credit to a merchant that decides to take card payment of a specific card association, such as Visa, MasterCard or Discover.

A merchant business cannot accept payments by any of the major credit card brands without this contract firmly in place. There are several different classifications of merchant accounts, and every one depends on exactly the business type conducted and the regular daily credit card processing requirements of that business. If a company keeps up a physical business, then that merchant requires a merchant account which will accept POS transactions for sales. When a merchant runs an online, telephone order or mail order business, then that company needs what is known as a Mail Order/Telephone Order (MOTO) merchant banking account.

Full Range of Offerings

The variety of merchant accounts needed for typical electronic commerce company is a lot like the variety of merchant accounts used for mail order companies. The major distinction connecting a normal retail merchant account and an online company’s merchant account is that internet and mail-order sales present much more fraud risk to banks that underwrite the process. For mail order or online purchases, the purchaser and payment card are, of course, not actually present. This would be called a “cardholder not present” or CNP transaction. Without the presence of the cardholder, the card and requisite identification, less information is presented to corroborate that the sales transaction is legitimate.

Merchants will incur a more significant cost for taking credit cards online since a CNP authorization doesn’t really insure payment of the transaction, as there’s no assurance that the actual cardholder has initiated the transaction. As such, the likelihood of fraud is greatly increased, something that also raises the overall risk of the transaction. As a result, transactions of this kind cost more to process.

Various Approaches

A couple of different choices are available when applying for an online merchant account. A merchant can apply through a traditional banking institution or an Independent Sales Organization that acts as an intermediary between the acquiring bank and the merchant. To operate online, merchants need a payment gateway. This is an electronic service that allows payments for online businesses. It is the equivalent of a real Point Of Sale terminal in most retail stores. Most merchant account providers are typically separate from the payment gateway firms. Several merchant account providers maintain payment gateways of their own, however, most of businesses use outside payment gateways.

If merchants has a traditional physical business and wants to sell goods or services online, it indeed makes good sense to apply to their current banks because a relationship is, of course, already established there. As such, the merchant’s current bank can gain access to that merchant’s accounts and financial information, speeding up the application process and increasing the likelihood of securing an online merchant account much better. If merchants acquire Internet accounts through banks with which they do not normally perform business, it is crucial to insure that the online merchant bank will and can transfer funds directly to that merchant’s regular banking institution.

Flexible vs. Selective?

Most banking institutions are known for providing reliability, stability and security, however many have a reputation for being considerably more selective and conservative when providing Internet merchant accounts. ISOs are, on the other hand, largely flexible about businesses that present more risk, like adult websites, however, they largely charge more for incurring greater risk of fraudulent sales transactions.

Merchant accounts have a various types of fees. There are those that are periodic, while others are charged for individual articles or for a percentage. Merchant account providers often set such fees; however most percentage-based and individual fees are approved by a merchant account provider and sent on to the issuing bank of the credit card, as determined by a set of rates known as interchange fees that are set by the major credit card companies. Interchange fees vary based upon the conditions of the transaction and the card variety.

A credit card being keyed in by a sales representative as opposed to being swiped in a POS machine is an example of such a condition that can alter the interchange fees. Card-present and card-not-present sales transactions are also assessed and charged differently, as they carry lesser and greater risks for fraud, respectively.

There are other fess, such as minimum monthly fees, batch fees, early termination fees, statement fees, etc., that are often required for a merchant to sustain a merchant account. These are typically necessary, though some are adjustable and negotiable, depending on the business that is conducted and the kind of deal that can be made between the merchant and the service provider.