What is a Merchant Account

Shannon Andrade |

May 31, 2012

Merchant accounts provide businesses with the ability to accept credit card and debit cards for purchases. There are several different aspects to a merchant account, which we will describe below.

A Merchant Account Entails:

  • Processing Services: To set up a merchant account, a business owner, or “merchant” must apply through a merchant service provider (MSP) such as Merchant Warehouse. Approval of a merchant account depends on factors which include, but are not limited to:
    • Applicant and/or Personal Guarantor’s Credit Score
    • Business Type (Goods or Services Sold)
    • Card Acceptance Method (Merchant Type)
    • Monthly Volume & Average Sales Ticket
    • Business’ Financial Condition & Bank Account Type
    • Business Longevity
    • Return/Refund Policies
  • Processing Rates & Fees: There are various fees associated with having a merchant account. These could vary, depending on the type and company providing the service, but all merchant accounts have 2 main costs:
    • Discount Rates: With most merchant service providers, every processed sale is classified into 1 of 3 qualification levels (Qualified, Mid-Qualified, & Non-Qualified), and is charged a discounted percentage rate associated with that qualification. Each sale’s level and rate is determined by the type of card used, and/or how it is accepted and processed.
    • Transaction or Authorization Fee: This fee is charged for each electronic authorization request and transaction made, including all approved and declined sales, returns, voids, and batch settlements.
  • Processing Capability Systems: To process credit card payments, processing equipment or software is required to capture card information, make authorization requests, and close sales. Depending on business needs, equipment options include:
    • Terminals: Wireless, Contactless, Stand-Alone and Terminal/Printer Combination units
    • PC Software: Stand-alone or integrated into other business systems
    • Internet Gateway Solutions: Virtual Terminal or eCommerce versions

To maintain customer satisfaction and increase sales and revenue, it is becoming essential for businesses to have merchant accounts and accept credit card payments. Fewer and fewer customers carry cash, checks involve significant risk, and sending your customers running to the ATM machine could lose you valuable business. For both your business’ and customers’ benefit, sign up for a merchant account today.