A merchant account is a relationship you have with a bank. In this trust, the bank agrees to allow you to charge people?s credit cards for goods and/or services you provide. The bank in turn, has the responsibility for debiting the funds from the customer(s) and depositing it into your account.
When you acquire a merchant account from a bank, you are expected to uphold your promises to your customers by fulfilling your end of the business transaction in a timely manner.
Selecting a merchant provider is a critical element when doing e-commerce on the Internet. It is important to understand the fundamentals of what a merchant account is, and how it will affect your business. Armed with this information, selecting a merchant provider from the many available will be an easier task.
Typically, you have two options when it comes to acquiring a merchant account.
First, the normally preferred method, is to acquire your own merchant account.
This gives you the most flexible relationship possible when it comes to accepting
credit cards as payment. The second option, is to use a third-party merchant account.
This means that another party allows you to accept credit cards using their merchant
account. This is typically more expensive, percentage-wise, but is a viable option
for people with very low volume or who are unable for some reason to get their
own merchant accounts.
Side by side comparison of advantages/disadvantages
|YOUR OWN MERCHANT ACCOUNT||THIRD PARTY MERCHANT ACCOUNT|
There is no ?magic? when getting a merchant account. You do not dial a phone
number and 10 minutes later have the ability to accept credit cards. First, there
is an approval process that needs to be followed. Depending on your provider,
this could take anywhere from 30 minutes to a few days. Once you have been approved,
your merchant account can be ready for use in less than a week.
Even when your merchant account has been approved and is ready for use, there
is still the matter of logistics. How will you process your credit card transactions?
Will you manually type your transactions into a software program or a credit card
terminal? Or will you opt for real-time credit approval, and automate your website
to process the transactions automatically? The first option requires that you
purchase software or equipment to process the credit cards. If you purchase equipment,
it needs to be programmed by your merchant provider to authenticate with their
network and utilize your merchant account. If you choose to utilize the real-time
option, you must affiliate yourself with an Internet ?gateway?, who will charge
a fee (typically a flat monthly fee) to be your connection to your merchant.
When accepting credit cards through a merchant account, there are a number of
fees involved. It is important to understand these fees, as it will help in the
selection of an appropriate merchant provider.
|?||Startup Fee. There is a startup cost when setting up a merchant account. This
fee is a one-time cost and can range anywhere from $99 and up, depending on the
merchant provider you go with.
|?||Credit Card Fee. There is a credit card fee charged by the major credit card
carriers directly. Visa and MasterCard typically charge less than American Express
and Discover. Expect anywhere from 1.5% to 4% deducted from each sale, depending
on the card type used, and the percentage rate that you have negotiated for that
card. This credit card fee is taken off the top, and is deducted from the charge
amount before the money is depositing into your account.
|?||Transaction fee. In addition to a percentage on each sale, there is also a transaction
fee. This fee is charged by your merchant provider to cover their costs of network
usage, equipment, etc. These fees can range anywhere from 10 cents to $1 per transaction,
depending again on your merchant provider. This fee, like the credit card fee,
is taken off the top and deducted before the money is deposited in your account.
|?||Additional fees. Depending on whom you sign up with, there may be additional
fees associated with your account. These may include monthly statement fees, minimum
traffic fees, charge-back fees, and more. It is important to review a complete
schedule of features and fees before signing up with a merchant provider.
In summary, there are many merchant providers available to assist you in obtaining
the ability to accept credit cards as payment for your goods and/or services.
Having a basic understanding will allow you to make an educated decision when
it comes to selecting the right provider to help make your business successful