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|
|•||Lower credit card percentage fee|
|•||Ability to use own ordering system (shopping cart, etc)|
|•||More control over transactions|
|•||Don’t have to go through a third party|
|•||Able to sell any kind of products/services|
|•||Much shorter wait time for money|
|•||Fees refundable on returns|
|•||Able to get if turned down for your own merchant account|
|•||Less hassle, don’t need to deal with bank directly|
|•||Less initial investment than own merchant account (usually)|
|•||Larger startup fee|
|•||A few monthly fees involved (depends on provider)|
|•||Higher percentage fees|
|•||Much longer wait for money|
|•||Higher chance of being down by using another company’s service|
|•||Less control over transactions|
|•||Complexity of going through another company|
|•||Must use their shopping cart|
|•||Overall higher costs per item|
|•||Usually only limited to tangible items|
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.
| DISCLAIMER: The content provided in this article is not warranted or guaranteed by Developer Shed, Inc. The content provided is intended for entertainment and/or educational purposes in order to introduce to the reader key ideas, concepts, and/or product reviews. As such it is incumbent upon the reader to employ real-world tactics for security and implementation of best practices. We are not liable for any negative consequences that may result from implementing any information covered in our articles or tutorials. If this is a hardware review, it is not recommended to open and/or modify your hardware. |
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