The Basics Of Merchant Accounts

In an effort to provide greater convenience for their customers, many businesses accept credit cards in addition to more traditional forms of payment. To do so, they must establish a merchant account with an acquiring bank (a bank providing online credit card processing service), which may be either Internet-based or "offline." In either case, the acquiring bank (there are nine international), once it has approved the business for a merchant account, will handle the transaction of funds from credit and debit cards.

Businesses seeking to create a merchant account must be approved by an acquiring bank, based on a number of criteria. Banks will turn down applicants, if they determine the business in question is unsuitable (though banks are not the only means available to businesses of establishing an internet payment system). Businesses must therefore provide details of their trading history, their expected transaction averages with a merchant account, what kind of Internet servers they plan to use (for security of the account), and other factors. Other merchant service providers, or MSPs, accept applicants with less credit than will acquiring banks; these MSPs are a popular choice with smaller businesses.

Acquiring banks charge a fee for their merchant services, which may differ from bank to bank. Some may charge based on a percentage of transactions, while others may charge a fixed monthly fee or an initial sign-up fee. Also, banks may charge different rates for the different types of transactions, such as face-to-face and non-face-to-face credit card transactions. Non-face-to-face transactions are generally considered riskier than face-to-face, but the extra flexibility translates to greater customer convenience; many businesses are willing to take the extra (albeit small) risk factor for the sake of increased cash flow.

Once a business has established a merchant account with either a bank or another MSP, it has the option to install a credit card terminal, or a website with a payment gateway, or an Automated Response Unit (ARU) through the phone. The latter two services allow the business to conduct non-face-to-face transactions. All three systems will process a transaction within a short timeframe, usually less than 48 hours.

As with any payment methods, merchant accounts are susceptible to fraudulent transactions. Businesses using a merchant account must be aware of this, especially with payments in which the cardholder is not physically present for the transaction (e.g. online payments). Should a payment be revealed as fraudulent, the bank will reclaim the transacted money from the merchant account.