If you have an online business or any other reason to accept credit card payments, you will need to get a merchant account. This article will explain what a merchant account is, how to get one, and what pitfalls to watch out for in the process.
With bank cards, credit cards and virtual cards, having the ability to accept credit transactions online can be a vital component to success for any online retailer. In order to accept credit card orders, your company will need a merchant account, along with a number of other considerations outlined below.
What is a Merchant Account?
Quite simply, a merchant account is an account that accepts and holds funds for credit card transactions. It is a relationship set up between the merchant and a financial institution. When you run your card through the machine at the gas pump, hand it over to the server at your local restaurant, or zip it through the box at the grocery store, the same process occurs. Your card is first authorized, and then merchant’s Merchant Account logs the record of the transaction. Depending on how they have their account set up there is either an instant charge on your credit card account, or a placeholder, with the actual deduction of funds occurring later. Most gas pumps work this way, with only one dollar being held as a place holder, just to make sure your account is active. Then, at the end of the day (or even a few days later,) the merchant sends a batch of receipts through their merchant account, which in turn finalizes the transaction on your personal account.
Risk
As with any relationship entered into with a financial institution, there is a risk factor to consider; that is, the institution is going to assess whether or not opening that account for your business is worth the risk. The risk itself is compounded when you move credit card transactions from the physical to the virtual. When a purchase is made online, there is no actual credit being physically scanned in to a machine.
Where to find a Merchant Account
When considering opening a merchant account for an online site, it is important to pick the right financial operation to use. If you have been in business for two years or more, approach your business banker. If you have been in business for less than two years, you might run into a brick wall with that route. Check with your personal banker, the one who handles your own personal accounts, and see if there is a way for them to set up a merchant account for you. Once you have tried both of these avenues, then try an ISO; fees are going to be higher, and ISO’s are not regulated the way banks are. That is not to say ISO’s are not safe alternatives than banks; just more expensive ones.