Basics of a Merchant Account

Merchant Account Defined

A merchant account allows a business to accept debit cards and credit cards.  It is a type of bank account that is established with a bank and payment processor. Any time you hand off your credit or debit card to the cashier at a store, they are using a merchant account in order to process and collect your payment.

Importance of Having a Merchant Account
More and more people choose to forgo carrying as much cash and are using their debit and credit cards instead for convenience. Cards take up less space, are easier to hold on to, and some people feel they can keep track of their spending habits better than if they used cash. If you’re a business and don’t have the option for customers to use their cards, they may become frustrated and think twice about coming to your business again, or perhaps they won’t come as often because of the added inconvenience. You could risk losing sales at retail outlets since people may not come back with cash or just change their minds about the purchase if they don’t have any cash on them. Same goes with other businesses, even restaurants. Sure, the customer can just go to the nearest ATM machine, but they may become frustrated at the inconvenience, and remember it in the future when they are deciding on what restaurant they would like to visit. They might decide to go to another restaurant where they won’t have to deal with the inconvenience. Since there are so many other businesses that do accept cards, customers will more than likely pick the option that is easiest and most convenient for them.

Different Ways of Processing Cards
There are different ways that businesses can collect the information from your card through their merchant accounts. One way you’ve likely seen at the grocery store or other retail outlet is by swiping your card through a credit card terminal. Those are the small, stand alone devices that you or the cashier swipes your card across. There is a number pad to type in information like your pin and a screen display. They are connected to a phone line or an internet connection so that they can communicate with the appropriate networks and merchant service provider to authorize transactions and upload the money from the transaction into the merchant account. There are also ARU’s or automated response units where a cashier can enter the credit card information over the phone. Usually when businesses choose to do transactions this way, they will use a card imprinter to capture the card information, and then process the transaction over the phone. For online business or ecommerce, payment gateways are commonly used, but they can also be used for traditional retail stores with a physical location. Payment gateways use encrypted, secure connections over a web server to ultimately deliver credit card information to the merchant’s bank.

Different Rates and Fees
There can be over a dozen fees associated with merchant accounts, depending on what kinds of methods are used to process the transaction. A monthly statement fee, sometimes called a service fee, charges the merchant every month for service and support, and a monthly paper statement that is provided for you. It can be $10 to 15 dollars a month. A transaction fee, usually around 20 or 30 cents, is charged on every transaction, even if the card is declined. There are internet gateway fees, voice authorization fees for phone transactions, and address verification fees for cards that are not swiped. All these kinds of charges are usually small, ranging from 5 cents to more than a dollar or so. Then there can be fees like annual fees, setup fees, early termination fees, and monthly minimum fees, which charge merchants when all their fees in a month don’t add up to a specified amount. Fees and rates vary by merchant service providers so it’s important to compare providers carefully and understand all the various fees involved when shopping for a provider.