Merchant Services: An Overview for the Novice Business Owner


The success of any small business is deeply rooted in customer satisfaction. A merchant account can help your burgeoning company expand its consumer base by offering a new and versatile level of convenience and simplicity.

Merchant accounts provide a variety of services based around the central ability to process credit and debit cards for payment. In an ever bustling society of instant gratification, many potential customers take the ability to pay with plastic for granted. Take a few moments to learn the basics of merchant accounts with this quick tutorial before you choose a provider for your small business.

Types of Merchant Accounts

There are three basic varieties of merchant accounts, each designed to suit a particular type of business in the most efficient way possible. Depending on the kind of business you do most often, it may be a good idea to opt for a combination of accounts to provide the ultimate in convenience.

Retail Merchant Accounts

Retail merchant accounts are the most familiar type and have been around ever since credit cards became a favorite payment method of the general public. They are best suited to businesses that have a storefront or other physical point of sale. Millions of customers take advantage of the services offered by these accounts each day at grocery stores, department stores, restaurants and more.

If you can perform at least 80 percent of all credit card transactions with the card holder present, a retail merchant account will provide the best combination of flexibility and low rates. Since transactions of this type are deemed the most secure, retail merchant accounts enjoy the lowest rates and fees of the three types. Typical per-transaction fees tend to hover near 1.79% of each purchase.

If you decide to opt for a retail merchant account, you’ll need to obtain a credit card terminal that lets you swipe cards or manually enter information to process orders immediately. These terminals provide nearly instantaneous results, letting you know if the payment has been accepted or declined. They can be purchased or leased from your merchant account provider.

Internet Merchant Accounts

One of the newest and most increasingly popular ways for processing payments, Internet merchant accounts let your business process credit and debit cards instantly on the web. If you conduct the majority of your credit card transactions via the Internet, you’ll reap the benefits from this type of account.

The combination of an attractive, informative website and a secure, easy to understand payment system can be a boon to any web based business. While many larger companies have the capital to develop their own custom online payment portals, most businesses take advantage of a third party-run secure payment gateway, which can be set up through your account provider.

Because the potential for fraud is a bit higher for internet merchant accounts, compared to retail accounts, their rates are usually a bit higher. In general, you can expect a per-transaction fee around 2.3% for internet accounts. The higher rate protects you and your account provider’s interests in the event of illegal activity.

MOTO Merchant Accounts

MOTO is an acronym that stands for mail order – telephone order merchant accounts. This type of account is the least common and lets businesses defer processing of credit card for payment. Card information is supplied by the card holder and then submitted to the merchant account provider manually by the business via the web or telephone.

Merchant Account Providers

Merchant accounts are specialized bank accounts that can only be offered by merchant banks. These are banks that deal solely with businesses, as opposed to typical investment banks, which deal primarily with the public. Businesses with a well established reputation and a good credit rating may be able to set up a merchant account through a merchant bank directly, but most choose to take advantage of the services of an independent sales organization, or ISO.

An ISO is a company that acts as a liaison between merchant banks and businesses and specializes in managing merchant accounts of all types.

Although it may seem counterintuitive to opt for a third party in your business’s merchant account dealings, ISO’s offer an array of extra services the merchant banks lack. Services offered by ISO’s typically include customer service, equipment sales and leasing, printer paper supply and settlement management.

There are many independent sales organizations in the market today and it’s essential to carefully compare several potential partners before committing to a contract. Before you make a final decision, be sure your ISO has a proven track record as well as proof of sponsorship by a reputable FDIC insured bank.

Regardless of the kind of business you run, a merchant account with a reputable ISO or merchant bank can offer the convenience and security that current and future customers will appreciate and use over and over.