What is a Merchant Account?
May.12, 2009 in
Personal Finance
Lindsey B asked:
Can someone please describe what a merchant account is? Also what are some good companies to go with?
Can someone please describe what a merchant account is? Also what are some good companies to go with?
May 15th, 2009 at 5:50 am
A merchant account allows a business to accept credit cards, debit cards, gift cards and other forms of payment cards. This is also widely known as payment processing or credit card processing.Merchants, or business owners who receive credit card payment for their goods or services, must apply for a merchant account typically through a merchant account provider. The merchant account will typically be established based on several factors. Merchants who own businesses with poor or no credit may find it difficult to establish a merchant account through traditional routes
May 18th, 2009 at 3:37 am
A merchant account is an account that allows you to accept credit cards. There are 3 basic ways of finding a merchant account.
First, traditional merchant accounts are provided by most banks. Either the bank will have their own merchant account or will partner with other merchant account providers. These tend to have high monthly fees and are only a good fit for larger businesses.
Second, you can find a wide variety of merchant accounts online. Just do a Google search for “merchant account” and you’ll see hundreds of options. I would be very careful going with just any merchant account because, again, you will be subject to high sign up fees, monthly fees, monthly minimums, and cancellation fees.
Third, there are several non-traditional ways of accepting credit cards. Some of these methods are technically “merchant accounts” and some aren’t. Either way, they allow you to accomplish the same goal. Non-traditional ways of accepting credit cards tend to be the best options for small businesses because the fee structure is more reasonable.
The most common non-traditional way of accepting credit cards is PayPal , which allows you to accept credit cards primarily online via a website. If you need to accept cards online, this is probably the way to go. PayPal has several options depending upon your processing volume and needs. You could also look at Google Checkout for online processing.
For accepting credit cards offline, person-to-person, via telephone, or at a sales event (fair, trade show, etc), a service called ProPay is probably the way to go. With ProPay you process cards via on online interface or via telephone. Whereas PayPal requires your customer to enter the card information, ProPay allows you as the business owner to enter the card information.
Common terms to be aware of.
Discount rate:
This is the fee you pay on each transaction. This typically consists of a variable and a fixed portion. For example, you may pay 2.9% + $0.30 per transaction. In other words, if you process a $100 transaction, you’ll pay 2.9% (or $2.90) + $0.30 for a total of $3.20. This pricing model is common and should be expected.
Terminal:
A terminal is an electronic device through which you enter transactions. This is simply the machine you see at a retailer that they swipe your card through. Some merchant accounts require you to have a terminal and they are not cheap. There is also typcially a monthly fee involved with using a terminal. If you don’t need to swipe cards for your business, don’t get a merchant account that requires a terminal.
Virtual terminal:
This is simply a way of entering transactions via an online interface or a software interface. Instead of entering the card information into an electronic device, you do it on the computer or telephone.
Gateway:
A gateway is essentially a piece of code or software that connects a website to your merchant account. By using services like PayPal or ProPay, a gateway isn’t needed. If you have a website and use a traditional merchant account, you’ll probably need a gateway too. You will be charged additional monthly and sign up fees for the gateway. Authorize.net is the most popular gateway.
Swipe (card present) vs. non-swipe (card not present).
It’s important to realize that there is a difference in price between swipe and non-swipe transactions. If you swipe a card, you usually pay less because it’s considered to be a lower risk transaction. However, along with the ability to swipe cards comes the high cost of owning or leasing an electronic terminal. Make sure you’re comparing apples to apples when it comes to rates. You don’t want to compare a swipe rate for one company with a non-swipe rate for another.
There are several things to be aware of when choosing a merchant account:
Look at the total cost of ownership, not just the discount rate.
Most people focus only on the percentage rate they pay on each transaction. Big mistake. If you have a low discount rate but high monthly fees and monthly minimums, you could end up paying twice as much as an account with a slightly higher discount rate but low or no monthly fees.
Beware of long-term contracts and cancellation fees.
I personally would not sign up for any account with cancellation fees or a long-term commitment unless you really know what you’re doing. If you sign up for such an account and later are displeased (a common occurrence), you’re stuck.
Always ask “are there any other fees?”
When talking to a sales person, keep asking “are there any other fees?” until they stop adding fees. You’d be surprised how many fees most merchant accounts don’t tell you about until it’s too late.
If you don’t understand it, don’t buy it.
If the website or sales person can’t explain the merchant account well enough that you feel you really understand it, don’t buy it. If you don’t understand it, chances are you’ll end up paying extra fees somewhere.
Don’t sign up for any account with statement fees.
These are just padding. If an account charges statement fees, they’re probably ripping you off in general.
Don’t believe the advertised rate.
In general, merchant accounts advertise their rock bottom rates but the actual rate you pay is based on a case-by-case basis. In addition, you pay different rates based on the type of card your customer uses.
Monthly fees:
There are several forms of monthly fees including gateway fees, statement fees, terminal fees, and monthly minimums. Be very careful when signing up for an account to ensure that you are aware of all the fees.
What should I expect to pay?
For small businesses your rate will probably be 2.6% to 4% for non-swipe transactions and 2.1% to 3.5% for swipe transactions. In general, don’t believe anyone that says they can give you lower rates much lower than that. Larger businesses have more power to negotiate lower rates. Small business rarely pay under 2% for any transaction.
Recommended providers
ProPay for offline transactions
PayPal or Google Checkout for online transactions
Other providers
Cellcharge - process cards via telephone only
BidPay - Auction payment service
Traditional merchant accounts
May 21st, 2009 at 2:35 am
hmm I think this site about bad credit cards will explain that to you
have a great day!
May 21st, 2009 at 5:04 pm
Hi there! A merchant account allows you to accept credit card payments for your business. You can either get one through a bank or a merchant account provider.In addition, there are different types of merchant account, there’s your low-risk merchant account for low risk businesses, high risk merchant account for high risk businesses such as adult, travel, telemarketing,online pharmacy, gambling, multilevel marketing, and high volume. Also, there’s an offshore merchant account, that are opened in foreign banks. Offshore merchant accounts basically accommodate high risk businesses for these businesses are not commonly accommodated by your domestic bank. Feel free to visit the links below to get more information on merchant accounts. Peace out!