What is a Merchant Account and when do you need one?

If you want to have the ability to accept credit or debit card payments in your retail or online store and you want your business name to appear on your customers' credit card statement upon charge, then you will need to have a merchant account. This is a type of bank account that is offered through network of banks but it is not the same type of account as a checking or a savings account. A merchant account is more like a contract that you have with the bank as a business owner and on which your processing volume passes through every 7-14 days.

As a business owner, you can apply for few different types of merchant accounts.  The most common type is the over-the-counter or OTC merchant account used for retail stores. The other type of merchant account and most common online is for eCommerce merchants or in other words online webshops, these merchant accounts are called Internet Merchant Accounts. This merchant account has a subcategory called High-RIsk Merchant Account, which is again for online businesses but for specific categories such as pharmacy, gambling and adult, where fraud is more likely to happen and thus it poses a higher risk to a processor. Fourth most common type of a merchant account is for mail and telephone made orders account, a MOTO Merchant Account which is most commonly offered in conjunction with regular Internet Merchant Account.

The fees for OTC account are lowest, up to 2% in most cases.  This is because when an establishment uses an over the counter merchant account, the credit or debit card is physically swiped through a machine, a credit card is present at the Point-of-Sale (POS processing), thus reducing fraud to minimum. Internet merchant accounts charge a higher fee because card is not present and additional steps are needed to make the transaction complete, but also because with online and MOTO transactions there is a higher risk of fraud. These rates typically range from 2.50% to 4% for regular eCommerce and above 5% for high-risk merchants.

If you have an Internet business and do over 5k of monthly volume then you will want a merchant account with your own billing descriptor and most likely you will also need to process MOTO transactions, so look for a merchant account with such options. With an account like this you will have an online payment form for the customer to fill out when checking out on your website. The form will include their credit or debit card information, address, and all of their billing information. This information will be sent out for verification and the money will be removed from the cardholder’s bank account or subtracted from their credit limit.  It is common for some cards not to be charged on the fly but instead held until the order has reached the shipment stage. With MOTO ability you will have an extra payment form installed on your computer, called virtual terminal, which you can fill out and charge your customer manually after he/she gives you credit card information over phone or mail.  

It is common for people to think that it is difficult to get accepted for either type of merchant account, especially for new businesses. However, most merchant account providers and payment processors do not turn away customers and the acceptance rate is known to be as high as 98% with most merchants. 

Some small business owners also believe that the cost of accepting credit or debit cards with an online business is too expensive. There can be some small monthly fees associated with having an account but the overall rates will be much less than those with 3rd party merchant accounts such as PayPal and 2CO and you will definatelly profit from it. Merchant accounts are actually ideal for businesses of all sizes or any type of business that is required to process handfuls of credit or debit cards on a regular basis. 

An online business being successful relies on the ability of being able to accept credit or debit card payments, no matter if you have a retail store or an eCommerce store on the web. Your visitors should be able to purchase comfortably using their cards and if you do not provide them with this option you will most likely lose customers.