What is a Merchant Account and Why Should You Have One?

A merchant account is a credit card processing agreement between a merchant and a financial institution. It is used to accept credit card payments for goods or services. In the simplest of terms, it allows business owners to take payment from customers in the form of credit cards or debit cards. The merchant account works by receiving payments inputted on the customer’s card and converting that into an invoice that stores the data like date, time and the amount owing. Once processed, this information is relayed back to the bank then pays out funds to your business’s account.

In this day and age, having a merchant account just makes sense. Without one, you’re cutting yourself off from a huge percentage of potential customers who are looking for an easy way to pay you with their cards. However, before opening up a merchant account for your business you need to be aware of all the costs associated with it. Here are some things you should know about what is a merchant account and why should you have one?

What is a merchant account?

A merchant account is a credit card processing agreement between a merchant and a financial institution. This agreement is used to accept credit card payments for goods or services. It works by receiving payments inputted on the customer’s card and converting that into an invoice that stores the data like date, time, and the amount owing. After this information is relayed back to the bank, they then pay out funds to your business’s account.

A merchant account serves as an intermediary between customers’ bank accounts and your company’s bank account so that electronic payments, such as credit card transactions can be processed. When a sale happens, the merchant account works behind the scenes to withdraw funds from customers’ banks and deposit them directly into your company’s checking account. The process goes in reverse when there is a refund during payment processing timeframes.

Once you have been set up with a credit card processor for your business, you will begin conducting credit or debit card transactions by their rules through either purchasing some hardware or receiving one free of charge if it is offered by them at any point in time; this would include going through contracts together before signing on the dotted line.

Benefits of having one

The benefits of opening up a merchant account are numerous as it’s an excellent way to build customer trust. When consumers can use their preferred method of payment, they feel more confident in purchasing from you and your business. This is especially true if they have rented before and had a bad experience with the company they rented from.

Another benefit of having a merchant account is that you’ll be able to easily accept international payments. By accepting international credit cards, you open up the door to countless potential customers who may not otherwise be interested in your products or services. It’s also possible that some merchants might prefer using debit cards which don’t require a signature like credit cards do.

Additionally, there are plenty of card processors out there who offer low rates—as much as 3% or 4% lower than typical rates. And while this may not seem like much initially, these numbers add up quickly over time and can save you thousands of dollars over the course of your agreement.

All in all, if you’re looking for an easy way to boost your business’ success, opening up a merchant account should be at the top of your list! More information: Merchant Services CA

How to set up a merchant account

Setting up a merchant account can be done through the bank of your choice and you will need to be aware of what the costs are beforehand. It’s in your best interest to do some research before signing on for one as it may not always be worth the added expenses. Merchant accounts can range from $39 per month to more than $200 per month depending on which company you choose, so make sure that you’re willing and able to pay these fees before signing.

Additionally, there are a few different types of merchant accounts that you should consider while doing your research. One type is a fully-managed account where the bank takes care of every detail from getting set up all the way to rebuilding your database if needed. This type is ideal for businesses that don’t have any experience working with this sort of technology. The other option for a merchant account is an independent processor, which means that you take care of everything yourself; this type is recommended for those with prior experience or knowledge surrounding these types of agreements.

How to get a merchant account

It can be easier than you think to acquire a merchant account. The following are the steps necessary in order to create an account:

Step 1: Do your due diligence

The first step in obtaining a merchant account is to do some research. There are different varieties of fees and capabilities, so you’ll want to find out which companies offer the best solution for your business. For example, some processors are oriented towards your industry while others specialize in a certain transaction type- such as online purchases or retail sales.

If you have friends who work in an industry similar to yours, ask them for recommendations! You can also look online and compare processors if need be; your bank may offer these services too! Your bank will probably approve more easily when it comes down to approving new businesses for a merchant account because banks typically know their clients very well.

Besides any posted fees, compare the hardware costs, customer support, and contract length. The standard merchant account contract is three years long with penalties for early cancellation.

When you sign up for a processor, ask about what type of documentation it requires and how long the approval process might take. If your prospective payment processor makes unrealistic claims or statements that seem too good to be true- don’t just take them at face value!

Step 2: Get your paperwork in order

You’ll need to provide your business information, which includes things like the name of your organization and its DBA, contact information, how long you’ve been in business; your tax ID number; financial statements; a bank account for making payments (including routing and credit card numbers); or other documents.

Step 3: Apply for a merchant account

Once you have submitted all the requested information, the processor may check your personal and business credit history. Depending on which provider you are applying for a merchant account with, there might be an application fee that is required of you.

You can also include an old-fashioned cover letter in order to explain precisely what your business does and why it deserves a merchant account

Step 4: Wait while your application is reviewed

The merchant account provider will examine your application and decide whether you are a good risk. When approving an application, the vendor will take these factors into consideration:

–  The number of years in business
–  Credit history for both personal and business including bankruptcies or defaults.
–  Whether you have had a merchant account before, type of business, and future transactions.

A business is considered less risky if customers will be able to use their cards in person while you process transactions. The merchant account provider may approve your application if your business history and transaction type make for a low-risk option even though some riskier companies are still approved, but with additional fees.

Kinds of merchant accounts

Your business has unique needs when it comes to payments, so here are the different kinds of merchant accounts:

• Retail: This merchant account is for retailers with a fixed location. They’re offered low setup and transaction fees.
• Mobile merchants: Your business needs a mobile merchant account if it travels to events like food trucks. If you want to accept mobile credit card processing, you can acquire easy-to-setup and use credit card processing equipment that is compatible with your mobile or laptop devices.
• E-commerce: There are different merchant accounts for the two main ways of selling goods: online and by phone. One type is an e-commerce merchant account (explained in more detail below).

Costs involved with a merchant account

In order to set up and maintain a merchant account, you need to be prepared for the initial cost as well as ongoing costs. Depending on the bank, it can take anywhere from three to six months before your business starts receiving any income.

The fees associated with opening and maintaining an account are also something you should consider. They will vary depending on the financial institution and what kind of service they offer you. For example, if you’re running your business online, then online processing is most likely going to cost more than just dealing with card-present transactions at a retail store or restaurant.

Some banks will waive some of their fees if your business meets certain criteria.

• For example, if you have high volumes of transactions (over $250,000 per year) or have a high credit score then some banks may charge less for their service.

However, this doesn’t mean that those banks will have better customer service or provide better rates for credit card processing. It’s important that you review all of the options for merchant accounts in your area before making a decision on who to choose as your financial institution partner.

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Hardware costs

One thing you need to be aware of is the costs associated with setting up a merchant account.

• For starters, there are the costs related to the hardware required to process your credit card payments. These can include things like a point-of-sale (POS) terminal or an internet-connected device that can process payments.
• The cost for these will vary from business to business and situation to situation, but it’s important that you’re aware of these upfront charges before making any decisions.

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Read more:

• How to Choose a Merchant Service Provider?
• What is a merchant account for eCommerce?

Monthly fees and other costs

The monthly fee is the most common cost of a merchant account, and it can range from $20 to $300. There are also other costs you should be aware of such as terminal rental and processing rates. This information can be found on your merchant service agreement, which you should read before signing anything.

You don’t want to get stuck with hidden fees or other costs that will end up costing you more than anticipated. It’s important to have a clear understanding of all the terms of your contract before signing anything. This means reading all the fine print and making sure they’re in line with what you expect.

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How many fees are charged?

The fees associated with a merchant account vary depending on the provider. Credit card transactions are generally considered to be less susceptible to fraud than debit or cash, so rates for these transactions may be lower. Some providers offer fixed transaction fees without other charges and some use interchange-plus pricing which is a credit card company’s charge plus the markup of your merchant service provider; others offer tiered pricing based on different types of transactions.

Here’s a closer look at each model:

Flat-rate pricing:

The flat-rate pricing model for credit card processing is straightforward. If you swipe a debit or credit card, the processor might take 3% of the value of that transaction. This model is best for your business if it has low sales volume and provides small-ticket items.

Interchange-plus pricing:

This is one of the most common pricing models for small companies. The interchange rate is the processing rate that a credit card company sets. In interchange-plus pricing, a payment processor will charge this rate plus a markup as its profit. For example, an interchange-plus pricing structure might appear as 2.75% + $0.10 per transaction

Tiered pricing:

Tiered pricing is for transactions with three categories: qualified, nonqualified and mid-qualified. Qualified transactions are given the most advantageous rates; however, non-qualifying ones can get expensive as well. Each category of transaction varies in what they do but you generally expect a card-present transaction at a POS system using your regular credit or debit card to be classified as qualified. In comparison, keyed-in credit card numbers over the phone would typically be considered one of the other two categories depending on whether it was done with an address verification service (AVS) verifying that this particular customer’s address matched up with their bank account information or not when inputting their details into our third-party providers’ interfaces like certain banks/financial institutions will use AVS when these customers call in to see if any activity has been made on their accounts).

In addition to the pricing models, there are some additional fees that apply.

Monthly fee: 

Your monthly statement fee covers the charges for preparing your monthly statement and providing customer support.

Gateway fee:

If you need a payment gateway for card-not-present transactions or online payments, there might be monthly fees.

Monthly minimum fee:

Unfortunately, some payment processors have a minimum number or value of transactions you must complete each month. If you don’t meet this requirement, you could be subject to a monthly minimum fee.

PCI compliance fee:

The Payment Card Industry’s Data Security Regulations help reduce the threat of identity theft and fraud. As a merchant, you can receive PCI compliance services as part of setting up and maintaining your account with many different processors. Some processors charge for these services but they are not always disclosed when inquiring about pricing.

PCI non-compliance fee:

If a business does not comply with the PCI standards, they can be charged fees by processors. Usually, you have a few months to come into compliance but if it is more than that then you will begin incurring non-compliance fees.

Batch fee:

A batch fee is usually charged when you post a batch of new transactions. For example, this could be once or twice a day and the fees are always about 10-25 cents per transaction as well.

Address Verification Service fee:

If you are using AVS to confirm a cardholder’s address and the processor is likely to charge this fee, then be aware. AVS is a fraud-prevention measure most commonly used by e-commerce businesses that often perform keyed transactions.

Retrieval fee:

If a customer disputes what you have charged them, and their bank requests the records from that sale in question to investigate, there could be a fee for retrieving those records. This is different than the chargeback fee because if it turns out they were in fact overcharged or wrongly charged then this retrieval of information could prevent an unauthorized chargeback by proving otherwise.

Chargeback fee:

When customers dispute a charge and demand for refund, this is known as a “chargeback”. It involves canceling an already processed transaction and returning the funds to the customer. You then have to pay off your processor with additional processing costs involved in giving out refunds.

Cross-border fees:

International transactions are burdened by additional fees to cover the costs of exchanging currencies electronically. Some fees are unavoidable, but not all common across credit card processors in the industry. Be careful you don’t get caught up in bogus charges from an unethical payment processor!

5 things are important when opening a Merchant Account

If you’re considering opening a merchant account to accept credit cards for your business, it’s good to know what this entails. Here are 10 things you should keep in mind when applying and starting the process.

One of the requirements for opening a merchant account is underwriting

Banks take on risk by providing merchant accounts to businesses. Every dollar transacted through the bank’s system could be charged back, potentially leaving the bank responsible for funds.
If a business processes a transaction and can’t deliver the product or service (because they closed, can’t afford payroll etc), if customers issue chargebacks, banks typically refund them before recouping those funds from merchants which have already shut down!
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You need a business bank account in order to open up a merchant account

You will need to open a business bank account before opening up your merchant account. You can do this in about 15 minutes at your local branch and they only require that you have a business license and employer identification number (EIN). The EIN can be the social security number if you are a sole prop with zero employees. The money from all of your transactions will go into this account, as well as transaction fees being debited here too. It is important to keep enough cash on hand so there is always enough for any processing fees or monthly software fees that might apply, just in case these occur because of insufficient funds available

A business license is typically required for a merchant account

If you are a sole proprietorship or if your business is registered in certain districts, it is likely that you already have a license such as articles of incorporation. This license will be necessary for other purposes outside of opening up a merchant account – so if you haven’t yet gotten one, visit the Secretary of State’s website and get one. The underwriters at a merchant account review this and file any copies they may need to validate your business.