What is a merchant account?

By cavsi Category: Ecommerce Tags:

A merchant account is a special account that allows your business to accept payments by debit or credit cards and electronic payments through a Web site. You must have a merchant account if you want to be able to accept credit cards from your customers. Setting up a merchant account usually involves the bank understanding your business and working with a third-party processor to arrange a mechanism for accepting payments.

A merchant account is not the same as a bank account. It acts between your payment gateway and your bank account, accepting funds from credit cards which are then deposited into your bank. When a customer makes an online credit card payment to you, the bank debits the amount from your customer's credit card account and deposits it into your Merchants local business checking account, this process usually takes within 48-72 hours.

Once a customer has made the payment, you are expected to fulfill your side of the deal by having the goods or services delivered in the shortest time possible to the customer.

There are various fees associated with having a merchant account. These could vary, depending on the type and company providing the service, but all merchant accounts have 2 main costs:

  • Discount Rates: With most merchant service providers, every processed sale is classified into 1 of 3 qualification levels (Qualified, Mid-Qualified, & Non-Qualified), and is charged a discounted percentage rate associated with that qualification. Each sales level and rate is determined by the type of card used, and/or how it is accepted and processed.
  • Transaction or Authorization Fee: This fee is charged for each electronic authorization request and transaction made, including all approved and declined sales, returns, voids, and batch settlements.

Some merchant account providers are:

  • PayPal
  • Authorize.net
  • Electronic Transfer, Inc.
  • EVO Platinum Services Group
  • MS Gateway LLC
  • Total Merchant Services
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