Merchant Accounts

A merchant account is the interface between your customers credit cards and you bank. They do several things to protect you and your customers. They do verify that you are in a fact a legitimate business with legitimate products thus protecting your customers and instilling a sense of confidence. They also perform all the technical functions of processing credit cards including: 1) Verifying the customer has available funds
2) Transferring the funds into your bank account
3) Insuring the credit card is legitimate and not fradualant
4) Assisting in accounting and managing of your transactions

Processing Credit Cards

The vast majority of credit card transactions are sent electronically to banks for authorization, capture and deposit. In all cases either the magnetic strip is read by swiping the customers credit or debit card through a credit card terminal or the credit card information is manually entered into a credit card terminal, or in the case of online transactions manually entered into a website.

These banks then validate the cards with the card presenter Visa, Mastercard Discover, AMEX etc to determine if the funds are available. Then the bank transferst the funds into the storefronts bank account via its merchant account.

Accepting Credit Cards Online

There are two ways in which your business can accept credit cards in your online storefront.

Option 1) Using Your Own Merchant Account. You will need to open a merchant account and have it set up to install funds into your bank account. Requirements for this will vary from country to country, and you should check with your local banks for more information on this. You will also need to consider if you want to accept international of just in the US, fees and processing varies.

Option 2) Through a Third Party Merchant such as pay pal. There are many companies around that are willing to accept credit cards payments on for your business and then charge various fees and percentages. There are certain reduced rates for non-profits and charitable events.

Which Method Works For Your Business?

The costs of opening and maintaining your own merchant account can be higher than when you use a third party merchant. In factsome third party merchants have no set up fees. Where they do charge and usually significantly higher amounts is the transaction fee (which is what you pay the bank or third party merchant for each sale). So the amount of credit card transactions is a major determining factor, the more processing you are expecting to do the more your own merchant account makes sense.

Third party merchants are usually convenient to use when you don't know if you can actually make much out of your product or service. Allowing you to test your market and product before committing. Or if you only plan to accept credit cards for a short period of time, say for an event. It is also convenient in that the merchant takes care of everything for you.

Setting up your own merchant account gives your business with a certain amount of professionalism as well. It is a much cleaner transaction to process the credit card on your own site that to send your site usres to a third paryt. You will also need to make syure your web site is secure and safe. This is not to say that there are no risks attendant in using a third party merchant.

Credit Card Terminals

Credit card terminals are physical machines that read customers credit cards and send the private data to a bank to be authorized. These machines can be integrated into your cash register and have printers integrated into them to provide your customers receipts. Most terminals will have a key pad for manual entry of the data in addition to the magnetic strip reader.

The most popular brands inlcude VeriFone, Hypercom, and Lipman-Nurit any of these will suit your purposes. Wireless terminals are becoming widely available at an affordable price as well.

Merchant Account Rates

There are many determing factors in the rates of accepting credit and debit cards. Some of those factors include
1) Length of time you have been in business
2) Total dollar amount of sales you perform per month
3) Average dollar amount of each sales transaction
4) Your personal credit rating
5) Type of business you are in, the number of years you've been in business
6) Percentage of your retail or service transactions that are made over the phone or the Internet

An average of rates available traditionaly ranges from 2.25 to 3 percent for home and small businesses that accept credit cards.

With a poor personal credit rating some companies may charge as much as 5 percent. Some banks in many parts of the country still don't want to deal with home and small business merchant accounts, it is not as difficult as it once was for new, home mail order businesses to get merchant status unless you are in at risk markets.

Lower fees are available if you are only perfomring swiped transactions from your physical storefront. Some companies advertise discount fees less than 2 percent if you are exclusively performing this type of transaction.

Ultimately in comparing processors be sure to find out what all of the fees will be. Analyze not only the application fees and the per transaction rate, but also the initial cost of equipment, (some companies do procide free credit card terminals), monthly minimums, voice verification charges, address verification fees, monthly statement fees, and any other costs.

Authorization Software

If you plan on accepting credit cards for your online store you will need software that will allow you to process these orders safely and securely. The majority of merchant accounts offer their own payment processing software systems or payment gateways but the most widely used is AuthorizeNet. A payment gateway is an online application that submits your customer's credit card information securely to your merchant account provider. All online credit card transactions that take place in real-time must have a payment gateway to verify properly.