You know the funds from credit card transactions get deposited into your bank account. However, before they can be deposited into an account you selected for deposits, they must first pass through your Merchant Account. We will explain the five most important things you need to know about a Merchant Account.
What is a merchant account?
A merchant account is an account used to accept customer payments from credit cards, debit cards, or a third-parties such as PayPal. There are a few differences between a merchant account and your business bank account. Your merchant account is the middleman that settles credit/debit card transactions for you. When your business gets paid, funds go to your merchant account before they go to your regular business account. Your merchant account normally reserves a small standing balance which is used for processing refunds. If your account falls below this amount, funds may be held. Banks may tack on additional fees for merchant accounts including: application fees, transaction fees, set-up fees and international fees. You may need a separate online merchant account for American Express and Discover if your credit card processor doesn’t partner with those brands.
Who needs a merchant account?
Merchant can be a significant operational expense. Some banks tack on more than 3% in fees per transaction. A merchant account fulfill important functions, such as increasing security, reducing the risk of customer data breaches, enabling you to process international payments, and reducing accounting errors. Banks might add additional fees for services geared towards mid to large-sized businesses that you may not even use if you’re a small business owner.
Merchant accounts for small businesses
Taking payments through a payment services provider like PayPal is an unreliable option, since it can result in system freezes and shutdowns that delay operations. Using a credit card processor such as Chosen Payments reduces the risk and provides you with a third-party representative between you and the bank. Your processor will be able to provide you with a clear analysis of the fees charged for your merchant account.
How do you open a merchant account?
Opening a merchant account varies from processor to processor and can be a very simple or a very complicated process, depending on your choice of payment processors. Banks take a few factors into consideration when deciding whether to accept your application, and what type of merchant account is right for you. Their questions will include the size of your business, what portion of your business operates online (online has higher rates because of the increased fraud risk for online transactions), your personal credit history, the average price of your merchandise and how many transactions you process per month. Each of these factors can significantly impact your rates.
Merchant account vs payment gateway
Think of a payment gateway as an online POS station –– it sends customers’ payment information to your bank from your website; while a merchant account is the account from which your payment gateway transfers funds. A payment gateway receives customer information when they pay online, securely encrypting that payment information and sending it to your bank, which then approves or declines the payment based on whether the customer has funds available. Don’t confuse a payment gateway with a payment processor, which works with your merchant bank account to connect you to your customers’ credit card networks. It’s easiest to find a payment processor who will provide you with a payment gateway that simplifies online transactions.
Bringing it all together
Accepting customer payments involves a lot of moving parts. The average business transaction may require as many as seven entities to be involved in processing a simple payment. Chosen Payments can help simplify the process of setting up your merchant account with fast account approval and easy delivery while helping to save you money in the process. Not only does Chosen Payments save merchants an average of $700+ per month on average in fees, but it has award-winning 24/7/365 customer service. Credit card fraud is at an all-time high. Statistics say that online fraud is up more than 750% from where we were just one year ago today. With more and more companies utilizing eCommerce, thieves are looking to use eCommerce too as a way to steal from you.