Articles

What is a Merchant Account

Posted 4/05/2008

A merchant account is a contract under which an acquiring bank extends a line of credit to a merchant who wishes to accept payment card transactions of a particular card association brand. Without such a contract, one cannot accept payments by any of the major credit card brands.

Methods of processing credit cards

Today a majority of credit card transactions are sent electronically to merchant processing bank for authorization, capture and deposit. The method of processing credit cards will vary by industry. In all circumstances either the entire magnetic strip is read by a swipe through a credit card terminal/reader or the credit card information is manually keyed in to a credit card terminal, a computer or website. Whenever practical it is best to swipe a credit card because the rates will be much lower and the incidence of stolen credit card number fraud is greatly reduced.

Credit card terminal

A credit card terminal is a stand-alone piece of electronic equipment that allows a merchant to swipe or key-enter a credit card's information as well as additional information required to process a credit card transaction. A credit card terminal is a dedicated piece of equipment that only processes credit cards although it is common for related transactions including gift cards and check verification to also be performed. A credit card terminal typically must be plugged in to a power supply and connected to a telephone line. However, some terminals may be powered by batteries, communicate over the Internet or through the cellular phone networks. When a credit card is processed (either swiped through the magnetic stripe reader or keyed in to the keypad), it contacts the network to verify if the credit card can be authorized. This process is completed at the end of day when the batch of all the authorizations from the terminal of the day are sent out.

The most popular credit card terminals consist of a modem, keypad, printer, magnetic stripe reader, power supply and memory card. They have had the same basic design since the 1980s. As with computers, there is a wide range of memory capacities and other features like built-in printers and debit card pinpads that affect the manufacturing cost of a credit card terminal.

A merchant may lease or purchase the terminal, or receive it free in exchange for a long-term contract or higher processing fees. Some providers use the general lack of knowledge regarding the cost of a credit card terminal to inflate prices into the thousands of dollars for a few hundred dollar device. They may also provide the merchant with a credit card terminal that is "locked" into only one provider, making it useless if the merchant wants to switch service.

When a terminal is leased there is usually a 3rd party leasing company involved and it is not uncommon in many U.S. states for these leases to be non-cancellable and possibly never ending unless notice is given to the leasing company at the end of the original term.

Did you know that could possibly multiply your sales receipts within a matter of weeks or months? Of course, other factors will play a role in the overall success of this strategy, but many company owners claim that the simple step of accepting credit card payments increased their income dramatically in a relatively short amount of time. That is why you need to know more about the benefits of credit card merchant services.

Basically, the premise of using credit card merchant account services works like this. You find a trusted lender with experience in merchant accounts. You might even want to check with customers at some of the lending institutions to see if they are satisfied with their merchant account services. You also can find online testimonials, although these may be biased when situated at the Websites of various lenders. You could visit chat rooms devoted to topics like this one that are sure to be discussed among entrepreneurs or start-up business owners. After getting objective feedback on several possible lenders, you can choose the one that seems like the best bet for your company.

It is a simple process to apply for credit card merchant account services. After reducing your possible underwriters to three or four after searching the Internet or checking with colleagues, it then becomes a matter of comparing and contrasting benefits with fees. Some companies are so well known that they can afford to charge more for their merchant account services. Others have recently added this option, so they might reduce, avoid, or omit certain fees in order to get your business. However, you may have to pay these fees after the first year or another type of trial period. Read all the terms carefully so that you understand how the account works, how much it costs, and what the potential glitches might be. Contact the lender with any questions or uncertainties before applying for an account. Then, when approved, you should feel confident that you have made a good investment.

Obtaining credit card merchant account services will let you accept credit card payments from your customers in a variety of ways. If you own or operate a store, for example, they can pay onsite with a credit card processor that you can plug into a wall outlet. But if you deliver goods or services to homes or businesses, you may want to take along a wireless credit card processor. Depending on how your customers like to pay and the level of involvement you want to pursue, you can add a pager and an e-check or debit processor right away or later on, depending on equipment cost and your need.

Being approved for a merchant services account will help you expand the way you do business. Many consumers prefer to pay by credit card, so accepting payments via this method will attract that segment of buyers and increase your volume of sales. Soon your profit margins should increase as well. Start thinking now about adding credit card merchant account services to your business.