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merchant account and payment gateway

Merchant Account and Payment Gateway

Merchant Account 

A merchant account is basically an online bank account that holds money for an online website temporarily. The amounts will finally end up in the websites owner after some period of time. In many cases this period is about 2 to seven days.

merchant account and payment gateway

How a merchant account works

When one thinks about it, the merchant account works just like an actual bank account. Money is transferred to this account first when they make sales in the website. A merchant account can receive amounts from different accounts since the online shop’s owner doesn’t want to limit its consumers. These forms of payment may include credit or debit cards, wire transfers, ACH, etc.

There are two kind of merchant accounts.

  1. Dedicated merchant account
  2. Aggregate merchant account.

Dedicated merchant account 

A dedicated merchant account is set up purely for a specific online shop. Since the online shop owner has to pay for the account whether dedicated or aggregate, they have an advantage when using the dedicated account since it offers more control of the money. This control is offered in terms of how long one can wait before withdrawing the money and the percentage rate one has to pay. The rate paid is normally based on the level of sales and type of products in the online shop. The idea here is to ensure that even small online shops are enticed to open dedicated account since the less the volume in sales the less the rate paid to the dedicated account. The opposite also applies. This therefore means that the shop owner has a number of logistics issues to deal with which may be a bit tedious. Whether or not this is worth it depends solely on the online shop owner.

Aggregate merchant account

This is the complete opposite of the dedicated account. Here, the merchant uses an account platform that is shared by other multiple users. However, the merchant has a specific merchant id from which they can access their money. This means that from the merchant id the shop’s owner has full control over any transactions that take place in the account. They therefore can transfer the money to another account on the same platform or withdraw the money to their bank accounts. However, using an aggregate account has its share of shortcomings. One of which is that the rate at which the merchant has to pay for any amounts going into the account is fixed. This normally averages at 2% – 4%. In addition to this, the time it takes to withdraw the money to the personal bank account is fixed which may be weekly, monthly, etc. A good example of a third party merchant account is PayPal.

Payment gateway

Paying for goods online has always been a tricky issue as one is always concerned on the legitimacy of the website and if or not they are simply being scammed. A payment gateway works to prevent customers from precisely that. Online shops are not allowed to send the consumers credit card information when processing payments. This is a measure to ensure that the consumer’s details are protected.

How the payment gateway works

A payment gateway works right from when the consumer submits their order or inputs their credit card details. At this point the browser encrypts this information using secure socket layers (SSL) and the information is sent to the cards association in this case such as visa, American Express MasterCard etc. which then sends the information to the customer’s bank account.

The bank verifies or fails to verify the transactions depending on the state of the consumers account. If the transaction is verified the information is sent to the payment gateway and if the verification process fails information on the reason for failure is sent i.e. insufficient amount of money in the consumer’s account.

Once the payment gateway gets this response information, it then sends it to the browser where both the consumer and merchant have access. This may seem like a long process but it usually takes only 2 to 3 seconds. At this point, the shop freely releases the order to the consumer. However, the shop does not get the amount instantly, it takes about 3 days before the authorization process is complete.

Payment gateways are not limited to funds authorization and consumer credit details protection. The tool is also critical in the protection and verification of the consumer’s delivery location, consumer verification, and fraud protection.

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Finding The Best Low-Cost Merchant Account Solution

Today’s business scene has become a whole lot digital and businesses now have to modify their systems to meet up with the tech demands of this age. ePlatforms have taken over and it is reshaping how business is being done. Payments for purchases by customers are no longer primarily cash based as trends for a cashless society is being echoed globally. As a result of this development, businesses have to engage the services of merchant account providers in order to ensure that they are not knocked out of business by competitors who have embraced these providers.

Merchant account providers are into the service of data processing which covers the establishing of a secure network, debiting of the customer’s account and then crediting of the business’s banks account. When a customer is about to make payment for goods via credit/debit card, they create the connection between all parties involved in the transaction (i.e the customer, the card issuing bank, the card network and the business’s bank account).

merchant account solution

Despite the complexities of the process involved, this service is now an integral part of business flow. Due to to the convenience it brings to the customer, they are more likely to patronize businesses with such facilities. Businesses now have to make available this service or risk losing customers. While they all offer the same primary function (credit and debit card processing), each offers additional features that distinguishes them from competitors.
The necessity of merchant account providers make them highly important and such businesses need to choose one that its charges are not outrageous as their charges vary while ensuring that quality service is not in question. Some of the factors to be considered before the business makes their choice are discussed below.

Great customer support
This is an important factor to consider. This is because accepting payment and receiving your money on time is a very vital part of business to keep it as a going concern and this is dependent on your provider. In case of complaints or delays with account being credited, software issues etc the provider should be able to provide a 24/7 human or technical support which can help resolve issues round the clock.

Merchant account cost
The key factor to consider in this decision is cost. Most of the providers offer three different pricing models;
1. Interchange plus pricing
2. Tiered pricing
3. Flat rate pricing
Experts recommend the interchange plus pricing model as this is the most beneficial pricing structure today.

Pricing consistency and transparency
Some providers are in the habit of not clearly stating full band of charges to the business before they are selected. Some are quite open about their charges/fees, clearly stating it on their website or giving full details through their sales rep.

Processing fees
Selecting a provider with low processing fees is very vital.

Identifying your business needs
It is always worthwhile to invest adequate time into finding the right provider for your type of business.

Card acceptance
The industry has been making progress and has there a quite a number of card issuing networks today. Providers should be up to date so as to be able to accept all major cards, EMV chips and even mobile wallets. Non acceptance of some cards on their software will definitely put off some existing customers and prospect.

The service provider must have enhanced security features e.g EMV technology, PCI etc. They should be security complaint as customers’ information should be kept safe and secure due to the delicate nature of these information.

Contract length
Business should be on the look out for the contract length proposed by the providers so as not to be locked in. They should be open to short term contracts as the fees for contract termination are mostly expensive.

References and reviews
This is likewise an important step. Reading online reviews might not be enough as some are paid to write amazing reviews, it is also good to seek for references from other businesses which provider they make use of and what concerns if any they have with their choice.

Irrespective of the provider chosen, it is always good to make sure that the one who works best for your business is selected and you are to be enjoying the best rates in the industry while also ensuring that quality service is not swept under the carpet.

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Explained: Merchant Account and Credit Card Processing Solutions

Having a globalised market means consumers and merchants, anywhere in the world, can easily exchange products for payments through the convenience of credit card payments. Making profit on a product has never been more simple! Well, yes and no.

Any business owner who wants to accept money through credit card payments, must have a Merchant Account in which to receive the money. This is because, in order for a merchant to receive the payment in cold hard cash, the digital information from the payment, whether made via a physical credit card reader or an online payment, must first be processed. This process is performed by a merchant service provider to ensure the payment is legitimised and that each party involved – the customer, the merchant, and the bank where the merchant holds their account – can trust the payment information will arrive to it’s intended destination.

In order to set up a Merchant Account, a business will first need to qualify for a Merchant Identification Number (MID). While service provider companies are, of course, eager to take on new clients, they still need to protect their own interests by ensuring that you are a legitimate merchant worth representing. The requirements for qualifying are determined by the service provider and choosing a one that will provide the credit card processing solution that works best for the business, can be and confusing and overwhelming task.

credit card processing solutions

The first thing to know is that there are essentially two kinds of service providers: processors and resellers. Processors or Acquirers, have the technical ability to perform the actual process of receiving and verifying the transaction data with the appropriate financial institutions so that the payment can go ahead. They can also complete the full process to ensure the final funds arrive in the merchant’s regular bank account.

Resellers, or Independant Sales Organisers (ISO), on the other hand essentially sell access to the processors. ISO’s can be banks or non-banks and can be large or small providers. Some examples are Wells Fargo or Paypal. Choosing an ISO over working directly with an Acquiring bank will cost more, however the cost is minimal and many merchants find the value in the extra services offered is well worth the additional fees. An ISO will work on the merchant’s behalf to negotiate the best terms and conditions regarding accounts and transactions as well as help with achieving requirements to qualify for a MID. This has proved so popular that statistics show over 80% of accounts opened are through ISO’s.

However, merchants should still be mindful. Like many sub-contractor service, there are less regulations in place to ensure appropriate practices are implemented and while ISO’s have more freedoms to implement new technologies and strategies, there is a higher risk of error. This is why it is often recommended that new business owners work directly with a processor till they get a good handle on just exactly what they want and expect from their provider. There are also tools available such as the Better Business Bureau to check on a provider’s track record.

Ultimately, choosing the right provider will be determined by the type of business and the services required. First, the main qualifier will be based on whether your credit card payment will be a physical transaction via a card reader, or non-physical via the telephone, internet etc.. The first category is quite straightforward and requires less proofs to for a business to qualify for their MID. The latter is much more complicated because of additional security and communication technology required. The risk is significantly greater and there are so many variables to consider than depend on external factors such as internet connection, delivery times, quality control etc.

In regards to fees, a merchant will need to carefully consider what processing channels they need or might need in the future. Maybe they are a physical retail store with card-present payments now, but are planning to expand to open an e-commerce website. They will need to consider their business’ growth strategy? Will this fit within the current agreement without incurring extra fees? Will an increase in the volume of transactions and the amount of revenue also increase fees charged by the processor?

In conclusion, there is no easy answer to choosing the right merchant service provider. It will require a doing some thorough research and maintaining a clear perspective of your business’ needs and its future potential.

payment processor and payment gateway

Differentiating Between Payment Processor and Payment Gateway

One of the key aspects to understand in both traditional and e-commerce is the difference between the payment processor and the payment gateway. For merchants seeking to understand and capitalize on new methods of digital payment increasingly used by customers when shopping and paying for services online, understanding the chain between customer, business, and bank is imperative.

To begin, it is prudent to sketch out the simple chain of exchange between merchant and customer to best understand how payment processors and payment gateways become included in the link. In a traditional exchange, a customer purchases a good or service from a merchant and pays cash for such good or service. There is a direct exchange between the customer and merchant, the payment need not be “processed” because the payment is in hard currency.

payment processor and payment gateway

The exchange between a customer and a merchant becomes more complicated when the exchange of goods and services involves credit cards, debit cards, or other digital forms of payment. The exchange between merchant and customer also involves extra steps when the transaction occurs not in person, but online. This where the payment processor and the payment gateway become key. If a customer chooses to pay for goods or services with a credit or debit card, you must have a credit card reader to accept those electronic funds. The function of the payment processor, of payment processing company, lies here.

To transmit the payment from the customer’s credit/debit card (and the customer’s affiliated bank) to the merchant’s account in his or her affiliated bank, a business requires the services of a payment processing company. As a merchant you will need to contract with a payment processing company to process this electronic payment between you and the customer. The payment processing company essentially facilitates the transaction between a merchant and a customer, acting as a middle man.

The payment processor translates electronic credit/debit payment from a customer’s bank account to a merchant’s bank account. The payment processing company often provides merchants with the physical credit card reader needed to accept a customer’s credit card. In summation, the payment processor can be understood to be the translator who transforms a customer’s electronic payment into merchant account.

Similar, but with a distinctive function, the payment gateway exists on a merchant’s website and is essentially the point-of-sale, or POS, terminal for a merchant’s website. The payment gateway allows a merchant to take a customer’s credit/debit payment for goods or services purchased online. This may sound similar to the payment processor located physically within a merchant’s store, but the payment gateway is different.

The payment gateway is not merely the online version of a payment processor but rather, in the realm of e-commerce, falls between the payment processor and the merchant’s id, to ensure that the translation from a customer’s electronic credit/debit payment into the merchant’s account is secure. The payment gateway exists because it is often prohibited to directly send information from the payment processor through to the merchant online. The payment gateway acts as a third party to monitor the translation of payment and information.

For merchants seeking to expand their business in both areas of traditional and e-commerce this distinction between payment processors and payment gateways is key to understanding the financial transactions. For merchants only dealing with the sale of goods and services physically, a payment processor in the form of a credit card reader is sufficient. However, as e-commerce continues to grow and customers are increasingly seeking to pay for goods and services through the medium of credit and debit cards, or other digital forms of currency, it is important to consider adding a payment gateway to one’s business to capitalize on the e-commerce market.

Ultimately, when considering payment processors and payment gateways, we can understand payment processors as the middle man between customer and merchant who translates electronic payment information into profits of the merchant–of course for a fee. We can understand the payment gateway to serve as the function of a third party that operates in the background, one who monitors the translation of electronic payment information, making sure it is safe, legal, and legitimate as it occurs on a digital platform. Understanding the functions and roles of payment processors and payment gateways is a key part of achieving financial literacy and business success.