Are you involved in an online business and want to receive payment from your online customers who are willing to pay for your goods/services using their credit cards? Are you in need of explanation about credit card merchant account: what is it and how does it works? Do you need information about how to get a credit card merchant account for your business? Then read on.
What Is Credit Card Merchant Account
A credit card merchant account is a form of online account that allows you to receive payment from your customers who wants to pay using their credit cards. This type of account is provided by an acquiring bank (a bank that has a relationship with your bank (where your personal or business account is domiciled) and Mastercard or Visa). This bank makes a deposit into your own personal or business account when a transaction is completed. A merchant id is issued to you by the acquiring bank when you open a credit card merchant account. This merchant id is a number that enables your business to be recognized by the credit card institutions and banks. However some independent sales organizations can also provide a merchant account.
Who Needs a Credit Card Merchant Account
Any individual, group of people or institutions that provides goods and services and want to receive payment online from their customers via credit card will be in need of a credit card merchant account.
How Does a Credit Card Merchant Account Works
To understand how this account works, certain terms must be clearly defined:
Merchant account provider: the acquiring bank or an independent sales organization that provide merchant account to businesses.
Payment gateway: when a customer decides to pay for goods/services online, he enters his card information into the website of the seller/provider of such services. This information directly goes to the payment gateway. Thus the payment gateway serves as a conduit through which information on the customer’s credit card is transferred from that website to the issuer of such credit card in order to ascertain whether the customer has enough funds to carry out the transaction. A payment gateway is synonymous with a credit card reader at the POS terminal. However, in-between the gateway and the issuer of the credit card is another entity called a payment processor.
Payment processor: this handles the transaction and sends authorization and settlement files to the credit card issuer and the merchant account provider. Payment processor is often used interchangeably with a payment gateway.
The bank that issued the credit card then sends the transaction notice to you and your customer. Immediately, the transaction is approved, you and your customer will get a notification from the issuing bank and subsequently transfer the approved funds into your credit card merchant account.
On the other hand, if the transaction is not approved then the card issuer notify you and your customer; and will clearly state the reason for disapproval (e.g. insufficient balance) and your merchant account will not be credited.
The last step is the settlement and payout where your merchant account provider will then credit your personal or business account.
Requirements for Opening a Credit Card Merchant Account
Type of business: merchant account providers tend to consider the type of business when considering an application for a credit card merchant account. An online business with a low risk of low risk of credit card fraud is a favorable actor. Those with high risk of card fraud may also get there applications approved but at a higher fees may be charged to cover for the risk
How long you have been in business: the longer you have stayed in business the higher your chance of getting a credit card merchant account as providers tend to believe that you would have understood your business environment better and would be able to minimize/prevent credit card fraud.
Your credit rating: this is determined by your past financial records, how you paid your past loans, any past loan repayment default etc. A good credit rating will expedite the approval of your credit card merchant account.
Have you had a merchant account in the past: a previous account with a good record is a plus as it serves as a pointer that you will deal with your account provider justly.
Cost of Credit Card Merchant Account
Merchant account have some charges associated with them. These are usually outlined in the contract agreement and include; but not limited to, application fees, transaction fees, monthly fees.
To successfully run a business and get paid by your customers using their credit cards, a credit card merchant account is a must to have.