What Is a Merchant Account?
A merchant account is basically an agreement between a business or seller, the seller’s bank and the payment processor as to the settlement of transactions made through debit cards and credit cards. It enables the business to accept all credit card and debit card transactions.
Another way of looking at a merchant account is as an online account that holds your money temporarily, mostly between two days and seven days, until it is automatically sent to your actual bank account.
Merchant accounts work hand in hand with payment gateways. When clients buy goods from your online site, they are required to enter their credit card details in the checking process. The Payment gateways checks the information submitted by the client and if it matches with the information held with the credit card company, then the transaction is approved and the funds are sent to your merchant account.
In order for a business to operate a merchant account, it will be provided with a Merchant Identification Number otherwise known as a merchant Id by their merchant account provider. This helps banks and other credit card institutions in identifying the business as accepting credit card payments.
What are the Different Types of Merchant Accounts?
Merchant accounts are classified based on how they collect credit card information and how they conduct their transactions. The following are the main types:
. Retail merchants. They conduct their business from an office setting and normally interact with their clients face- to-face. The clients physically swipe their credit cards on a terminal or a point-of- sale system.
. Restaurant merchants. They are similar to retail merchants in that they interact with the clients physically. However the transaction is usually adjusted for tips using a special tip function. Once the client’s transaction is authorized, an extra price for the tip is included.
- Wireless or Mobile merchants. They require to authorize clients’ transactions at different locations and they do this using portable or mobile terminals.
- Lodging merchants. They are found in hotels and lodges and usually authorize a customer’s transaction for a specified amount before hand, and depending on the length of stay will adjust the transaction a day or so later for the total amount.
- Keyed Face to Face merchants. The main difference between keyed face-to-face merchants and retail merchants is that while they do end up meeting their clients to deliver their products or services, transactions are carried out either through a telephone call, email or the internet and manually key in the credit card details into a terminal.
- Mail order / Telephone Order Merchants M.O.T.O, will hardly ever meet their clients face-to-face. They communicate through email, the internet or telephone conversation where the client’s credit card information is entered in a terminal. Once the transaction is authorized then the goods are delivered or shipped to the client’s location.
- E-commerce or Internet merchants. They conduct their business online or through a website where all the information is gathered and processed in real time through a payment gateway. The good are then shipped to the client’s location once the transaction is authorized and the payment is processed.
Merchant Accounts for Online Business
There are mainly three types of merchant accounts that are available online:
Internet Merchant Accounts. Here the website is the basis of conducting business transactions. This account is opened online through a form from the merchant bank.
Online Merchant Accounts. These are accounts that are opened online. They are beneficial especially where the business lacks a physical presence and can be opened by most other businesses as well.
Merchant Services. These types of accounts offer credit card processing software to the owner, allowing for batch processing of transactions. This allow for all the transactions having taken place within a particular period to be processed at once.
Why you Need a Merchant Account ?
What are the advantages of a merchant account?
Improvement of business revenue. Almost every adult carries a credit card or debit card. This is brought about by the need to avoid carrying large amounts of cash. Most purchases made are therefore via credit card. The ability to perform credit card transactions by a business will therefore result in an increase in revenue.
Increased efficiency. Accepting debit and credit card payments at fast food businesses helps reduce the waiting lines by processing customer transactions faster.
Customer satisfaction. By giving clients multiple options through which they can make payments such as through cash, debit cards and credit cards, you give them complete control of how they want to handle their cash leading to customer satisfaction.
Expanding client base. This is done by conducting business online through your merchant account. You are able to reach a larger demographic area and this will result in more revenue.