Merchant Account

For a business to accept credit and debit card payments, it must set up a Merchant Account. A Merchant Account directs funds into a designated "bank" account that clears all credit and debit card transactions, allowing your businesses to accept card payments directly from customers.

It may not be worth it for every business to accept credit and debit cards, but today, most businesses rely on credit and debit purchases as their main source of payment. Many business owners argue that the pros outweigh the cons, and in the end, plastic affords their customers another payment option and helps their business stay competitive.

For more details, the Minority Business Development Agency provides instructions for Getting a Merchant Account.

Applying for a Merchant Account

If you're already in business and have a reliable sales history, you should be able to get a Merchant Account through your personal bank or another financial institution that specializes in e-commerce. Many companies offer Merchant Account services and you will likely come across a wide variety of "deals." It is important to research multiple providers to avoid scams or overcharging.

If you're just starting up, or don't have a sales history, you may need to work with an independent sales organization (ISO) that acts a reseller, or middleman, between your business and the merchant account provider. An ISO can help relieve some the provider's risk by managing your account, but it may not come cheap. It is common for ISOs to charge fees for their services. Many new businesses accept this as a cost of doing business.

When you apply for a Merchant Account, a provider will assess many different aspects of your business, including:

• The percent of transactions made where the card holder is not present (ex. online purchases)
• The type of products sold by your business
• The average amount charged per transaction
• The projected monthly sales volume of your business
• The type of cards your business accepts
• Your business reputation

Receiving Payments

Most transactions are processed electronically through a card terminal or online payment gateway. The transaction is verified and the appropriate funds are confirmed by the customer's card provider. Once approved, funds are transferred from the card holder's bank and deposited by the merchant processor into your merchant account. It sounds complicated, but the process can be complete in just seconds.

Actually seeing payment takes a little longer, though:  customer payments cleared through your Merchant Account are usually deposited into your business checking account within two to three days.

Chargebacks and Fees

Chargebacks are a major concern for businesses. A chargeback occurs when a credit card transaction is reversed by the credit card company at the customer's request. Chargebacks often occur for valid reasons:  double charging, credit card expiration, or bank errors.

Unfortunately, not all chargebacks are made in good faith. Under the Fair Credit Billing Act, consumers have 60 days upon receiving their credit statement to request a chargeback. Although consumers are supposed to return the merchandise in question, credit card companies lack the resources to monitor all transactions. This can be extremely costly for Merchant Account providers and for the businesses with customers who break the rules. If your business receives too many chargebacks, it is possible to lose your Merchant Account and it can be very difficult to open another one.

Merchant Account fees are comparable to loan interest rates. Fees will vary based on the amount of risk your business poses to the bank or account provider. The most common Merchant Account fees include:

• Start-Up Fee - One time fee required to start your merchant account and begin accepting card transactions, generally in the range of $50 to $200
• Discount Rate - Percentage charge on the dollar amount of each transaction
• Transaction Fee - Standard fee charged for each sale, return or denied transaction authorization submitted by the merchant, generally in the range of $0.05 to $0.50
• Secure Payment Gateway Fee - Monthly fee charged to securely process transactions over the Internet
• Monthly Minimum Fee - Charged if your total monthly discount rate does not meet a minimum threshold, generally in the range of $4 to $20
• Equipment or Software Fees - Varying fees, typically for point-of-sale terminals, PIN pads, secure payment gateways, etc.
• Chargeback and Retrieval Fees - Fee charged according to the number of chargebacks posted to an account or requests for original transaction receipts
• Customer Support Fee - Monthly fee for customer services