The Ins and Outs of Merchant Accounts

By Robert Levings, President, EasyPay123

Merchant accounts are necessary in order to accept payments made by credit card from your customers, whether you are operating a retail store or an online business. The following article answers the key questions that you may have regarding merchant accounts. It is part of a series of articles offered by EasyPay123 to help merchants understand the many facets of processing credit card payments.

1. Why Do I Need a Merchant Account?

Merchant accounts provide you with the ability to accept credit card payments from customers for goods and services. A merchant account establishes a relationship between your business, a bank and a credit card processor such that funds generated from credit card sales are deposited into your bank account on a regular basis, less merchant account fees (to be discussed later).

Without a merchant account, your customers will not be able to pay you using their credit card. Given that credit card payments are still the dominant form of payment on the Internet, this would place you at a competitive disadvantage in a highly competitive business environment.

2. What Are the Different Types of Merchant Accounts?

There are two primary kinds of merchant accounts that are issued, depending upon your method of capturing the credit card information at the time a payment is made.

The first type of merchant account is called a “card present”, “signature-based” or “retail” merchant account. This type of account is issued to merchants whose customers will be physically present at the time of payment. In such a case, you would be able to inspect the card and the signature on the reverse of the card, and would also be able to match the sales receipt signature against that on the back of the card. Typically, these types of payments are captured by using either a card imprinter (using credit card slips) or a “card swipe” (Point of Sale) terminal.

The second type of merchant account is called a “card not present”, “non-signature-based”, or MOTO (Mail Order/Telephone Order) merchant account. This type of merchant account is issued to merchants whose customers are not physically present when they make a payment. This is typical of most Internet payments – where customers key their payment information into an online payment form – and phone-in payments – where operators key the payment information into some kind of payment application.

The types of merchant accounts will be a key factor in determining your fees, since banks typically view card not present payments as higher risk (i.e. a higher risk of fraud) than card present payments.

3. Where Can I Obtain a Merchant Account?

Merchant accounts are traditionally obtained through a bank that issues merchant accounts called an “acquiring bank” or “acquirer”. Generally, there is a separate group within the bank that processes merchant account applications.

When you apply for a merchant account, there is no guarantee that your application will be accepted. The merchant account risk group will assess a number of factors before approving your application, including (but not limited to):

– Your company and/or personal credit history
– The type of product/service you are selling (note that it is extremely difficult to obtain merchant accounts in the U.S. for certain types of “high risk” products and services such as online gambling, pornography, outbound telephone sales, prepaid phone cards, travel agencies and others. What is perceived as high risk varies by acquirer). Falsifying the nature of the product or service you are selling when applying for a merchant account could lead to termination of your merchant account.
– Estimated dollar volume