Kinds of Merchant Accounts and Picking the Right One

Hundreds of thousands of new businesses open their doors each year in the US. The vast majority of them are small businesses, i.e., firms that employ fewer than five hundred people. According to the U.S. Office of Advocacy, small businesses account for 99.7 percent of employer firms.

Starting a new company is no walk in the park. There are hundreds to thousands of important decisions that must be made. In this article, we will focus on a single issue that every new business owner should carefully consider. We are speaking specifically about merchant service accounts.

What are they, exactly? Every business that accepts credit or debit cards must obtain a valid merchant service account. Issued by banks and other financial institutions, the merchant service provider performs a number of vital tasks. First and most importantly, it checks to see if a card is valid. Whenever the word “approved” appears on a card reader, the service provider has done his duty. But that is not where his job ends. The service provider must also collect funds. An electronic bill is typically sent to the customer’s credit or debit card company. Once the funds have been released, the service provider will subtract a certain amount from the balance before he sends it to the merchant. The entire process takes two or three business days.

Merchant Accounts

There are two distinct types of merchant service accounts those for businesses that accept payments in person and those for businesses that do not. The first group includes traditional retail stores and the second includes firms that process payments over the internet, the telephone, or via mail order. These businesses are generally charged higher merchant service fees due to the fact that the card is not present.

You see, when a merchant processes a credit/debit card in person, he can ask for ID, check the signature, or request a pin number. These are tried and true security measures that have helped traditional retailers fight fraud and theft. But when the card is not present, the merchant has no way of knowing if he is doing business with the actual cardholder. That is why fraud and theft are far more common when the card is not present. It is also why these merchants are charged higher service fees.

Traditional Merchant Accounts

When payments are accepted in person, service charges are often quite affordable. Business owners who have good credit scores and a solid business history should have no difficulty securing rock-bottom rates. Because the risk of theft and fraud is so much less, most credit card companies will not charge traditional retailers even if they process a stolen card. This is not the case when the card is not present.

The average online merchant is forced to pay something called a chargeback every time a transaction is disputed or an item is returned. By comparison, when a regular retail transaction is disputed, the merchant can send his service provider a signed and dated copy of the receipt to prove that the transaction actually occurred. More often than not, the provider will then deny the chargeback request made by the customer’s credit or debit card company.

Internet Merchant Accounts

While the rates and fees may be higher and the risk of a chargeback is greater, few online sellers can survive without a valid merchant service account. Over ninety percent of all online sales are completed with a credit or debit card. The rest are made with checks and money orders, which can take weeks to arrive and days to process. Personal checks can also bounce and buyers don’t always send them when they agree to a purchase. Electronic payments are the quickest and most reliable way make money on the internet.

Service rates and fees for online merchants vary widely depending on the market the merchant competes in. If the merchant ships fruit baskets or flowers, his rates should be quite reasonable. On the other hand, if he runs an online casino or an adult entertainment website, his fees could be much higher. These merchants are often forced to apply for high risk merchant accounts, since chargebacks are quite common in their respective industries.

Which to Choose?

Many traditional businesses have started selling their goods on the internet. Offering items online gives them the ability to sell to shoppers anywhere in the world. Will they need an online merchant service account? Well, it really does depend. If they already have an account and only a small percentage of their total sales are made online, they may not need another one. Their service provider may simply agree to charge them at a slightly higher rate for their online sales.

When a merchant sells most of his wares on the internet, he should always apply for an internet merchant account. Even if he sells a few items in the flesh, fines and penalties may be assessed if the merchant tries to pass himself off as a traditional seller.

Always consultant your merchant service provider if you have any questions about the kind of account you need.

How Merchant Accounts Have Been Improving Small Businesses for Decades

Credit cards and merchant accounts have changed the way people shop and the way companies do business. Few people remember the days without “plastic.” The earliest credit cards were used back in the 1920s. Hotels and oil firms offered cards to their customers, but they were more like today’s “loyalty” cards than credit cards. The first actual credit card was issued in 1946 by Diners Club. It targeted the restaurant industry and allowed customers to pay for their meals with their Diners Club card. It wasn’t until 1958 that American Express and Bank of America issued credit cards as people know them today. Visa and MasterCard soon followed. Merchants trying to keep up with all of these changes turned to merchant services accounts to provide the equipment, advice and expertise needed to keep up in an ever-changing economy.


Before computers were running the world, businesses used manual imprinters to record a customer’s credit card information. All the merchant had to do was place the credit card on the imprinted plate, lay down a carbon copy charge slip and then run the imprinter over the slip. The merchant mailed the slip to the bank and, after a few days, moneys were deposited in the merchant’s account. While this system worked – and, in fact, is still used as a non-electronic back-up system – it proved time consuming. Merchants wanted quicker access to their funds. And they needed to know if the credit card would be accepted or declined before any merchandise was released.

Electronic Authorization

Next up, merchant accounts introduced electronic authorizations. This system offered quicker approval than imprinted slips, but it still took as long as five minutes for a clerk to send in the credit card number over the phone and get approval. For large sales, it was worth the wait, but for smaller sales, it often wasn’t. But, by not waiting, the merchant ran the risk of handing over merchandise without knowing if the card would be accepted, allowing him get paid.


Enter point of sale terminals in 1979. These were bulkier than what is used today, but they were based on the electronic capture of data used with today’s systems. In 1979, MasterCard was the first to include the magnetic information stripe on the back of its cards. Everyone else soon followed. Each step of the way, merchant services accounts have been working to make the merchant’s job easier – and simpler for the customer. That hasn’t changed, and today’s merchant service accounts can do far more for the business owner than accept credit cards.

Check Acceptance

For those customers who prefer to pay by paper check, a merchant services account has equipment that quickly converts a check into a secure electronic document. The result is that the merchant gets paid immediately, and the days of worrying about bouncing checks are over.

Wireless Payments

Merchant services accounts let business owners accept payments anywhere, from the great outdoors to a basement office. When you have a wireless terminal, you don’t need a bricks and mortar operation to make sales. After all, some businesses are on the road. If you’re an artist who travels the outdoor art show circuit, you can sell your works right from the booth at the fair. Or maybe you sell your wares at trade shows. If so, a wireless terminal lets you make sales on the spot. Stop sales from walking away with a wireless terminal.

Even some bricks and mortar shops will benefit from wireless terminals. It is perfect for the business that wants to be able to make sales anywhere inside the building. Let your customers pay for their meal at the table of the restaurant, rather than handing over their credit card to a stranger. You don’t need a landline or power source to process sales.

ATM Service

When a business runs a cash-only operation, it is convenient to have an ATM on the premises. It’s also a smart business move. Customers who come in without cash withdraw the funds they need and the business makes the sale. As an added bonus, the business can charge a fee for each ATM transaction.

Cash Advance

There comes a time when most businesses could use an infusion of cash. When the merchant can’t or won’t turn to a bank for a loan, turn to a merchant services account instead. The merchant account will front the funds based on future credit card transactions. Of course, the approval and the amount of funds will depend on the merchant’s credit card volume, but it could be as much as $250,000 within as few as 72 hours. Then, as the merchant receives credit card payments, the merchant services account is repaid with a small, fixed percent of the daily credit card receipts. Merchant services accounts have been there from the beginning, making the task of exchanging funds easier than ever. Find out how a merchant account could benefit your business.

Things to Know Before Setting Up a High Risk Merchant Account

When you have an ecommerce website, you need to open up your own merchant account so you can accept online payments. A merchant account is your contract between business or financial institution so you are sure that these banks accept payments for the products or services in behalf of the business. These acquiring bank assure that your merchant website can accept payments from international customers. This s why are merchant account is necessary for the success of your business.

You have two kinds of merchant account providers: a normal account which you can directly access the credit card and assures that the card is used by a legitimate customer. This is often offered to local shops where, and a high volume merchant or high risk account where it is impossible to testify that the customer uses an authentic credit card or a fake one. High risk merchant accounts are usually offered in online stores. Because the risk that a customer may be using a fake credit card is high. These types of merchant account providers include adult entertainment, online gambling, pre-paid calling, VOIP, multi-level marketing merchants, or even any transaction that takes place where the customer is not present. This is why the accounts are classified as a high risk merchant account. There are only a few banks willing to process these types of accounts. There comes a time when a merchant will be declined of the application, or even impose higher restriction that is impossible for a merchant to conduct a normal business. Even when the merchant has established a payment processing with the bank, he can never be too sure that every transaction is secure. The bank can revise any criteria which produces adverse effect in the payment process.

Many banks nowadays accept high risk merchants due to the popularity of online stores. This account s are personalized accounts and undergoes an intensive research before the banks can draw conclusions on how much the rate will be. The techniques the merchant used in persuading customers to use their website, and the expected turnover is taken into consideration when banks accept high risk accounts. These merchant account providers also offer merchants to open up multiple account so when something goes wrong the payment procedure will be diversified to another account, thus continuing the business as if nothing happened. As the saying goes, one cannot succeed if he is not taking risks. That is why companies are in the lookout for grounds to ensure a healthy business. The business venture online may be a bit unconventional compared to local business, but what matters is how you can cater the needs to the general public and the turnover of the business. High risk merchant account providers study accounts carefully so what you need to do is help them ease out the payment process by allowing the banks to trust you even if you are an online store. A lot I know have been denied of the process, and it is quite uncommon that banks accept a high risk merchant. My advice is to create a reputable merchant site and tell them that you are a kind of business they should not disregard.

Arnel Colar is a freelance writer that writes anything that can provide knowledge to the readers around the world. He writes articles ranging from environment preservation, social education, finance and loans, money, and anything that he can think of. With good research, convincing details, and creative insights added with passion, articles can become a masterpiece.