A Quick Guide to Online Merchant Accounts
Planning to accept credit card payments for your online store? It’s possible, but first you need to have an online merchant account that allows customers to pay by credit card. Credit card transactions through a merchant account are usually processed and approved in real-time through a payment gateway. Meaning, once the customer checks out at the site, the transaction is processed right then and there.
If you are operating a brick and mortar store, you probably already have a merchant account. Remember that a traditional retail merchant account is different from an online merchant account. You need the online type to accept credit card payments over the Internet. Don’t worry, in setting up your online business, getting an online merchant account is one of the easiest steps you have to take, provided that you have a basic idea of what to look for and what to avoid.
How Online Credit Card Payments Work
Accepting credit card payments online involves several elements:
Online Merchant Account – As mentioned earlier, this is your account with a financial institution or bank that enables you to accept credit card payments from your customers. Internet transactions are prone to fraud since the credit card holder’s signature is not required to authorize a purchase. When choosing an Internet merchant account provider, make sure you understand the process on how the fraud process is handled.
Payment Gateway – The payment gateway allows you to securely accept billing information (payment amount, type of credit card, credit card number, and expiration date). It then forwards the transaction details to your bank, which in turn, forwards them to the card association (Visa or MasterCard, for instance).
The Customer’s Bank – This is the bank that issued the credit card. It receives the billing information from the credit card processor and assesses whether there are enough funds to cover the transaction. It then sends back an authorization code that tells whether or not it allowed the transaction to go through.
Your Website – Since your customers will be providing their billing details, make sure that it integrates well with the merchant account provider and gateway service you choose, as well as integrating with your backend.
Applying for Online Merchant Account
Look for online merchant account providers that offer flexibility. Do a bit of research to see which ones allow you the option of using your own shopping cart. You should also have the choice to use their Internet gateway or your own. Customer service is important too. You’d surely want a merchant provider that is reliable if you have questions or need advice.
When you apply for an online merchant account, you will be required to complete an application. But remember: you shouldn’t be required to pay an application fee; Most providers aren’t asking for this anymore. You’ll be expected to provide your basic information (address, phone and fax numbers, business name, type of ownership, website address, etc.). Providers will assess your qualification for their service, so be prepared to supply other important information such as your estimated average credit card transaction, projected monthly sales volume, your federal tax ID number or Social Security number, and bank account number.
How Much Does it Cost?
Merchant account providers earn money by collecting fees for the use of the service. Expect to pay certain mandatory flat rates and percentage-based fees for every credit card transaction online. Fees vary from one provider to the other but the most common are the following:
Discount Rate – The percentage of your overall sale, usually between 2 and 3 percent
Transaction Fee – A flat-rate amount charged for every credit card transaction you process, usually between $0.20 and $0.30.
Statement Fee – A flat-rate monthly fee charged for monthly statements of your account, about $5.00 to $10.00.
Monthly Minimum – A fee collected at the end of the month if your monthly sales don’t exceed this amount.
Annual Fee – A fee charged each year for use of the online merchant account.
Your site is ready to accept credit cards once your application is approved. Your customers will be able to process their orders and make purchases right away.
One Last Tip – On your credit application be sure to double the request on the credit limit request. For example, if you project that your monthly sales will be $25K, be sure to apply for $50K, double your projection. Some merchants, including myself, have experienced problems with merchant accounts when the volume of transactions are higher than originally requested. If this does happen, the merchant processor can put a hold on the funds until they finish their investigation, which is really bad for your cash flow.
By: Shirley Tan
