OBTAINING A MERCHANT account can seem like a confusing and overwhelming prospect, but breaking it down to its basics makes it easier to understand.  Every store, whether it is a location store or e-Commerce site on the web, will need a method to process credit cards if they choose to accept that form of payment.  That is where a merchant processing service comes into play.  In order for a merchant to accept a credit or debit card, he or she will need a merchant account, either through a bank or online service, and suitable software or equipment to transfer the card's information through a payment gateway.

What is a merchant account?

In the most basic terms, it is a specialty account provided by a merchant processing service or a financial institution in order to enable real-time credit card transactions.  It facilitates the transaction which allows a business to accept various methods of payment, depending on the type of merchant account selected.  A merchant account usually requires a contract between the business and the merchant account provider.  It is essential for a business to read, know and understand what the contract fully entails.

Who offers merchant accounts?

Merchant accounts are offered by several different financial service organizations.  Banks are a secure, reliable and popular choice.  They tend to have stricter regulations and a more stringent approval process.  Online merchant service providers are also a popular option.  There are hundreds of them, and each one may offer different features for their particular merchant account service.  It is best for a business owner to compare many providers in order to select the one that offers the most appropriate account.  Independent Sales Organizations (ISO’s) also provide merchant accounts.  They may also be referred to as third party merchant account providers.  ISO’s allow a merchant to use their account for credit card transactions in exchange for a fee.  They also tend to have the highest rates and have a lower recovery rate for charge backs.  The benefits of a merchant account through an ISO are fewer and more relaxed regulations, so they do work well for small businesses that have a smaller rate of credit card transactions.

What is the cost involved with a merchant account?

Each merchant account provider will have different rates, charges and potential hidden fees.  Typical fees include fixed rates and variable rates.  Fixed rates may include an annual fee, termination fee, monthly service fee, and an application fee.  Variable rates may include a discount rate, which is the commission charged by the provider for each transaction; a typical discount rate is between two and four percent of every sale.  Variable rates can also include a batch transaction fee and a fixed transaction fee.  A fixed transaction fee is the rate charged every time a credit card is used, usually between two and four cents, regardless of the total amount of the sale.

Setting up a merchant account is not overly difficult, but it does take time and effort to select the best merchant account provider.