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What Is a Merchant Account?
In order for a business, to process payments made by a debit or credit card, and to have all transactions appear to the customer under the name of the business, some type of merchant account is required. A good way to think of a merchant account is simply as another form of bank account, but in this instance, the agreement, is with a network of banks with which a contract is established for the volume processing of debit and credit card payments over set periods, normally 7-14 days.
Multiple Merchant Account Types Available
The phrase "merchant account" is actually a blanket term that refers to several different types of accounts that are tailored for this transaction processing, and that differ by business genre and projected volume. Some types of businesses, for instance, are considered "high risk" due to the potential for a large number of "chargebacks," which is simply an industry term for refunds to the customer.
The two most common types of merchant accounts negotiated today are for those businesses taking transactions "over-the-counter," and for those that do their business strictly on the internet. Increasingly, however, businesses are turning to hybridized merchant accounts that offer flexible options for transactions in both venues.
Minimizing Fees While Meeting Customer Needs
In negotiating a merchant account, the goal is always to minimize fees and to secure the ability to process transactions in the way most convenient and appropriate to the given customer model. Studies have shown that, when using a credit or debit card, consumers always purchase more. In a credit card scenario, "more" often equals a purchase 1.5 times greater than that which would be made with physical money.
Given this fact alone, it is clear that choosing an appropriate merchant account is critical to the success of a business. Many business owners, however, balk at the prospect of signing up for a merchant account because they mistakenly believe that the cost of accepting debit and credit card payments is too high. This can be true, but only when the appropriate research, to select the merchant account that best fits the business, is not done in advance.
Evaluating Merchant Account Offers
The key points to consider in evaluating a merchant account services offering include, but are not limited to:
- business type
- projected sales volume
- how consumer information will be captured
- the cost of any equipment required
- fees for opening and closing the account
- the required monthly minimum sales
Reputable merchant account service providers do not list set rates. This reflects the real fact that there is no single standard rate. As an example, MasterCard and Visa group their merchant account rates in more than 100 categories that vary according to the perceived accuracy with which the consumer's information is captured.
In most cases, to simplify the process for the purposes of explanation, account rates are grouped in tiers described as qualified, mid-qualified, and nonqualified. As a general rule of thumb, the transactions become more expensive to the business in terms of fees that are assessed by the degree to which the transaction is regarded as "qualified."
A Merchant Account is a Business Asset
It is understandable why business owners new to the concept of a merchant account simply walk away because the information can be very confusing. That's a mistake. The advantages of accepting payments via debit and credit cards far outweigh the disadvantages involved in understanding and selecting a merchant account service provider. This is especially true now, with the growing need for and desire on the part of the consumer to use mobile payment options.
A merchant account is a business asset that when properly selected, can help a small business to meet and exceed its long-term earnings goals.