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Merchant Payment Processing 101 - What You Need to Know
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Merchant Payment Processing 101 - What You Need to Know

Most of the world was oblivious to this fact back then, and merchant payment processing wasn’t of major concern to many individuals.

Brayden Mccoy
2 years, 9 months ago

Electronic payments have surpassed cash payments since 2016, according to The Wall Street Journal. Most of the world was oblivious to this fact back then, and merchant payment processing wasn’t of major concern to many. However, businesses both large and small can no longer disregard the possibilities of accepting electronic payments. 

Today, it’s almost unthinkable to run a business that can’t accept debit and credit card payments. However, the increased adoption of cashless or mobile payment methods has done nothing to disambiguate the long-standing confusion about merchant accounts, gateways, payment service providers and the other such details. 

Hence, in this post, you’ll find information about merchant payment processing details and some of the essentials you need to understand as a modern-day business owner. 

Merchant Accounts and How You Can Get one

In short, a merchant account is a bank account, the type that enables your business to accept credit and debit card payments. Hence, a merchant account is a type of agreement between a payment processor, retailer, or business and a merchant bank for settling debit or credit card transactions. 

Initially, when your customer pays for a service or product using a card, the payment doesn’t get to your business bank account. First, it has to get to your merchant account. Usually, this takes some time, and deposits to your actual business account occur on a weekly or daily basis. 

For those thinking of venturing into the e-commerce business, it’s very unlikely that you’ll operate a successful business without a merchant account. Because, without this type of account that enables merchant payment processing between your bank and the credit card company, you can’t accept credit card payments

Hence, you’ll need at least an internal account, in many cases, you have to get this even if you already have an existing merchant account. Let’s look at how you cannot get one and begin with merchant account processing from customers from all over the world. 

Getting Your Merchant Account

In essence, the merchant account business is very competitive. However, this hasn’t made the process of obtaining a merchant account a walk in the park. There are several security risks associated with online payments and cashless transactions. Hence, vendors rely on the use of several criteria to find out if they need to approve the application for a merchant account. 

Some other criteria include the following:

  • Business type - The level of credit card fraud associated with your business plays a major role in determining if you’ll easily get your merchant account. 
  • Your duration or age of your business
  • Track record of yourself and your business - defaults, bankruptcies, etc
  • Whether you previously hold any merchant accounts 
  • Your personal credit as a business owner

Usually, you’ll have an easier time getting a positive reply for your merchant account application if you apply with the same bank that holds your merchant personal or business accounts. However, we need to state that the high risk involved doesn’t necessarily mean rejection is guaranteed. 

Though you may get your merchant account, this might result in high charges and fees per merchant account processing. Nevertheless, once your business becomes more reputable and gets well established, the fees usually get reduced through renegotiations. 

Hence, you can the kind of merchant account process your business has depends on the type of account you applied for. So let’s look like one of the common merchant accounts businesses use for payment transactions and getting paid.

Internal Accounts

merchant payment processing

Simply put, an internal merchant account is the type of merchant account created purposefully to hold the funds from your online payment processing through credit cards. For those already having a merchant account, it’s easy to notice the difference between the existing one and the internal account. The difference is usually the fees. 

We can all agree that online transactions have higher risks. Hence, the internal merchant account attracts higher charges and fees from the issuing bank. That’s if you’re comparing with your regular merchant account. The regular merchant account is mostly used to handle payments from face-to-face customers who pay with credit or debit cards. 

Remember, an internal merchant account isn’t the only thing you need to accept payments from the internet. Apart from this, you also need to select a payment gateway. With a gateway, you can authenticate the information submitted from credit cards. Thus, the payment gateway is like the tablet POS system in brick and mortar business places. 

With the payment gateway, the information on the cards provided by your customers is forward to the various credit card companies for validation and payment. Note that you can get a one-stop solution from some merchant account vendors like Shopify. Through such vendors, you don’t need to get a different payment gateway. Your merchant payment processing takes place with a third-party payment gateway needing to validate it. 

Best Providers

Also, talking about the source for obtaining internet merchant accounts is usually your bank. Typically, you want to approach the same bank that provided your merchant account for non-internet transactions (that’s if they are treating you well). However, you can also purchase your internet merchant account from third-party vendors like Beanstream, PSiGate, Moneris, InternetSecure, or Merchant Accounts. 

Though the vendors have slightly different offers, what you want to pay close attention to is the fees they charge. Remember, merchant account processing isn’t free; it comes at a cost. 

Account Charges and Fees

If you’ve ever operated a business abroad or accepted payment from customers outside your country, you know one major challenge is the transaction fees. Hence, many businesses look for the service that offers the most favorable fees for their merchant payment processing and accounts. To find out the best options you have, you need to know the different fees that your merchant account attracts. 

Typically, you’ll find all of these outlined in your contract. The usual fees are the following:

  • Setup fees
  • Application fees
  • Discount rate
  • Monthly rate
  • Per-transaction fees
  • Rental fees for credit card terminals
  • Cross-border fees

The total fee can increase due to some additional fees that are usually very specific to your business. However, they are usually over 3%. Hence, it’s important to do your research and compare offers before settling on your best option. Remember, the merchant payment processing part of a transaction isn’t necessarily the most significant. There are several other players that may also ensure your business gets the funds it deserves. 

Therefore, you need to ensure you’ve adequately dealt with all these before you can expect any serious profit margins. 

Other Alternatives at Your Disposal

Luckily, your e-commerce business has several other alternatives for processing online payments. Sure, merchant payment processing and merchant accounts do have their benefits and advantages. However, there are people who prefer not to use them. 

In such cases, here are some of the options at your disposal:

PayPal - PayPal payments standard, PayPal payments pro

Final Thoughts

Once you have a competent merchant payment processing solution in place, you should have a good idea (with details) of the charges you pay per transaction. Also, your business’s payment processes, both online and offline, will become way faster and secure. However, know the kind of merchant account you get, and its change depends partly on your specific business situation. 

Therefore, it is vital to put your best foot forward when applying for any kind of merchant account, whether it is an internet merchant account or not.