Merchant credit card processing opens a business up to a wider variety of payment methods. Business owners can make shopping more convenient for customers and explore e-commerce avenues to expand their reach. In this guide, we’ll explain how Merchant Account Providers operate and how to choose a service that will support you for years to come.
A merchant account is a basic utility for most businesses, as essential as Internet access or electricity. Some of the related terms, however, may not be quite so simple to understand at first. Let’s take a quick look at common terms you’re likely to encounter while researching merchant account options:
ABA Routing Number: Also called a Transit Routing Number, this is the nine-digit number identifying the bank an account belongs to.
Automated Clearing House (ACH): An electronic funds transfer system using networks controlled by the Federal Reserve.
Acquirer or Acquiring Bank: The account acting as the merchant account. The acquirer has a relationship with major credit card providers, as well as the business bank account, and it is the account responsible for clearing card transactions and depositing funds into the business account.
Chargeback: An action taken when the cardholder disputes a charge. A chargeback deducts the transaction amount, plus a fee, from the business account tied to the merchant account.
Issuing Bank: The bank or financial institution associated with the credit or debit card provider. It supplies the funds to the acquiring bank, and then bills the cardholder.
Merchant Account: A bank account that allows the account holder to accept credit and debit card payments.
Merchant Terminal: A merchant terminal, also known as a credit card terminal, point-of-sale terminal, or payment terminal, is a device or software program that reads credit or debit cards to process transactions.
Virtual Terminal: Web-based software that processes and stores digital records of credit and debit card transactions.
Payment Gateway: Associated service with the merchant account that encrypts data and transfers information between a merchant terminal and payment processor.
Payment Processor:The technical glue that facilitates with the transmission of transactions. It is chosen by the acquiring bank.
Payment Facilitator: A service provider that offers businesses a shared, mass merchant account. They have less flexible pricing plans, more volume restraints and less customer support than individual merchant accounts.
PCI Compliance: Security standards managed by the Payment Card Industry Security Standards Council.
Processing Volume Estimate: Required field for merchant account application, including information about expected average and maximum transaction amounts as well as monthly processing volume.
Simply defined, a merchant account is a financial account that accepts credit and debit card payments for the business. Many Merchant Account Providers have credit card terminals available for the business’ use, either as a lease or month-to-month rental (more on that later). The Merchant Account Provider holds a direct agreement with the business bank account. Funds from card payments are deposited into the business’ bank account, and the Merchant Account Provider’s fees come out of that same account.
Once your merchant account is set up, you’re ready to process card payments, including card-not-present transactions. Merchant credit card processing is surprisingly complex. Fortunately, it’s also fast and largely automated, so customers and cashiers don’t need to understand every detail of merchant processing to complete a sale. The handful of seconds it takes for a merchant terminal to scan a customer’s card launches a series of lightning-quick communications between the merchant account, Payment Gateway, Payment Processor and issuing bank to approve the transaction. If you’re using a Virtual Terminal, digital records can make it easier to batch out credit and debit transactions at the end of the day for bookkeeping.
Merchant accounts come in various forms. Contract versus month-to-month service, leased versus rented terminals and various rate plan options are only a few elements to consider before choosing the right Merchant Account Provider for you. If you have an e-commerce branch of your business, you’ll need a provider with online merchant account capabilities so you can accept payments over the Internet, for example.
Interested in merchant credit card processing options, but not sure how to find the best deal? Use these steps to negotiate your best plan.
One question you may be considering is whether it’s the right time to implement merchant credit card processing. After all, signing on for this service does cost the business a fee for every transaction, whereas cash transactions don’t cost anything. Why should you sacrifice a percentage of your revenue to offer this payment method?
Consumers overwhelmingly prefer to pay with credit and debit cards, rather than cash. Only 24 percent of Americans reported making most or all payments with cash in a 2016 Gallup poll, down from 36 percent five years before. Meanwhile, the Federal Reserve reported that credit card use climbed faster than any other payment method between 2012 and 2015, resulting in an additional $610 billion in spending.
The implications are clear. Hesitating at a 2.5% or 3% fee could cut your business off from three-quarters of consumers and your business’ potential share of trillions of dollars’ worth of spending. Merchant services are much more likely to positively impact your business’ revenue potential than drain your resources with fees. That said, you do need to be mindful of the short-term costs of investing in any new system. Learning to spot inflated fees or unnecessary charges can keep you from getting hooked by an unethical provider.
Many businesses can’t afford to turn away credit and debit card transactions. If you have an online store or want to accept payments other than cash at a brick-and-mortar location, you need a merchant account. The question is, how are you going to keep accounts organized?
Yes, that’s accounts, plural. This may or may not apply to your business yet, but forward-thinking business owners should consider how to streamline management for multiple merchant accounts. If your business has multiple bank accounts (for instance, a multi-location company that uses separate accounts for each location), you’ll need additional merchant accounts to correspond to each bank account. Some business owners may use separate accounts for in-person and e-commerce transactions. Companies in certain industries, like law firms and auto dealerships, may need separate accounts for different clients or manufacturers.
A sophisticated Virtual Terminal can provide access to all of your accounts under one login. A centralized home base lets you view all your information at a high level or move between accounts with a few clicks. For security and organization, you can restrict employee access so they only view transactions at their location. Other Virtual Terminal features to look for are advanced searches and report generation, so you can compare sales figures as well as view merchant account details. Because Virtual Terminals can often capture electronic signatures and store detailed records, using this software can help prevent incorrect chargebacks for many businesses, as well.
We’ve touched briefly on some of the qualities you can expect from an excellent merchant payment provider, and what warning signs to beware. Let’s dive into the specifics of identifying merchant services that will truly support your business. First, let’s go over good signs:
Unfortunately, not all merchant credit card processing companies follow best practices. Look elsewhere if you encounter these red flags:
Interested in learning more about merchant credit card processing and merchant terminals? Browse the free information throughout our site or contact us to discuss your company's specific needs.
Editor's Note: This post was originally published in January 2018 and has been updated for comprehensiveness and accuracy.