Various Merchant Accounts

If you own a small business, and are planning to expand, obtaining a merchant account may be the way to go. A merchant account gives you a facility to accept credit cards for payment. A merchant account can be opened through a bank that is a member of at least one of the major credit card networks (Visa, MasterCard, etc.).

Retail accounts are just what they sound like. Most people have likely used them in the past. When they shop at a retailer, whether it is for groceries or building supplies, and they pay with a debit or credit card, they have just used the retailer’s merchant account. When the consumer swiped his card through the card reader, the processing machine processed the credit card transaction with the card association, and then acquired authorization code from the issuing bank. When accepted, the issuing bank immediately transfers the amount of the purchase from customer’s account to the merchant’s bank. This process repeats number of times every day as consumers purchase goods, all over the world.

What it is.

A merchant account is a facility for payment card processing that a merchant bank provides to a merchant. It represents a form of line of credit that the merchant bank extends to the merchant and it allows the merchant to accept the card brands, specified in the payment processing agreement.

How it Works

 When a merchant accepts a customer's payment information, it is transmitted to the merchant bank. The merchant bank then deposits into the merchant's bank account the transaction amount, minus the interchange fees and the processing costs, and submits a payment request to the bank that issued the card used to make the purchase. The issuing bank then pays the merchant bank the transaction amount, minus the interchange fees, and posts the transaction on the cardholder's monthly statement. At the end of the month the cardholder pays the issuing bank to close the cycle.

Types of Merchant Accounts

 Based on whether or not the card was available at the time the payment was processed, there are several merchant account types:

Card-Present Merchant Accounts

 This type of merchant account service includes all payment processing solutions that use physical payment terminals to read the account information from the magnetic stripe of a card that is swiped through them. Because the merchant is in actual possession of the card (hence, card-present) as the payment is being made, these merchant accounts are considered less likely to generate fraudulent transactions and enjoy lower processing rates.

Card-not-Present Merchant Accounts

 Included in this group, these are all payment processing services where the card information is manually entered into the merchant bank's system, using a web browser or a telephone keypad. The card itself is absent (hence, card-not-present). Because the merchant is never in possession of the card and the information is given to him or her, card-not-present transactions are considered more likely to generate fraudulent activity or processing errors and are processed at higher rates. There are two distinct sub-groups here:

Ecommerce Merchant Accounts

These merchant accounts are used by web-based merchants and enable consumers to enter their payment card information into a payment form on the merchant's website. Once submitted, the payment details are automatically transmitted, via a payment gateway, to the merchant bank. 

Mail Order and Telephone Order Merchant Accounts

 Also known as MO/TO merchant accounts, these payment processing solutions enable merchants to enter the payment information that is provided to them by their customers into a form on the merchant bank's payment system's website or, using a telephone keypad, to call it into the merchant bank's system.

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