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The Basics Of Merchant Accounts:

Posted on 10.27.2005
Should you choose an online payment processor?
If you are selling a product or service on the Web then you absolutely must have some payment processing method or merchant account solution in place. Why? Well, try requesting payment via check that users must send via snail mail and see where you get.

The presence of merchant account solutions conveys instantly the legitimacy of an online business. Alternatives, in many cases, simply will not cut it in the minds of many users. While it may be true that consumers will still buy what you are selling even if you do not accept credit card payments, the chances that you will make a sale are increased dramatically by giving the customer the option of charging purchases on their credit card.

A merchant account is simply a financial relationship between a retailer or service provider (the individual or group selling the product), a bank and payment processors. If you want to take orders online and let users pay with a credit card, then you must first establish a merchant account. To establish a merchant account, it is necessary to have a business checking account (which at least in our state of Illinois requires that you file a DBA - a doing business as petition - with the state you live in) or other proof that you are a legitimate business entity such as articles of incorporation, trade references and a formal statement of your return policy.

Sounds easy enough, right? It is, until you come to the part about fees. Yes, there are fees associated with a merchant accepting credit cards and usually come in three varieties: discount rates (a percentage of revenue), transaction fees (which vary) and monthly processing fees, typically less than fifty dollars per month. A closer look at the fine print of merchant account contracts you will find information on application fees, address verification charges, monthly minimums, statement fees, costs incurred as related to charge backs (returns) as well as annual maintenance fees.

But merchant accounts are not the only way to accept credit card payments online. Enter alternative payment processors such as PayPal, StormPay, WorldPay and others. Since most online small businesses simply don't meet the requirements for merchant accounts (or they simply have no interest in paying the exorbitant associated fees) there is thankfully an alternative solution in online payment processors, and their popularity with many website owners is the proof. While the per-transaction rates are sometimes more expensive than traditional merchant accounts, the ease of opening an account and getting started accepting payment through an alternative online payment processors makes them default option for millions of active websites.

What to Look For In a Merchant Account or Online Payment Processor:
Regardless of whether you decided upon a merchant account that you can use to accept credit cards online or one of the many online payment processors, there are a few things you might just want to consider before making the decision.

- Can you accept a variety of payments? It's essential that your merchant account enables you to accept all major credit cards; Visa, Mastercard, Discover, American Express, etc., as well as debit cards, and allows for payment to auction sites (if you sell items on auction sites).
- Are you able to manage transactions? Legitimate payment processors will provide full features interfaces to monitor and control payments. In some instances, these merchant back ends will provide some method of communicating with your clients online through auto-responders and the like.
- Can you prevent fraudulent charges? Payment processors should have a system in place to identify suspicious transactions with built-in fraud tools. Online credit card fraud costs merchants billions of dollars each year, so payment processors must make it known how they minimize this risk to help you maintain a successful Web business.
- Can you receive payments securely? A dedication to security of private information is the hallmark of trustworthy companies. Your payment processor should be committed to protecting customer information as much as you are.

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