By Amy Nutt
When businesses decide to apply for a merchant account, they must meet a number of requirements in order to obtain and maintain the account. The requirements may vary from bank to account, but there is a general list that new businesses should be aware of before applying for an account.
A merchant account is a financial contract between a business and the bank that issued the merchant account. It is basically an open line of credit that is issued to a merchant by an acquiring bank. Like a credit line, a merchant account has limits, variable rates, and other provisions that govern its use. Applying for a merchant account requires submitting an application to a merchant bank for their review.
The following outlines general requirements a business must fulfill before receiving a merchant account:
1) Present a business plan: explain the details of your product or service, provide the business website address, and any promotional programs
2) Provide the details about your suppliers
3) Explain the delivery method of the product or service being offered
4) Provide cashflow details, the expected average online transaction values, and estimated conversion rates.
5) Provide details about the secure internet server you will use
6) Supply your bank the details and authority to carry out a credit check.
7) Provide a list of the directors or partners in the business
Credit and Fraud Risk: Credit risk is the risk the bank takes regarding the amount you may owe the bank. Merchant accounts are often given to individuals who have no credit or poor credit histories. This is because fraud and contingent liability risks are much more important considerations. New merchants are at great risk since they are not as familiar with the methods of detecting and preventing illegal credit card transactions. Credit rating becomes more important the longer a business operates, especially as the monthly charge amount increases. Contingent liability risk is the greatest risk that is associated with the merchant account. This type of risk not only includes the risks associated with fraud, but also all of the unexpected risks that may crop up. You must be able to show the bank that you are well informed about fraud and contingency liability risks and have taken the appropriate measures to reduce these risks.
High Risk Businesses: High risk businesses may be required to pay higher setup and/or transaction fees. Reserve amounts are held in escrow by the bank in the event that they have to make up costs for unexpected chargebacks. Although merchants may see reserve requirements as a negative commitment, they can serve as protection for businesses that may be at a greater risk of receiving a high number of chargebacks. Reserves are normally created by withholding a certain percentage of each transaction.
Location Requirements: Establishing a merchant account in the United States requires: that a business checking account is held with a US bank, a US postal mailing address is used, and a business website's server must be located within the US. Additional requirements that may possibly be imposed if a company is located outside the US include: a company must be a US Corporation, there must be a personal guarantor who has a US Social Security Number and good credit, and the product must be warehoused and shipped from within the US
Most people use some form of payment card to make the majority of their purchases. This is why having the ability to process cards is vital to a businesses success. When a person decides to apply for a merchant account, having the knowledge to understand what the procedure entails will go a long way to ensuring a smooth and uncomplicated process.
Online payment processing company provides industry leading payment gateway services for card issuers and acquirers.
Saturday, July 11, 2009
Sunday, June 28, 2009
Learn These Important Comparisons About Merchant Accounts to Improve Business Cash Flow
By David Montana
Merchant accounts are contracts between an acquiring bank that extends lines of credit to a merchant, and that allow businesses to accept payment for goods or services via credit cards.
It should be known that customers are much more likely to buy from businesses that accept credit cards. Statistics show that businesses with merchant accounts will see sales numbers increase immediately. According to statistics, the average cash sale is $9, while the average credit card sale is approximately $40.
No matter what type of business you own, the availability of merchant accounts can help your cash flow in several ways. Here are some of the benefits for using merchant accounts:
- Having credit card facilities means you can offer customers the option to purchase on the spot.
- Merchant account processing fees are often lower than check transaction fees.
- Issues about debt collection will become the bank's problem, not yours.
While there are some definite benefits to having a merchant account facility for your business transactional needs, there are also some drawbacks to think about.
- Its important that you protect your business from credit card fraud.
- You may need to examine and possibly revise your policies concerning charge-backs and refunds to minimize damages.
- If your business accepts credit cards on your website, be sure to use fraud protection measures to lower the risk of fraud, theft and scams.
Instituting Merchant Accounts
Setting up a merchant account can be relatively simple. You will need to set up a bank account for your company for the proceeds of any credit card purchases to be credited to. You will also need to lease processing equipment and software that will facilitate transactions.
If you're going to be processing credit cards through your company's website, you'll need to register with a payment gateway like CyberCash or VirtualNet. Make sure that the merchant account software you'll be using is compatible with your online payment gateway.
Importance Of Comparing Merchant Accounts
Before you call your bank to get a merchant account, take the time to compare the options and offerings of several different banking institutions, in addition to merchant account providers. Fees and charges often vary greatly, so its very important to check what you'll be charged and what fees are likely for each transaction.
For instance, fees might include initial start-up costs, equipment monthly lease fees, sales volume costs, transaction and processing fees. When looking at potential merchant account providers, be sure to ask for a written list of all the fees you're likely to incur so that you can accurately compare them with other vendors.
Merchant Account Charges and Fees
Different providers may charge some type of application fee. This can range from $0 up to $100, sometimes more depending on your lender.
You may also need to purchase your software, which can range in cost around $100, or more. Once this software is installed, its possible you may have to pay a licensing lease on the software, which can range from $20-$50/month. Again, this depends on your lender or merchant account provider.
In addition to these, you will also incur transaction fees that can vary between $.20-.50 per transaction. While they don't sound necessarily high, remember if you process a large number of transactions, this can add up.
Other fees you want to make sure you ask any potential merchant account vendor include charge back fees, statement fees, minimum usage fees, annual fees, account keeping fees and close out fees.
Merchant accounts are contracts between an acquiring bank that extends lines of credit to a merchant, and that allow businesses to accept payment for goods or services via credit cards.
It should be known that customers are much more likely to buy from businesses that accept credit cards. Statistics show that businesses with merchant accounts will see sales numbers increase immediately. According to statistics, the average cash sale is $9, while the average credit card sale is approximately $40.
No matter what type of business you own, the availability of merchant accounts can help your cash flow in several ways. Here are some of the benefits for using merchant accounts:
- Having credit card facilities means you can offer customers the option to purchase on the spot.
- Merchant account processing fees are often lower than check transaction fees.
- Issues about debt collection will become the bank's problem, not yours.
While there are some definite benefits to having a merchant account facility for your business transactional needs, there are also some drawbacks to think about.
- Its important that you protect your business from credit card fraud.
- You may need to examine and possibly revise your policies concerning charge-backs and refunds to minimize damages.
- If your business accepts credit cards on your website, be sure to use fraud protection measures to lower the risk of fraud, theft and scams.
Instituting Merchant Accounts
Setting up a merchant account can be relatively simple. You will need to set up a bank account for your company for the proceeds of any credit card purchases to be credited to. You will also need to lease processing equipment and software that will facilitate transactions.
If you're going to be processing credit cards through your company's website, you'll need to register with a payment gateway like CyberCash or VirtualNet. Make sure that the merchant account software you'll be using is compatible with your online payment gateway.
Importance Of Comparing Merchant Accounts
Before you call your bank to get a merchant account, take the time to compare the options and offerings of several different banking institutions, in addition to merchant account providers. Fees and charges often vary greatly, so its very important to check what you'll be charged and what fees are likely for each transaction.
For instance, fees might include initial start-up costs, equipment monthly lease fees, sales volume costs, transaction and processing fees. When looking at potential merchant account providers, be sure to ask for a written list of all the fees you're likely to incur so that you can accurately compare them with other vendors.
Merchant Account Charges and Fees
Different providers may charge some type of application fee. This can range from $0 up to $100, sometimes more depending on your lender.
You may also need to purchase your software, which can range in cost around $100, or more. Once this software is installed, its possible you may have to pay a licensing lease on the software, which can range from $20-$50/month. Again, this depends on your lender or merchant account provider.
In addition to these, you will also incur transaction fees that can vary between $.20-.50 per transaction. While they don't sound necessarily high, remember if you process a large number of transactions, this can add up.
Other fees you want to make sure you ask any potential merchant account vendor include charge back fees, statement fees, minimum usage fees, annual fees, account keeping fees and close out fees.
Tuesday, June 16, 2009
Merchant Accounts and a Payment Gateway
By Amy Nutt
The online e-commerce business community is growing at a rapid rate. Everyday more businesses are setting up online retail stores. There are a number of different methods businesses can use to accept online payments. Understanding the ways of accepting online payments can often seem overwhelming, but a little background information can make it much easier. Two important methods of accepting payments are the Merchant Account and a Payment Gateway.
To help you understand the technology, the following explains the differences between a Merchant Account and a Payment Gateway:
Merchant Account
Also referred to as online credit card payment accounts, online credit card processing accounts, credit card transaction accounts, or e-Commerce merchant accounts, permit businesses to accept credit cards, debit cards, gift cards and other forms of card payments. A business acquires a merchant account from a merchant bank or a merchant service provider. Without a contract, a business cannot directly accept payments by any of the major credit card companies. An e-Commerce account is a service that e-Commerce merchants implement in order to use online credit card processing services. The process of acquiring this specific account type depends on the provider and the type of e-Commerce account. Fees and rates will vary among providers.
The advantage with using one of these account is that it can automate a business. Customers can deposit money into the account on the web 24 hours a day/ 7 days a week.
Payment Gateway
A payment gateway is an e-commerce service that authorizes payments for e-businesses and online retailers. It is connected to a large network of credit card issuing banks. One of the other main functions of credit card processing is encryption. A gateway uses SSL 128-bit encoding technology to encrypt and decrypt all the data being sent through it. Without encryption, all the credit card holders' information could be stolen.
The general process of how a gateway works is as follows:
1) A customer orders a product or service from a merchant's site by clicking on the order button.
2) The customer is then taken to an order form page where they complete an order form and enter their cardholder information and shipping information.
3) The customer clicks the 'submit' button. The data becomes encrypted (SSL 128-bit) by the cardholder's web-browser. A key is generated and passed to the merchant's gateway.
4) This gateway decrypts some of the information, and then re-encrypts it and sends it to the merchant's acquiring bank.
5) The bank forwards the data to the credit card issuing bank for verification and authorization.
6) The issuing bank sends a type of response code back to merchant bank. The bank then sends it to the payment gateway.
7) The credit card is billed and the funds are transferred to the merchant's bank and deposited into the merchant's account.
An online business will have to sign up for this specific gateway once they set up a merchant account. They will be provided with a shopping cart system where their customers can pay for any products that the business is selling. The primary difference between the merchant account and the payment gateway is that a merchant account is the license by which businesses are permitted to accept payment by credit cards, and payment gateway is the means of receiving online payments.
Both the payment gateway and the merchant accounts are vital components in setting up an automated business. They play a major role in attracting consumers and maintaining repeat customers. Acquiring a merchant account with a gateway is essential to business success.
Canada's leading processor of debit and credit card payments provides POS systems, retail software, online retail register & systems and point of sale software.
The online e-commerce business community is growing at a rapid rate. Everyday more businesses are setting up online retail stores. There are a number of different methods businesses can use to accept online payments. Understanding the ways of accepting online payments can often seem overwhelming, but a little background information can make it much easier. Two important methods of accepting payments are the Merchant Account and a Payment Gateway.
To help you understand the technology, the following explains the differences between a Merchant Account and a Payment Gateway:
Merchant Account
Also referred to as online credit card payment accounts, online credit card processing accounts, credit card transaction accounts, or e-Commerce merchant accounts, permit businesses to accept credit cards, debit cards, gift cards and other forms of card payments. A business acquires a merchant account from a merchant bank or a merchant service provider. Without a contract, a business cannot directly accept payments by any of the major credit card companies. An e-Commerce account is a service that e-Commerce merchants implement in order to use online credit card processing services. The process of acquiring this specific account type depends on the provider and the type of e-Commerce account. Fees and rates will vary among providers.
The advantage with using one of these account is that it can automate a business. Customers can deposit money into the account on the web 24 hours a day/ 7 days a week.
Payment Gateway
A payment gateway is an e-commerce service that authorizes payments for e-businesses and online retailers. It is connected to a large network of credit card issuing banks. One of the other main functions of credit card processing is encryption. A gateway uses SSL 128-bit encoding technology to encrypt and decrypt all the data being sent through it. Without encryption, all the credit card holders' information could be stolen.
The general process of how a gateway works is as follows:
1) A customer orders a product or service from a merchant's site by clicking on the order button.
2) The customer is then taken to an order form page where they complete an order form and enter their cardholder information and shipping information.
3) The customer clicks the 'submit' button. The data becomes encrypted (SSL 128-bit) by the cardholder's web-browser. A key is generated and passed to the merchant's gateway.
4) This gateway decrypts some of the information, and then re-encrypts it and sends it to the merchant's acquiring bank.
5) The bank forwards the data to the credit card issuing bank for verification and authorization.
6) The issuing bank sends a type of response code back to merchant bank. The bank then sends it to the payment gateway.
7) The credit card is billed and the funds are transferred to the merchant's bank and deposited into the merchant's account.
An online business will have to sign up for this specific gateway once they set up a merchant account. They will be provided with a shopping cart system where their customers can pay for any products that the business is selling. The primary difference between the merchant account and the payment gateway is that a merchant account is the license by which businesses are permitted to accept payment by credit cards, and payment gateway is the means of receiving online payments.
Both the payment gateway and the merchant accounts are vital components in setting up an automated business. They play a major role in attracting consumers and maintaining repeat customers. Acquiring a merchant account with a gateway is essential to business success.
Canada's leading processor of debit and credit card payments provides POS systems, retail software, online retail register & systems and point of sale software.
Sunday, June 14, 2009
Why Is There Risk Involved With Merchant Accounts?
By Taquee Hicks
It is important to know that any bank or ISO that offers merchant services to merchants assumes the risk of financial losses. A merchant account is in essence an unsecured credit line.
Here's an example: A customer orders a $1,000 table, which will not be delivered for two weeks, from a furniture store and pays with his credit card. U.S. Merchant Systems processes the $1,000 transaction and deposits the funds into the merchant's bank account within 2 business days. Two weeks pass and the cardholder finds that the furniture store has gone out of business without delivering the table. The cardholder calls his Issuer to initiate a chargeback on the grounds that the merchandise was never received.
Visa and MasterCard rules state that in the event of an Issuer initiating a chargeback, the Acquirer is immediately required to return the $1,000 to the Issuer to be placed back on the cardholder's card. The Acquirer will now have to collect the $1,000 from the merchant. As the merchant is no longer in business and chances are that there are not enough funds in the bank account to cover the chargeback of $1,000, the financial responsibility lies with the ISO/MSP.
There may be more than $100,000 worth of orders taken that were not delivered to customers - all subject to legitimate chargebacks. Since these funds MUST be returned to the cardholders and the merchant cannot cover this amount, the entity that underwrote the merchant account (i.e. bank or ISO/MSP) will have to assume the liability, taking a $100,000 loss in the process. As you can see, a merchant account is similar to an unsecured credit line with risk of fraud, non-delivery and non-payment of charge backs.
It is important to know that any bank or ISO that offers merchant services to merchants assumes the risk of financial losses. A merchant account is in essence an unsecured credit line.
Here's an example: A customer orders a $1,000 table, which will not be delivered for two weeks, from a furniture store and pays with his credit card. U.S. Merchant Systems processes the $1,000 transaction and deposits the funds into the merchant's bank account within 2 business days. Two weeks pass and the cardholder finds that the furniture store has gone out of business without delivering the table. The cardholder calls his Issuer to initiate a chargeback on the grounds that the merchandise was never received.
Visa and MasterCard rules state that in the event of an Issuer initiating a chargeback, the Acquirer is immediately required to return the $1,000 to the Issuer to be placed back on the cardholder's card. The Acquirer will now have to collect the $1,000 from the merchant. As the merchant is no longer in business and chances are that there are not enough funds in the bank account to cover the chargeback of $1,000, the financial responsibility lies with the ISO/MSP.
There may be more than $100,000 worth of orders taken that were not delivered to customers - all subject to legitimate chargebacks. Since these funds MUST be returned to the cardholders and the merchant cannot cover this amount, the entity that underwrote the merchant account (i.e. bank or ISO/MSP) will have to assume the liability, taking a $100,000 loss in the process. As you can see, a merchant account is similar to an unsecured credit line with risk of fraud, non-delivery and non-payment of charge backs.
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