If you are running a business, or even thinking of starting one, most likely you have already come across the issue that you need to accept payments online. You can do this either with your own merchant account, or let the payment processor handle the transactions. This article will give you some idea what is it like to set up a merchant account and run your own ecommerce website.
What is a Merchant Account?
A Merchant Account is an arrangement between you, the seller, and your financial institution, called a “Merchant Bank” or “Credit Card Bank”, that authorizes the bank to pay out funds from your credit card sales directly into your account.
When you set up a merchant account, the bank will evaluate your business to determine how much risk is involved in approving you for a merchant account. The higher the risk, the more expensive your account will be.
The two most important factors that banks look at are your credit score and your company’s history of chargebacks. A high credit score will help to offset any perceived risk, while a history of chargebacks will almost always lead to a declined application.
Types of Merchant Accounts
There are three types of merchant accounts:
- Retail: This type is for businesses that sell physical products to consumers. The bank will look at your average ticket size and the quantity of transactions to determine your account type, which usually is “preferred”. Although you can have a retail merchant account at the same bank as your business checking account, it is not recommended.
- Professional: This type of merchant account is for professionals who sell services rather than physical goods. For example, if you are an accountant or a lawyer, this type of merchant account is what you should have. The bank will look at the average size and frequency of your transactions to determine your account type. You may have a retail or a professional account at the same bank as your business checking account.
- High Risk: This type of merchant accounts is for businesses whose products/services are at high risk of credit card fraud, such as online gaming sites or MLM companies. These merchant accounts are more expensive to maintain and usually have a limit on the size of individual transactions.
Benefits of Having Your Own Merchant Account
You get direct access to your funds – You can transfer money from your merchant account into your business checking account as soon as your transactions are authorized, instead of waiting for the end of the month.
You can transfer money from your merchant account into your business checking account as soon as your transactions are authorized, instead of waiting for the end of the month. You save on credit card processing fees – If you use a third party payment processor (Paypal, Authorize.net etc.), you may only receive about 95% of your sales revenue after the fee they charge. It is better to use a payment gateway which charges less than 2%.
If you use a third party payment processor (Paypal, Authorize.net etc.), you may only receive about 95% of your sales revenue after the fee they charge. It is better to use a payment gateway which charges less than 2%. You get paid faster – Transactions through a merchant account are usually authorized and deposited into your bank account within 48 hours, as opposed to the 7-10 days it can take for a check to clear.
How To Set Up a Merchant Account?
The best way to set up a merchant account is to go through an online application process. The bank will ask you a few questions about your business, including your credit score and the average size of your transactions. They may also ask for copies of your business license, articles of incorporation, etc.
It can take up to two weeks to get a decision from the bank, so be prepared to wait. Once you are approved, the bank will send you a welcome kit with all of the information you need to start processing payments.
If you’re not sure where to start, there are numerous online resources and merchant account providers that can help you set up your merchant account.