Most businesses wind up because of insufficient funds to meet the expenses or fulfill their working capital requirement. Inflation impacts nearly every part of running a company—from the cost of the goods and services to pricing your services. Inflation causes a sudden hike in prices, making it difficult for small business owners to execute their business. You can calculate it by comparing the cost of the goods at different points in time.

Inflation occurs when the demand increases exponentially and the production units have to work harder to meet the surge in demand. When inflation occurs, people think about how it affects their spending habits, household needs, and other basic requirements. This article will help you understand how inflation affects merchant account as a business owner.

How Inflation Occurs?

We’ve seen how the value of the currency has declined over time. A few decades ago, people could buy their favorite model of sports car for as little as $3,500. If you intend to buy a vehicle with this money in today’s time, the dealer won’t accept it even as a down payment. That’s a live example of inflation. The car that could have been easily bought in the 70s with a few thousand dollars is now priced 10x higher.

As the value of the currency fluctuates, we are no longer able to spend our money the way we did earlier. When the price hikes, our purchasing power declines. And at the speed at which it occurs is called inflation. We’ve seen one of the largest inflation hikes during the COVID pandemic. As the government focused on controlling the recession and stabilizing the economy, inflation kept surging. An important question is, does inflation affect your merchant account? How exactly?

Inflation Affects Merchant Accounts – How?

Inflation affects businesses differently. Some businesses are resistant to the change in the business landscape, which makes it difficult for them to thrive in a competitive economy where inflation is at its peak. For instance, some of your competitors might keep the price of the products and services steady just so they can get customers from other market players.

Now, you can either raise the prices and risk losing your customers to the competitors or keep the prices steady and risk losing your business. Those in niche industries with little competition get an advantage here. They can raise the prices however they like without the fear of losing their customers. These businesses are more resilient to inflation and other unfavorable economic conditions.

Another factor is the industry you are in. Merchants selling luxury items, such as those running a jewelry store, will have a more challenging time during inflation than those operating grocery or retail businesses. That’s because when inflation surges, customers cut back on expensive items. Simply put, when inflation hikes, people stop buying sweets and cars and focus on essential goods. So, if you are in a business selling essential items, resisting inflation won’t be challenging for you.

Here, the brand plays a role too. An established and reputable brand that has a huge customer base is highly likely to fight inflation better than those who have recently started a business. Even if your competitors sell products at a cheaper price, your loyal customers will pay a few extra dollars to buy from your store.

However, protecting your business from inflation completely is still challenging for businesses of all types and sizes. Below we’ve discussed some common ways inflation affects your merchant account. Although it doesn’t apply to all businesses, most merchants experience the following during inflation.

Higher Transaction Processing Fees

An interchange or transaction fee is charged by credit card networks, like Visa and Mastercard. For every transaction processed through cards, a small percentage of the fee is deducted from the merchant’s account. Visa and MasterCard had dismissed the idea of increasing the interchange rate during the pandemic.

The interchange fee is charged to process card transactions and also to offset the risk of risky transactions. For example, losses occurring from chargebacks or fraudulent transactions can be easily balanced with the processing fee. The fee is ridiculously higher for online transactions and for high-risk merchants, as they carry a higher risk of fraud. Inflation can result in increased credit card processing fees, making each card transaction pretty expensive for the merchant.

Your Customers’ Spending Habit Change

A lot has changed for merchants and customers since the global pandemic. Customers have adopted a contactless payment system, as it’s more convenient for them to process digital transactions than paying in cash. Inflation also changes their spending habits.

As mentioned before, they are more careful about spending unnecessarily on non-essential items. With the rising inflation, the merchant might have to deal with low sales volume and decreased revenue. How much your sales and revenues will be affected by inflation depends on the number of loyal customers you have and the nature of your business.

Higher Operating Cost

The cost of supplies and raw materials has been increasing constantly. And this hike in the prices doesn’t seem to be stopping anytime soon. Inflation doesn’t just increase the prices of raw materials and equipment, but it results in a hike in wages and employee benefits. The energy industry has witnessed the severe impact of inflation, making utility bills, electricity, and transportation more expensive now than ever before.

The increased employee wages, high cost of transportation, and increase in the prices of other expenses can contribute to the operating cost eventually. Inflation, thus, increases the cost of running a business. Meeting this high operating cost can get tricky if the merchant doesn’t have a stable income.

Difficult to Obtain Business Loan

A high fed rate can increase interest rates. The higher the fed rate, the costlier it is for banks to exchange their reserves overnight. This, in turn, makes borrowing money from the banks more expensive for merchants. It’s predicted that the Fed will keep on increasing the fed rate until it reaches 2.75%.

Although it’s done to stabilize the economy and encourage customers to spend less, the positive effects of this higher Fed rate will take longer to show than the immediate effect of this hike in interest for merchants. It’s important to evaluate the loan conditions carefully before borrowing. If the Fed raises its rates, those who’ve borrowed variable-rate loans will be affected.

Fortunately, there are a few things merchants can do to control the impact of inflation on their business. Below we have listed some effective steps to deal with the rising inflation.

Implement a Surcharge

If a majority of your customers pay through credit cards, consider implementing a surcharge. It’s a great way to recover the interchange fee so long as it doesn’t affect customer experience. Surcharge refers to an additional charge implemented on credit card transactions.

Alternatively, you can implement cash discounting, which gives your customers a discount if they choose any payment method other than a credit card to pay for their purchases. It’s a highly effective choice for merchants who do not want to compromise on their customer experience. Both options have their own benefits and drawbacks and choosing one over the other is your decision. If you are already offering competitive prices, customers might not mind paying a surcharge on credit card transactions.

Try Alternative Payment Methods

If none of the above strategies work for your business, you can encourage customers to pay through alternative payment methods. PayPal, Digital Wallets, and cash, for example, are some best payment alternatives to credit card transactions.

These won’t incur a hefty transaction fee, although PayPal and digital wallets have their own fee structure for domestic and international transactions. So, read the terms carefully before integrating these digital payment wallets into your payment infrastructure. Payment through cryptocurrency is another alternative to credit/debit card payments.

Improve Efficiency

Do you notice an increased cart abandonment rate? If your customers are adding products to their cart but leaving your website when making the payment, there must be a problem with your checkout page. Shorten it and request only the essential information from your customers. As mentioned above, inflation affects merchants that accept credit/debit transactions only. While it makes sense to support contactless payments, an efficient way to fight inflation would be accepting cash payments. This will save you the exorbitant card processing fee.

Reduce Operating Cost

Making informed decisions, like automating manual tasks by choosing a cost-effective software application, can make a big difference to your bottom line. Maybe, you can find cheaper alternatives to your existing software. Small changes might not make as big of a difference as removing credit card payments from your payment infrastructure, but they can help reduce your operational cost to some degree.

Conclusion

Inflation has a great impact on merchants operating all sizes and natures of businesses. While some are less affected by the increasing prices of supplies, others might experience a drastic change in their sales and revenues. Adopting the above-listed steps can help keep your business running in challenging times. It’s important to choose the acquiring bank or a card network wisely, as each credit card company has varying transaction fees.

Merchants have been focusing on improving customers’ shopping experiences by bringing a perfect balance between convenience and security. Businesses have implemented security measures like two-factor authentication and address verification systems to strengthen the security of each transaction. While these steps play a pivotal role in making your checkout smooth and payment gateways secure, they cause friction and increased cart abandonment. If you skip these security measures, customer security will be compromised.

With an increasing number of card-not-present transactions, there’s been a growing number of fraudulent activities reported online. Developed by EMVCo, Secure Remote Commerce is a set of protocols designed to make e-commerce transactions convenient and safe for the audience. Below we’ve mentioned all you should know about Secure Remote Commerce (SRC) and its benefits. Let’s take a look.

Overview of Secure Remote Commerce

EMVCo launched SRC in 2019 to promote a secure, and globally accepted virtual payment terminal. The main advantage of this technology for merchants is that they no longer have to save customers’ card details and sensitive data for future transactions. Not just that, but it prevents fraudsters (who have stolen credit cards) from processing card-not-present transactions.

Secure Remote Commerce or a click-to-pay solution is a streamlined, secure, and convenient way to process transactions. The technology combines security and convenience to provide customers with a seamless payment experience. The solution is pretty simple. With SRC, you need to enter your card and payment details only once and all your SRC-enabled transactions will be processed in a single click for future purchases.

That’s what customers want from eCommerce platforms. Offering a consistent shopping experience across several platforms, the click-to-pay system saves your time in filling out those lengthy forms at the checkout page for all transactions. You can buy the product with a single click instead.

Not just for convenience purposes, SRC has gained popularity for enhancing security for eCommerce transactions too. The technology uses a tokenization system, which encrypts all your sensitive data, making it impossible for any outsider to access. This builds an additional layer of security, protecting your system from hackers. Now that you know what the SRC is about, let’s see how it works and who’s eligible to use it.

How Does Secure Remote Commerce Work?

Merchants that want to attract a wider audience must be open to new technology and protocols that can reduce friction and improve customers’ buying journey. Before we proceed, note that SRC is not a single app or a specific program. It’s rather a set of techniques that work together to save card details and encrypt data.

Customers can create their profiles by entering their card details, which can be used for all SRC-enabled platforms. The customer doesn’t have to re-enter these details for each transaction. Instead, the information is fetched automatically and the transaction is processed without exposing the customer to any vulnerability. You can think of it as a digital wallet that saves your card data, which can then be retrieved at just about any checkout page that supports Secure Remote Commerce. Let’s understand the components of the system in short.

• Digital Payment Application: The DPA is software that enables smooth interaction between customers and the SRC system.
• Digital Card Facilitator: The card facilitator stores customers’ card information securely.
• SRC Initiator: It gathers the data from the digital card facilitator and transmits it to the merchant so that they can process the transaction.
• SRC Participating Issuer: It registers a customer’s ID in Secure Remote Commerce

That’s what goes in the backend. Each role is crucial and ensures the successful completion of the transaction.

Benefits of Secure Remote Commerce

Every business wants a streamlined payment system that supports faster and safer transactions, thus reducing cart abandonment during checkout. SRC should not be confused with third-party payment solutions, like PayPal. Unlike PayPal and other payment gateways, the SRC is designed to benefit customers and merchants instead of its creators.

How Is It Beneficial for the Customer?

As mentioned above, the major advantage of Secure Remote Commerce for customers is that it saves them time in entering and re-entering their payment credentials over and over again at various online stores. The SRC vault collects and stores users’ card details and facilitates a safe checkout process.

The system works for eCommerce sites that support SRC-enabled transactions. Once the customers’ data has been stored in the vault, all they have to do is verify their identity and they are good to go! The merchant can automatically deduct the amount in question from their preferred card and process their transaction quickly.

This gives customers a frictionless experience shopping at their desired eCommerce store. The only hectic part of the entire process is the initial setup. Once you have successfully signed up for the system and have your card credentials stored in the vault, you can have peace of mind knowing that for each transaction you conduct online at SRC-enabled platforms, you won’t be asked to submit the card details.

How Does it Benefit the Merchant?

Not just for customers, but the Secure Remote Commerce is beneficial for the merchant too.  Merchants can expect considerably fewer abandoned carts since customers no longer have to find their cards and enter the credentials to process the payments.

Customers tend to leave the checkout page when they are frustrated by continuous errors in their card details during checkout. When the data is already stored in the vault, a customer only has to validate their identity and the transaction will be processed.

SRC also reduces the chargeback volume for merchants. Since your customers are not entering the card details manually, it’s difficult to prove that the transaction conducted on an SRC-enabled website using the stored card details was unauthorised.

While that doesn’t guarantee complete protection from card-not-present fraud, it can definitely eliminate friendly fraud, as convincing the issuing bank that you didn’t process a transaction on an SRC-enabled website is difficult. In addition, the data is encrypted, meaning no third party can access or view it.

Implementing Secure Remote Commerce

There are two methods for enrolling in Secure Remote Commerce. One, through the card network. If you are using American Express, you will be automatically enrolled in the SRC program. If you have Visa or Mastercard, you can opt-in for SRC sign-up. Two, you can work with your payment processor that takes care of the SRC integration.

EMVCo has launched a payment icon, which is universally implemented for SRC-enabled platforms. If you see this icon on the checkout page, you can sign up for the program by submitting your card details by clicking on the icon. This will initiate the SRC-enabled checkout. You need to complete the registration with the SRC initiator if you have never used the Secure Remote Commerce technology before. Once you are done, your card details will be saved in the SRC vault and will be used to process the transaction.

The cards are stored in the Digital Card Facilitator. So, once the customer has finished the SRC setup, they can use the card of their choice at different eCommerce stores. If you have authorised more than one card, you will be asked to choose the one that you want to be charged for the transaction. The process is encrypted and secure enough to prevent the transfer of the data straight to the merchant, thus making it one of the safest and most effective technologies for eCommerce transactions.

Card Networks that are Using Secure Remote Commerce

By 2020, most of the reputable card networks, including American Express, Visa, Mastercard, and Discover, adopted the EMVCo Secure Remote Access. The main purpose of this change is to optimise payments for a click-to-pay option for eCommerce store owners. This makes it easier for people to buy things online, while the merchants can enjoy faster and smoother transactions with fewer chargeback requests and a reduced cart abandonment rate.

Being able to shop online without creating multiple accounts and several passwords will make shopping hassle-free for customers. There’s a chance they will return to your store for future purchases if they enjoy the shopping experience. Registration for SRC is a one-time process. If you think it through, SRC automatically fills in the card details, speeding up the checkout and giving customers less time to reconsider their buying decision.

The increased customer satisfaction combined with fewer abandoned carts makes Secure Remote Commerce an ideal technology for businesses looking to expand their eCommerce store. They’d receive verified payments like earlier but with enhanced security.

Bottom Line

Customers making the payment through a specific device also find this technology quite helpful, as the SRC system automatically pulls customers’ data through its store vault, including their personal information and card details. It is done through mobile recognition.

Their account is verified automatically and the payment is processed within seconds. This is great for customers using guest accounts to make a purchase. They don’t have to enter their personal information or card details. These features add up to a convenient, safe, and streamlined transaction for customers.

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:

1. 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.
2. 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.
3. 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.

Merchant accounts are essential to the operations of online and brick-and-mortar businesses that process credit card transactions. While most small business owners understand what a merchant account is, they may not be aware of all the ways this crucial financial tool can help them grow their company’s revenue stream.

A merchant account essentially allows you as a business owner to process credit card transactions from anyone who wants to pay you via plastic. There are two main types of merchant accounts: online and offline.

An offline merchant account is a type of bank account that gets its name because it allows for credit card processing at locations not connected to the internet, such as physical retail stores or even trade shows. Any time you swipe a credit card at these locations, this is considered an offline transaction.

An online merchant account, on the other hand, facilitates transactions that take place over the internet. These types of accounts allow for credit and debit card processing through e-commerce websites or mobile apps that facilitate in-person sales.

Merchant Accounts for Online Businesses

If you already own an e-commerce store or plan to start one, then you will need a merchant account that is specific to online businesses. There are many benefits of processing online transactions, including:

No over-the-phone authorizations

Faster transactions and superior customer service experiences with the ability to charge a customer’s card as soon as the order is placed.

Certain tax benefits and more payment options

Credit card companies such as Visa and MasterCard provide merchant accounts to businesses that want to process online transactions. These types of accounts usually have a setup fee and can include monthly fees depending on the company’s credit limit, transaction volume and other factors. Some merchants will also need to get a dedicated IP address in order to process their transactions, which also has a fee associated with it.

Merchant accounts with a higher credit limit will have a setup fee and monthly fees that are higher than merchant accounts with lower limits. While the average cost per year is around $1,000 per account, this can vary from business to business depending on unique circumstances.

Merchant Accounts for Offline Businesses

For brick-and-mortar locations, the main requirements are a PC or Mac with an internet connection and a dedicated phone line that allows you to process credit cards. Once you have these items, you can apply online through Visa or MasterCard directly for merchant account approval. You will need to have a business checking account in order for the credit card company to link your merchant account with it. Depending on your location, you may also need a separate merchant account from your bank or financial institution.

The average annual cost of a merchant account is around $500. This number can fluctuate depending on factors such as average monthly transactions, which type of transactions are the most common, annual sales volume and company credit history.

The more credit card transactions your business processes every month, the lower your merchant account fees will be since these types of accounts have a base rate plus a percentage fee based on monthly transaction volume. The base rate is typically around 2% plus 30 cents per transaction.

Processing Fees and Handling Retrieval Requests

Once you have a merchant account, your responsibilities as the business owner include: responding to all credit card storage and retrieval requests, paying any fees that result from declined or invalid transaction attempts and keeping records of all transactions in case you need to provide them for tax purposes later on.

You will also need to make your customers aware of the fees they may be charged when using a credit card for payment. If you fail to correctly charge your customers, then you risk incurring penalties for mishandled funds and not being reimbursed by your financial institution.

Maintaining a merchant account is a great way to accept credit and debit card payments from customers that purchase your products or services. If you have a brick-and-mortar location, then you can also process transactions using a mobile card reader through a phone line with connectivity to the internet as long as the merchant account is specific to offline businesses.

It is important to know what makes up the cost of a merchant account and how it can benefit your business. Fees will depend on the average monthly transactions, type of transactions and company credit history as well as where you run your business.

For offline businesses, all you need is an internet connection to process credit card payments using a PC or Mac along with a dedicated phone line that gets connected to the internet. You can also use a mobile card reader to take payments through your phone line with connectivity to the internet as long as the merchant account is specific to offline businesses.

The average cost of a merchant account is around $500 annually, but this number can fluctuate depending on factors such as average monthly transactions and company credit history. The more credit card transactions your business processes, the lower your merchant account fees will be since these types of accounts have a base rate plus a percentage fee based on monthly transaction volume.

You will also need to make your customers aware of the fees they may be charged when using a credit card for payment and keep track of all transactions in case you need to provide them for tax purposes later on.

Maintaining a merchant account is great way to accept credit and debit card payments from customers that purchase your products or services. If you have a brick-and-mortar location, you can process transactions using a mobile card reader through a phone line with connectivity to the internet as long as the merchant account is specific to offline businesses.

You may also need a separate merchant account from your bank or financial institution, depending on the type of industry you are in and where you run your business. The average costs can vary depending on factors such as average monthly transactions, company credit history and the type of transactions that are most common for your business.