Merchant Account Definitions

Merchant Account 

Merchant account processing services are provided by a bank or a third party processor to the merchant. These services include authorization of credit cards, settlement of funds through the bankcard associations (MasterCard/Visa), depositing of funds to checking accounts, merchant billing, and account activity reporting.

Payment Gateway

This is a software/service provided by a third party that interfaces over the financial networks to settle transactions between your merchant bank and your customer's bank. 

Service Provider

This is a software/service interface to the Payment Gateway. It is used to securely collect credit card information from your customer, maintain order logs, configure a transaction with the Payment Gateway, and interpret gateway responses in a user friendly format for your customer.

Ways to Accept Credit Card Payment

Off Line

- On the purchase order, you request that the shopper send you their credit card information separately either by mail, fax, or telephone. You will need a Merchant Account and preferably a toll free telephone number. 

On Line Manual Process

- You return an encrypted credit card information form to the shopper after they submit the purchase order. This information is saved to an order log for subsequent manual processing by you. You will need a Merchant Account and a Service Provider Utility for capturing and saving the credit card information. 

On Line with Real Time Automatic Processing

- You return an encrypted credit card information form to the shopper after they submit the purchase order. This information gets processed over the financial networks while the shopper is still at your store. You will need a Merchant Account and a Service Provider Utility for capturing and saving the information and configuring a request to a Payment Gateway account. You will need the gateway account for connecting to the financial networks. 

Three Ways of Clearing a Credit Card Through a Merchant Account 

1. Manually by entering the details into a card swipe terminal. 

2. Run terminal software on your PC.

3. You use a payment gateway such as Cybercash, Verisign, etc. 

- Which ever mechanism you use; the card terminal or payment gateway will make a telephone call to the acquiring bank that has your merchant account requesting authorization. 

- If approved the card may then be charged, this is often called capture of funds. The capture may take place at the same time as authorization or later. The timing depends on your merchant account and the nature of your product. The actual cash will then appear in your bank account some two or three days after capture.

Things to Know When Dealing With a Merchant Account Representative

Price Gouging

- Merchants usually lease or buy a bankcard terminal. Compare prices and watch out for merchants who try and charge too much as this is where a lot of the sales people earn their commission.

- If your credit is reasonably good, something like a Tranz 330 terminal and P250 printer is about $40 for a 48 month lease. 

- Buying a terminal should not be much more than $1,000 unless you're wanting something pretty high powered or wireless. 

- Some banks sell these same terminals/printers for less than $700. 

- Some bankcard services sales people are successful in selling leases on terminals for over twice the median amount. The sales person keeps the difference with very little or no extra service to the merchant.

The Credit Rating

- There are two places where the merchant's credit plays a role in getting a merchant set up to process credit cards. The first is when is considering the merchant's application for a merchant account and the second is when the merchant is leasing a terminal or software.

- The monthly rate of the leased terminal is partly based on your credit history. If you have "A" or "B" credit, you should get the best rate possible. Know your credit status and its a good idea to have one in hand when talking to the merchant account sales representative as this is a fertile area for the sales rep to get extra money from you. 

- Every additional dollar per month on the lease payment represents about $30 paid by the leasing company to the merchant services provider/sales rep for the merchant's lease. 

Merchant Account Industry Average Rates

Application Fee - A one-time fee charged by the bank to establish a merchant account.  Price: $99-$175.

Discount Rate - The percentage of the total credit card sale that is completed for each transaction.  Price: 2-5%  (Ex. A discount rate of 5% would mean you would pay a fee of $5 for every $100 a customer charges with you.  A discount rate of 3% would only be $3 on a sale of $100.)

Per Transaction Fee - These are flat fees that are associated with each transaction.  This is the fee for each time a card is authorized or declined, or for each time you use your credit card terminal to connect to the toll-free authorization network.  Price: $0.20-$1.00.

Monthly Statement Fee - The fee charged by the processing bank to issue a detailed statement at the end of each month and to keep your account open.  Much like a standard business checking account has a monthly fee, so does a merchant account.  Price: $10-$45.  (Real-time statement fee may be an additional $5-$15)

Monthly Minimum Fee - This is the monthly minimum amount you will pay each month in fees regardless of sales.  This fee is not in addition to fees but is simply a minimum fee, should there be no sales for the entire month, or sales under a certain volume level.  Price: $15-$100.

Equipment Cost - This cost is the purchase or lease of your authorization software, virtual terminal (for *real-time credit card processing), or swipe terminal.  

Software: $700-$1700 cash or $29-$49 mo. 36-48 mo.

Terminal: $700-$1700 cash or $29-$49 mo. 36-48 mo.

Virtual Terminal: $800-$2000 cash or $39-$79 mo. 36-48 mo.

*Most real-time systems will accrue additional monthly, per transaction, and statement fees.