Credit Card Processing 101 – and Other Merchant Account Basics

by Sep 12, 2013General Merchant Account

It wasn’t that long ago when businesses only accepted cash and check from their customers. We’re gonna talk about some basics known as “credit card processing 101.”

Fast forward to present day and you will find that credit and debit card payments have far exceeded paper payments of the past.

These days, accepting payments electronically is an integral part of the modern commerce system and it remains prominent due to mainstream consumer demands.

In other words, if you don’t accept credit cards at your business, you’re missing out on sales.

The use of electronic payments, i.e. credit and debit card transactions, is all driven by a network of virtual platforms that involve banks and business owners such as yourself.

If you’re new to the merchant account industry we’re going to discuss some of the basics here.

I am going to leave out the technical stuff in this article and speak generally from a broad scope point of view, so if you are in search of advanced knowledge of how a merchant account works, information about interchange pricing or other advanced issues, use the search bar on this site or click on the links included here.

In addition to defining a merchant account we will cover some of the basic questions that help with understanding a merchant account and how it operates.

 

What Is A Merchant Account?

A merchant account is an agreement between a processing company (acquirer/bank) and a local business (you). The agreement gives you the ability to accept credit card transactions from your customers in exchange for goods or services.

Once the transaction is processed through a credit card terminal or similar point of sale device the processing company will deposit your money directly into your bank account. The entire process from the time of sale to the time you collect your money takes about 48 hours.

 

How Much Does A Merchant Account Cost?

Overall, there are two main components that play into the cost of having a merchant account.

  1. The credit card terminal or point of sale device
  2. The merchant account processing fees

The cost of equipment can vary drastically. You can purchase, rent or lease a terminal and each option will yield a different cost. Leasing a credit card terminal is by far the most expensive option, so my recommendation is to purchase or rent a terminal.

The cost of the processing fees also varies depending on the type of account that you have. Generally speaking the cost ranges from 2.00% to 5.00% per transaction. There are a number of rates and fees that are charged and each one is a component of the merchant account pricing structure.

If you want detailed explanation of the pricing structures of the various merchant accounts and you can read them by clicking on the links below:

After digesting all three of those articles you should have a good understanding of how merchant account pricing works and why the overall percentage rates different from business to business and from account type to account type.

 

Can I Accept Credit Cards Without A Merchant Account?

The short answer is, no.

There are some who will say that Paypal will allow individuals and businesses to accept credit card payments without a merchant account, but that is not accurate. Paypal is a merchant account provider they just have different types of merchant accounts based on your business or individual needs.

It is against Visa and Mastercard user guidelines to accept payments for another type of business, so you cannot have a joint merchant account with another company. For example, if you own a liquor store and a flower shop, you cannot use ONE merchant account for both of those businesses.

You must have one merchant account dedicated to each business.

 

Merchant Account Application and Approval

The process of applying for and opening a merchant account usually takes between 24 to 48 hours assuming that all of the necessary information is received and sent to underwriting. The process usually involves a simple 2 to 4 page application, a photocopy of a voided check for daily deposits and a photocopy of a drivers license from the applicant.

Personal credit is taken into consideration as an application is made with a financial institution. Social security number is almost always needed in order to become approved for a merchant account.

 

Maintenance and Everyday Use

Properly maintaining your merchant account is among the most important aspects of the entire process. While you should not be required to remember every aspect of the merchant account business it sometimes seems like you need to in order to decipher your monthly statements.

The quickest way to streamline the process is to simply calculate your effective rate as mentioned above. This will eliminate remembering and understanding the many different percentage rates and processing costs that will show up on your monthly statements.

When push comes to pull, you just need to know the overall cost of the merchant account and that’s what effective rate accomplishes for you.

 

Doing Business In Today’s World

Visa and Mastercard, along with American Express and Discover all play a big role in a dual marketplace where the merchant account providers and merchant business owners both provide benefits to each other.

Having a merchant account gives you the capability of accepting all major credit card brands that your customers already have, thanks to the influence of the banking industry. The only thing you need to do is set up a merchant account with the provider of your choice and you’re ready to start accepting payments.

In the end the cost of a merchant account will place your business in a dynamic and competitive marketplace empowering your business to accept payments from customers across the globe.

 

Brian Manning

Bancardsales founder and 15 year payment processing veteran, Brian Manning has helped thousands of businesses streamline their electronic payment systems. With a healthy disdain for things like terminal leases and "lowest rate" guarantees he regularly advises on best practices to anyone setting up merchant account related solutions. Brian's mission and passion is to help business owners use their merchant account simply as one tool in the big picture of growing their own business and creating an experience that is positive and meaningful for their customers.

Brian Manning

Bancardsales founder and 15 year payment processing veteran, Brian Manning has helped thousands of businesses streamline their electronic payment systems. With a healthy disdain for things like terminal leases and "lowest rate" guarantees he regularly advises on best practices to anyone setting up merchant account related solutions. Brian's mission and passion is to help business owners use their merchant account simply as one tool in the big picture of growing their own business and creating an experience that is positive and meaningful for their customers.

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