The good news? You don’t have to wrestle with this alone. Providing a secure and seamless payment experience is crucial for building trust with your customers, and this is precisely what merchant accounts offer.
Merchant accounts are the secure bridge between your online store and the financial system, processing customer payments and depositing funds into your account.
In this guide, we’ll break down everything you need to know, giving you the confidence to choose the right merchant solution for your business and start accepting payments.
What is a merchant account?
When running an online business, you need to receive your payments. Merchant accounts facilitate your transactions.
A merchant account is a special bank account that allows your business to accept payments electronically, usually through card payments or other e-payment services. It acts as a middleman between your client payments and your bank account.
Different from your business bank account
Your regular business bank account handles everyday transactions and stores your funds. A merchant account, however, is built for payment processing. It holds onto money from your sales for a while to ensure the transaction is satisfactory before sending it to your main account.
With a merchant account, you can expand your payment options to include digital payments, such as e-wallet payments. Payment alternatives open your business to customers who prefer electronic payment convenience.
To understand merchant accounts, you need to understand those involved in merchant transactions. They include:
- You (the merchant): Your online business that sells products and receives payments through a merchant account.
- Payment gateway: They securely send transaction info between you and the payment processor. Think of it as a secure tunnel for your customer’s payment details.
- Merchant Service Provider (MSP): These guys manage your merchant account and process payments. They work with acquiring banks to make it all happen.
- Issuing bank: This is the bank that gives your customer their credit or debit card. They verify and approve transactions.
- Acquiring bank: This bank works with your MSP. It handles moving money from the issuing bank to your merchant account.
Why do online businesses need merchant accounts?
Merchant accounts provide transaction services vital for online businesses. Here’s why a merchant account is more than just a payment processing tool:
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- Open the door to more customers: With a merchant account, you can accept credit cards, debit cards, and even popular e-wallets, broadening your client reach.
- Build trust and boost sales: Offering many secure payment options shows customers you’re a legitimate business. That trust translates into higher conversion rates – more website visitors become paying customers.
- Keep your data safe: Merchant accounts include encryption and fraud detection to safeguard customer data and inspire brand trust.
- Streamline your operations: Merchant accounts ensure quick and reliable transactions, keeping customers happy and boosting repeat business.
- Go global (if you want to): Do you dream of selling internationally? Many merchant accounts offer multi-currency support, allowing you to accept payments in different currencies – expanding your reach to a global audience.
- Control of your finances: Detailed transaction records and reporting tools help you track sales, manage cash flow, and simplify accounting, giving you a clear financial picture.
- Handle disputes: Merchant accounts often offer support and mediation services to help resolve customer disputes efficiently.
Types of merchant accounts
Different merchant accounts serve companies based on their business type. Below are the merchant account options for online businesses.
Full-service merchant accounts
A full-service merchant account functions as an individualized payment processor. Each business has its own individual account, separate from others. Before accepting payments, you must go through a thorough underwriting process. Consider it a comprehensive financial background investigation. Once approved, you’ll receive a unique Merchant Identification Number (MID) that identifies your business to payment processing networks.
Aggregated accounts
If you want a faster way to start accepting payments, you might find an aggregated account appealing. These accounts, offered by payment service providers (PSPs) like Advanced Payment Solutions (APS), pool your transactions with other businesses. You skip the underwriting process, so you can start accepting payments fast.
High-risk merchant accounts
Industries like travel or gambling are considered more risky due to a greater chance of fraud or chargebacks. Businesses in these specific categories will need to have a high-risk merchant account. Be prepared for more guidelines, additional paperwork, and potentially higher costs.
Internet merchant accounts
Online sellers must have an online merchant account. These accounts cater specifically to e-commerce businesses, often providing faster setup and lower fees. As mobile shopping grows, ensure your merchant account supports mobile payments.
The merchant account application process
Acquiring a merchant account requires several steps. We break them down below:
- Collect essential paperwork such as business registration, financial statements, and any other relevant documentation.
- Explore different MSPs, comparing features, fees, and customer support.
- Choose an MSP that aligns with your business transactions(online, in-person, or both).
- Complete the merchant account application provided by your chosen MSP.
- Provide additional documents as requested by the MSP.
- Submit your documents for underwriting and approval.
- Review and sign the merchant account agreement if approved.
The entire process can take several days to a few weeks, depending on the MSP and business complexity. Given the complexities around acquiring a merchant account, is there an alternative that serves the same purpose?
An alternative to merchant accounts
Getting a merchant account can be a complex process. It often involves paperwork, underwriting, and contracts – not exactly a quick or easy path. But what if there was a more flexible way to accept payments?
Also known as third-party payment processors, Payment Service Providers (PSPs) are a popular choice for online businesses. Unlike traditional merchant accounts, PSPs often provide a straightforward, pay-as-you-go approach with predictable flat-rate pricing.
So, what makes PSPs different?
PSPs typically boast quick setup processes. They allow businesses to start accepting payments almost immediately, eliminating the lengthy application procedures often associated with merchant accounts.
Additionally, PSPs are more cost-effective, with lower fees than merchant accounts, making them a budget-friendly option. Many PSPs offer flexibility in payment options, accepting numerous payment methods, from credit cards to digital wallets. Unlike merchant accounts, PSPs rarely require long-term contracts, providing businesses with greater freedom and flexibility.
Choosing the right payment service provider for your merchant account (PSP)
Selecting the ideal merchant service provider (PSP) is critical for any business accepting payments. Your choice of PSP can significantly impact your profits, customer experience, and overall business payment efficiency.
So, what should you be looking for in a PSP? Let’s break it down.
Total fees for payment services
Fees are often the first thing businesses look at, and for good reason. PSPs charge different fees, like transaction, monthly, and chargeback fees. Don’t focus only on the headline rates, understand the complete cost structure.
Features provided by the PSP
Every business is different, so the features you need from an MSP will vary. Some key features to consider include:
- Payment processing methods (credit cards, debit cards, digital wallets)
- Fraud prevention tools
- Chargeback management
- Customer support options
- Integration capabilities with your existing systems
Customer support
When things go wrong (and they will), you need a reliable PSP with excellent customer support. Consider factors like availability, response times, and the quality of support provided.
Contract terms and termination fees
Be sure to read the fine print. Understand the length of the contract, any early termination fees, and the terms for changing your plan.
Reputation and experience
Look for a PSP with a solid reputation in the industry and a proven track record of working with businesses like yours. Check online reviews and testimonials to get a sense of their customer satisfaction.
Integration capabilities
Your PSP should easily integrate with your existing business software, such as your point-of-sale system, accounting software, and ecommerce platform.
You can find information on PSPs from industry reports, online reviews, credible blogs, and recommendations from other businesses. Remember, choosing the ideal PSP is an investment in your business. Take the time to carefully evaluate your options and select a provider that meets your specific needs.
Beyond the payment basics
Alternative payment methods have become a crucial aspect of modern commerce, providing solutions in regions where traditional banking infrastructure might be less developed. These options offer customers greater flexibility and convenience, potentially expanding your customer base.
E-wallets (Digital wallets) – They store payment information for various methods and websites, allowing swift checkouts without re-entering card details each time.
Local payment solutions – Countries like the Philippines have embraced local payment systems. Maya, for instance, supports peer-to-peer transactions, bill payments, and insurance on online purchases, among other financial services.
Mobile wallets – In markets like Kenya, mobile wallets like M-Pesa have changed how the locals handle money. Customers can deposit, send, and receive funds directly from their phones, making it a preferred payment method for many.
When selecting a PSP account, consider those that support alternative or local payment methods, especially if your business is growing internationally. Covering these payment types allows your business to access markets in high-growth regions such as APAC and MENA.
The verdict on merchant accounts
A merchant account is essential for thriving in the digital economy. By providing secure and efficient payment processing, merchant accounts empower businesses to expand their customer base, boost sales, and improve cash flow. However, the complexities involved in setting up and managing a merchant account, coupled with stringent requirements, can be daunting, especially for small businesses or those just starting out.
PSPs or payment gateways emerge as viable merchant solutions. These platforms offer a streamlined solution for accepting payments online, often with quicker setup times, lower fees, and less stringent requirements than traditional merchant accounts. They provide the essential tools for businesses to process payments securely and efficiently without the overhead of managing a full-fledged merchant account.
By understanding the fundamentals of merchant accounts and the available alternatives, businesses can make informed decisions to optimize their payment processing capabilities and drive growth.
FAQs
What is a merchant account?
A merchant account is a bank account that enables businesses to process electronic payments. Acting as a bridge, it connects a customer’s card to the business’s bank account, enabling seamless electronic transactions.
What is a merchant in online business?
Merchant accounts provide numerous advantages, including a boost in sales, smoother cash flow, added customer convenience, and protection against fraud. Businesses that accept card payments can expand their customer base, accelerate their cash flow, offer customers more convenient payment options, and safeguard against fraudulent transactions.
How do you get a merchant account?
Acquiring a merchant account involves several steps.
First, gather essential paperwork like business registration and financial statements. Then, research and compare different Merchant Service Providers (MSPs) considering their features, fees, and customer support.
Choose an MSP that aligns with your business transactions, whether online, in-person, or both. Complete their merchant account application, providing any additional documents they require. Submit your application for underwriting and approval. Once approved, review and sign the merchant account agreement.
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