Merchant Accounts: Basics, Pricing, and Bank Consideration

In today’s tech-savvy world, nobody carries wallets or purses full of money or cash. These days most people use debit cards or credit cards as a form of payment. In addition, if your business org. or company doesn’t accept debit or credit payments, then it can happen that you can lose your potential customers too. Accepting card payments is important, but businesses cannot accept these payments on their own. To accept the payments they need a merchant account for the same. The merchant account acts as an intermediary between the customer’s bank account and your business bank account.

Merchant Accounts – 

A merchant account can be said like a business bank account that permits the businesses for payment processing in an electronic form, through debit or credit card. In simple words, the merchant account acts as a mediatrix between the swiping of the card and the deposit of the money into your business accounts. One of the best things that you will know about the merchant accounts is that, the business org. can receive the money for transactions instantly, instead of waiting for the customer to pay the bills or the credits.

Basics of Merchant Accounts – 

Whenever a customer will swipe their debit card or the credit card to pay for a transaction, the credit card processing or the debit card processing will automatically, send the transaction information in your account i.e. merchant account. Then, with the customer’s card issuers, the merchant account provider will affirm the sufficient funds. Once the funds are affirmed, there will be a deduction of the funds from the customer’s card or account. Some of the basics of the merchant account are as follows – At the payment terminal, the customer swipes the debit or credit card. Your merchant account provider will forward the details of the customer’s card issuer, and then the card issuer will accept or decline the transaction and send back the data to the payment terminal. Transaction if accepted gets completed and the funds transfer from the customer’s bank to your bank account.

What the banks consider – 

In order to open a merchant account, the businesspersons should apply and should be approved by the merchant acquiring bank. One of the most important things, that the merchant acquiring banks check or considers is, how long the business has been established, if there is any history of bankruptcy, issues related to the credit in the past, previous merchant accounts if any, etc. They will also analyze if your business is susceptible to fraud of credit cards or other types of fraud. If your business is at high risk, then the banks will set high transaction fees to deal with future risks.

Pricing Structure and Initial Fee – 

The fees that are connected with the merchant accounts differ by provider. So, it is important that you read carefully the merchant account agreement to know exactly what fees your business is paying. There are mainly 3 types of pricing structures that the bank or the vendors use. The first is the flat rate pricing structure, interchange plus pricing structure, tiered pricing structure. Apart from that, the set-up fee is the first fee that you are supposed to pay to the merchant acquiring banks for setting up the merchant accounts.