As a business owner, you may want to start selling your products or services and begin accepting credit cards as a form of payment. Below is an outline of some basic information that can help you to better understand the world of payment, online payment, and processing.
This article will cover the following topics:
- What are Merchant Accounts?
- What are Merchant Account Fees?
- How do I get a Merchant Account?
- How does this work with online E-commerce?
- What are Payment Gateways?
What are Merchant Accounts?
Merchant accounts are set up through a credit processing company or bank to accept and process charge card orders. Without a merchant account, a company cannot accept payments from any of the major credit card companies.
What are Merchant Account Fees?
Merchant accounts have a variety of fees, some periodic while others charge on a per-item or percentage basis. Some fees are set by the merchant account provider, but the majority of the per-item and percentage fees are passed through the merchant account provider to the credit card issuing bank according to a schedule of rates called interchange fees.
These fees are typically set out by Visa and Mastercard. Interchange fees vary depending on the card type and the circumstances of the transaction. For example, cardholder present or not present; card swiped through terminal manually or not; or payment made online.
How do I get a Merchant Account?
Merchant accounts are obtained through a formal application process to an acquiring financial institution or the merchant services department of a bank.
Think of the merchant account as a form of credit. This means that your financial institution will access your credit to see if your company is worth the risk. Therefore, merchant account providers will usually require copies of financial statements. However, if you are a start-up, you will most certainly need an extensive business plan which outlines your sales venture.
How does this work with online e-commerce?
The merchant account, or internet merchant account, is only one part of the puzzle. You now know that without the merchant account, you don't have the authorization to accept credit cards at all. Once a business has its merchant account and it wishes to take online payments, they must use what is called a payment gateway.
What are Payment Gateways?
Payment Gateways are an online e-commerce service that authorizes payments for e-business and online retailers or service providers. It is the equivalent of a physical POS (point of sale) terminal located in most businesses.
The merchant account providers and the payment gateway are typically separate companies. Some merchant account providers have their own online payment gateways but the majority use 3rd party payment gateways.
Moneris, for example, can issue merchant accounts and has a product called e-Select Plus, which is its online payment gateway.
Payment Gateways usually consist of 2 components:
- Virtual terminal
- API for real-time processing
Virtual Terminal: allows the merchant account holder to log in securely, key in credit card information and make payments.
API (application programming interface): allows a software engineer to build complex e-commerce and shopping cart systems that connect to the gateway via the API to allow for real-time processing from the merchant's website.