Merchant Account

“When Western Union first gave charge cards to their best customers in 1914, no one would have guessed that over $2 trillion would be charged in 2003.”

“Credit cards have become the preferred method of payment in today’s market - making a merchant account essential for any business.”

Do you know what “merchant account” term refers to?
Well, I did a little bit of searching over the Internet and I thought it would be a good thing to share with you the results.

Definition
Merchant account: “An agreement between a credit card processor and a seller that establishes the rules for accepting credit card purchases and transferring funds.”

Credit Card Processor So, a merchant account allows a business to accept different types of payment cards. This is also widely known as payment processing or credit card processing. Merchants, or business owners who want to receive credit card payment for their goods or services, must apply for a merchant account typically through a merchant bank or MSP (Merchant Service Provider).

Types of credit card processors
There are several types of companies you can turn to for credit card processors: Bank, Third Party Merchant Account, Independent Sales Organization, Financial Service Provider, Association.

Rates and fees
Most of the fees are charged on a per-item or percentage basis. There are also some fees which are charged on a monthly basis. All of the monthly fees are at the discretion of the merchant account provider, but the majority of the per-item and percentage fees are passed through the merchant account provider to the issuing bank according to a schedule of rates called Interchange fees, which are set by Visa and Mastercard.

Each transaction is categorized into an “interchange” category depending on the circumstances of the transaction and the kind of card that was used for it. Merchant account providers usually group the 130 categories into 3 or 6 major categories and apply a single rate to that entire group. They base that rate on the average interchange rate that they expect for that category plus a markup for themselves.

Interchange Based Fees: Qualified rate, Mid-qualified rate, Non-qualified rate.
Other Fees: Authorization fee, Statement fee, Monthly minimum fee, Batch fee, Chargeback fee.

Alternative?!
It is possible to accept credit cards over the Internet without establishing your own merchant account. Third party merchants like PayPal or cc:Bill can accept credit cards on your behalf, without requiring a credit check, but have several serious disadvantages for businesses – like regularly scheduled payments and high rates. You should consider them only if you process a low number of transactions per month.

Hope it helps!