What do you know about merchant accounts? I mean other than the obvious of course. We all know that a merchant account is a legal agreement between a merchant and a processor. It comes in the form of a special bank account which allows you to accept and process financial transactions made by your customers with the use of debit or credit cards. You also use it to pay for your account fees and any other transaction charges which may occur. Still, there are a few more details you’ll need to understand if you’re about to start accepting payments for your business whether you were operating online or offline. So here are the things you probably didn’t know about merchant accounts but should:
Top Five Things You Should Know About Merchant Accounts
1- Merchant accounts can be created at any bank: Most banks would welcome you with open arms. After all, they’re making money every time you process a transaction. They might even help you find a suitable payment gateway. Keep in mind that you’ll need to link this account to your regular business account. As you cannot store your money there and should transfer them to your business account on a weekly basis. Setting up merchant accounts might take 2-3 days. Yet, large banks may need up to three weeks, especially if you’re starting a new business, so prepare yourself for the longer wait.
2- Merchant accounts are not that easy to acquire: Not all types of business are eligible to have a merchant account. Having risky products, services or even bad overall business history could keep you from getting the approval. Bad credit is the most common reason for a denial. That’s why your acquiring bank will put you through a credit risk assessment. In order to test if your business is suitable and ready to accept online payments before you get your merchant account. New companies are still a much higher risk than an established company looking to change providers. So you might face some issues if you’re starting a new business. In addition, some business types could raise a red flag and be rejected. Like online gambling, auction websites, recurring billing products, gym memberships, nutritional supplements, immoral websites, etc…
3- Merchant accounts require a valid agreement (contract): Before acquiring your merchant account you’ll need to agree with your provider on certain issues. Like the period of time in which your contract will be valid. Or what will happen in case you decided to have an early termination and sign up with a different merchant accounts provider? Along with other issues. This should be in a detailed and binding contract, signed by both parties.
4- Merchant accounts don’t all provide the same level of service: Small business processors don’t provide a full-service merchant account. You will be able to process credit card transactions but might not get certain features like PCI compliance services and others. For a small and new business, you can survive without a full-service merchant account. But, after your business grows, you’ll need a more stable service provider with full features and security.
5- Merchant accounts don’t come cheap: Merchant accounts are subject to varying fees determined by their provider. These fees can be billed monthly or annually depending on their types, so you need to be prepared.
The Most Common Charges Associated With Merchant Accounts
– Account setup (Application fees): Some merchant account providers will take a huge chunk of your money for setting up your account. Even though it’s a one-time thing and it only takes a few minutes.
– Account fees: Required to maintain your account. They cover all the things your account provider isn’t charging you for directly.
– The Authorization fee: Charged each time a transaction occurs. The fee applies even if the request was not approved.
– Discount (Processing) rates: A percentage of each sale, based on the type and size of business. Charged only with successful transactions.
– Payment Card Industry Data Security Standard (PCI DSS) compliance fee: A reasonable cost for security standards that protect your business from fraud and your customers’ data from hacking.
– Monthly minimums: Charged only if you fail to meet the processing charges specified per month. Usually, you only pay the difference between your actual processing charges and the amount specified as the monthly minimum.
– Chargebacks: Charged any time your processor has to reverse a charge and issue a credit. Chargebacks can occur due to returned items or technical errors.
– Statement fees: A monthly fee of a statement that the provider sends to the merchant at the end of each month. The report shows all business processes during the month and their resulted fees.
– Early termination fees: An expensive penalty. Charged only if you decided to end your contract earlier than agreed.
To Sum Up…
Having a merchant account is crucial for both online and physical stores. In fact, if you want to operate any kind of business and accept debit or credit cards, you must open a merchant account first. That’s why selecting the best possible merchant accounts provider is a critically important decision. It could have a serious impact on your business. Make sure to choose the provider with the best overall service rather than the one with the lowest processing rates. Learn more about online payment in this article: Simplifying Online Payment With HyperPay