Need A Merchant Account?

If you were to search the web to find what exactly a merchant account is, you will get tons of information on it.

In its simplest form, a merchant account is an account that has been set up by someone wishing to conduct an online business and wants to provide a means by which prospective buyers can pay for products and or services. Let us assume that you wish to start an online business that sells -let's say flowers. You have your Warehouse already set up, and so too is your website. But what happens when a customer comes to your side and wishes to purchase a bouquet of flowers? You have it all worked out how the flowers will be shipped, but what about receiving payments for purchases made? Here is where the merchant account comes in. With such an account setup and in place, it is now possible for you to accept online payments from customers for the purchase of flowers from your website.

Now there are a number of different kinds that can be set up depending on the kind of business that you run. For instance, if you run a corner shop and want to accept card payments, you will require a point of sale (POS) type, where customers' debit and credit cards are swiped in order to effect the transaction. If on the other hand the type of business that you're an is not a physical corner shop, but rather an Internet based business, your transaction processing requirements will be very different from that of a corner shop. In this case since your customers may never make physical contact with you, you will require some means of capturing their debit or credit card information such that the transaction can be processed with of them having to physically swipe the cards. In this instance you will need a MOTO (Mail Order/Telephone Order) merchant account.

Now because in the case of web based business transactions, where the card holder is not physically present, the risk factor is higher and so too are the costs of such a merchant account when compared to the point of sale (POS) kind.

There are basically two types of E-commerce accounts. There is a third party account, thereby facilities are such as PayPal, E-gold, 2CheckOut and other similar facilities are used, and there is the true merchant account which are typically done through a bank or a merchant account service agent such as Charge.Com. Now you're volume of online transactions will determine which of these merchant accounts you should subscribe to. Since each of them will have a cost factor associated with it, at the end of the day, and since it is a business venture that you are running, you will want to justify all of your costs. Another factor you would want to consider in determining which type of processor is best suited for you, will be in reviewing what market segment you were dealing with, and what mechanism would more readily lend itself to that market segment. For example if you are running an ebay store, then the payment type more suited for this would most likely be PayPal. If on the other hand you own a department store that sells exclusive clothing, and you have an Internet presence for this store, then the most suitable payment mechanism will be the true merchant account.

One of the greatest advantages of the true account over the third party is that throughout the entire transaction the customer remains on your website, whereas if the transaction is processed through a third party payment processor such as 2CheckOut etc., the customer will actually be diverted away from your site. On the other side of things, it is much easier and faster to have a third party account setup. This is because they do not perform credit checks, and will accept most types of online businesses. You should however still double check the terms of use of the service provider to ensure that your particular business is in keeping with their policy. You will however have less control over charged backs and customer disputes with a third party account. Another disadvantage is that the third party processor's name appears on your customers' card statement. This, from a marketing standpoint, is not desirable. In addition to this and depending upon which a third party service you use, it may take some time to actually receives the deposited funds into your account.

For true merchant accounts, approval will in most instances, require a fall credit check on the applicant. This is necessary to ensure integrity and security in an already high risk environment. Unlike the third party account, the name of your business concern will appear on the statements of your customers. That way, if your customers wish to make future purchases from you, the name of your business will be there for them to see on their statements. Purchases do not have to be diverted away from your website in order to process payments. Additionally, proceeds from online transactions are normally deposited into your bank account within three business days.

All things being considered, both types of accounts have advantages as well as disadvantages. You will therefore have to closely examine them both to determine which is most suitable for your line of business.