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• Can you explain what a merchant account is and why I need one?
• Are there other options I can consider?
• Do I really need to accept credit cards?
• How do I get the money from a credit card sale?
• Can I go to a bank to get my merchant account?
• How do I find the right merchant service provider for my business?
• What do I need to open a merchant account and get set up to take credit cards?
• What makes a business risky to the processor?
• I am starting to understand how all this works but I am going to open an online Internet store
• Will I also be able to accept checks payments on my web site?
• While I now understand the components involved with online credit card payment processing, how do I actually implement this on my web site?

Can you explain what a merchant account is and why I need one?

That is a great first question and a great place to start. A merchant account is a specialized account that allows a business to process credit card sales and have those funds deposited directly into a Merchants local business checking account usually within 48-72 hours.

A Merchant Account is set up with a bank that is a registered to offer credit card processing through Visa and MasterCard. Merchant Banks usually contract with a Merchant Service Provider (MSP) or an Independent Sales Organization (ISO) to market services on behalf of the Bank. You can also sign up directly with a Bank but this is not usually the best route to take since most banks have tougher requirements to get qualified for a Merchant Account. You will be charged a fee for this service called a discount rate. Rates vary depending on the type of business you have.

Are there other options I can consider?

There are 3rd Party Services that will process Credit Card Transactions on your behalf, however, I would advise against going one of these routes. Problems with 3rd Party Transaction Processors include higher discount rates sometimes as high as 15-20% of your sales prices. Typically you only get access to your funds twice or three times a month, thus hampering your cash flow. Also, many customers dispute items processed through 3rd Parties because they do not recognize the company name on their credit card statement when the bill arrives 30 days later. This can end up costing you a significant portion of your revenue. If you get your own merchant account, you can expect to receive your funds between 2-3 days from the time of the transaction directly deposited to your local business checking account and your Company Name and Phone Number will be printed on your customers Credit Card Bills. I strongly suggest setting up your own merchant account so that you can control your money and not rely on a 3rd Party.

Do I really need to accept credit cards?

YES, in today's market I do not know too many successful businesses that do not accept credit cards. There have been numerous studies showing if a merchant accepts credit cards as a form of payment that the merchant can increase sales dramatically. Depending on the type of business, increases in sales can be anywhere from 15% to 100%.

Internet businesses have the largest increase because customers want to pay immediately and not have to call or wait for the merchant to contact them.

Some obvious reasons to accept credit cards are merchants will move more expensive merchandise, have an increase in impulse buying, and give your business credibility. Giving customers the ability to pay with a credit card allows impulse buying that will allow a merchant to move merchandise that a customer's may not have funds available in their checking account. If you want to give your business every chance to be a great success, you must take credit cards. Here are some more good reasons to take credit cards:

How do I get the money from a credit card sale?

Another good question and here is how it works. When you, the merchant, want to accept a credit card for payment, the following process occurs (this is a brief summary):

You submit a Transaction to your processor using your electronic terminal or Online Processing Software. Either option works almost the same way. The terminal or Online Processing Software communicates with the Visa/MasterCard Authorization to ensure that the Credit Card is valid and that the transaction amount does not exceed the cardholder's credit limit. The authorization puts a "hold" for the transaction amount on the cardholder's credit limit. That way, the funds are available to you when you complete the transaction. To complete the transaction you will simply close your batch at the end of the day with your terminal. By doing this, you are promising the merchant account provider, sponsoring bank, and issuing bank that you are prepared to deliver the goods and services expected by the cardholder.

With Online Software, you usually do not need to close your batch as transactions are processed Real Time. From the time you close your batch, funds are directly deposited into your bank account. This process usually takes 48-72 Hours.

Can I go to a bank to get my merchant account?

Yes, you can but banks have tougher requirements for approval and do not generally like new businesses. I suggest obtaining a merchant account with a company that specializes in offering merchant services. These organizations, known as Merchant Service Providers (MSP), specialize in providing merchant accounts for new businesses. MSP's usually have less stringent approval requirements, lower fees, better understanding of risk issues and customer service departments that only handle inquiries about merchant accounts. You will probably not deal directly with a Merchant Service Provider, but rather an ISO that contracts with a MSP. These independent sales organizations specialize in marketing to new businesses soliciting merchant accounts. The ISO's focus is selling you a terminal or software that will allow you to process credit card sales. The MSP also compensates ISO's but the focus of the ISO is usually selling equipment or Software. There are many reputable ISO's in the bankcard industry but a few bad apples. I will explain how to choose the right MSP and ISO shortly.

Risk is the main concern of any bank or merchant service provider. Banks are more conservative and are highly regulated which gives the MSP and ISO an edge. Internet, mail, telephone or any business that does not see the credit card usually must use a MSP or ISO because banks will usually not approve these types of businesses. In addition, many MSP's and ISO's offer a number of associated services, especially to online businesses, such as shopping cart capabilities and website design.

How do I find the right merchant service provider for my business?

Remember I said ISO's were the marketing arm for merchant account providers. Well, they will find you. You only need to ask the right questions to ensure the merchant service provider fits your business needs.

Now here is where most problems start that could adversely effect your business. ISO's employ sales people to sell their service and like all sales people make their living from making a sale to earn a commission. Most have no interest in your success and do not receive any additional money from the ISO. The industry is competitive and sales people will sometimes not identify fees, risk issues, and other important issues that can affect your ability to accept credit cards. I will not identify specific instances that I have witnessed and please do not think all ISO's or sales people use deceitful tactics but it is worth saying to convince you to read and understand any contracts you sign and understand how the process works because ultimately you are responsible for your business. Therefore, all these ISO's are trying to promote their service as the best including the lowest price on terminals, the lowest discount rate and the BEST service.

It is easy to get distracted in this whirlwind of who has the lowest price and the "best deal" and base your decision on cost alone. One problem with using the lowest cost as your deciding factor to determine who you choose to be your merchant account provider is and process your credit card transactions is that processor is also handling your money. That is right, your money. Price is important but should not be the only factor when choosing a credit card processor. Credit card processors are not all the same.

Processors may take all types of businesses but specialize in one specific field. For example, there are processors who specialize in Internet businesses while other have better expertise in retail businesses. Of course, you want to work with a processor who specializes in your type of business and will provide you the best service. Here are some good points to remember in choosing a merchant account provider.

Understand fraud and security issues. Your processor has material on these two issues. This will save you money, guaranteed. Although very important, do not be too critical in evaluating processors. You will know which one is right based on your instinct and what feels right. Aside from logic, your intuition - that voice within you - may just lead you to the right vendor.

What does my business need to open a merchant account and get set up to take credit cards?

The only requirements to open a merchant account are the following unless your business falls into a high-risk category. I will explain high risk in a moment but here are the basic requirements to have a merchant application approved. A. Business checking account B. A web site or physical location C. No open bankruptcy D. A product or service that is not on a restricted merchant list Many processors will work with you if you are willing to submit to special conditions if you have less than perfect credit or a risky type of business.

What makes a business risky to the processor?

There are a few reasons why a processor would consider a business risky and possibly decline the application. I have listed reasons below that would lead a MSP to consider a business high risk.

High monthly sales volume - Merchants who process large ticket items (those over $500) and/or have a High Monthly Sales Volume (usually over 25K per month) pose a special problem to merchant service providers and to the merchants themselves. Merchants that fall into this category need to be aware that Merchant Service Providers will be more thorough on reviewing Merchant Applications because of the high potential for Fraud and potential losses. They usually ask for more documentation up front including copies of Tax Returns and Financial Statements. This additional documentation helps legitimize your business.

Derogatory credit - In the not too distant past, it was virtually impossible for a person with a poor credit history - or no credit history at all - to receive a merchant account. Heavily regulated banks are subject to strict controls over their activities; rarely saw fit to grant merchant accounts to those without a sterling credit history. Today, it is much easier to find a company willing to give a Merchant Account to a Merchant with a poor personal credit history or even no credit history. The requirements and terms of service may vary a little from ISO to ISO. If you fall into this category, expect to pay a slightly higher Discount Rate and be prepared for Reserve Account.

Type of business - Each merchant service provider restricts certain types of business that they have had problems with in the past. There are too many types to list here but your ISO will know if your business is restricted. Some types of businesses that may be on a MSP's list are adult related businesses, international merchants, higher ticket items that are not sold in a retail environment, business opportunities, credit repair and multi-level organizations. MSP's consider these types of business risky due to the high possibility of chargebacks. There are some MSP's specialize in higher risk accounts but will charge higher rates, require a reserve and or delay fund deposits for 2-3 additional days.

I am starting to understand how all this works but I am going to open an online Internet store

Online stores are extremely popular these days. Merchants can continue to work at their day job and work on their online store in the evenings. This allows merchants to ensure their store is a success before quitting their jobs. There are a couple of ways to accomplish this but perhaps the most efficient, convenient way - and, depending on the circumstance, the most cost-effective - is to use real-time processing via a gateway. This process entails your customer inputting his/her credit card information on a secure (SSL-encrypted) site, and in real-time. The MSP receives this information from the gateway. Just as cars use a tunnel to get from one place to another, the gateway serves as that tunnel to transmit information from the customer to the credit card processor. At first, within seconds of the customer submitting his/her credit card information, the acquiring processor either authorizes the transaction or declines it. Receiving an authorization code only reduces the credit limit of the card but there is not a charge to the card. Subsequently, the approved customer's information becomes "captured" resulting in the customer's credit card being charged for the authorized amount. This capture becomes part of the merchant's batch, and travels trough the gateway again. The acquiring processor then knows to finalize and settle the transaction. Settlement takes place as funds resulting in a credit to your checking account.

Will I also be able to accept check payments on my web site?

Yes, make sure that the merchant service provider knows your interest to offer this important payment option to your customers, and can accommodate this service. On the web page order form, you can have one section where the customer may put in his/her credit card information and another section where the customer may put in the check information required (e.g., routing number, account number, etc.). The merchant service provider can tell you all the checking information that is necessary to collect from your customers. The checking information goes through the payment gateway just like the credit card information travels.

While I now understand the components involved with online credit card payment processing, how do I actually implement this on my web site?

If you have designed your website, you can easily add another page called the "Order Form". If you rely on the expertise of your web designer, the designer can do this in fifteen minutes or less, unless you need special customization that may entail more time. However, an order form is relatively simple to add. Remember, you still must have a secure server with certification, a gateway, and a merchant account. The shopping cart software is optional (though highly recommended) and can be integrated into your website by you or your designer with the instructions provided by the shopping cart provider.

Here is the good news, by choosing the "right" merchant service provider; you can have access to its secure server and its gateway. There are merchant service providers who have their own secure server, their own gateway and their own shopping cart, and do not rely on other companies to fill those needs. In other words, you can find a "one-stop shop" solution. It is essential that you ask any merchant service provider if they have their own gateway or outsource it to another company. If they depend on another company for the gateway, you will be dealing with at least two organizations (i.e., the merchant service provider and gateway company), and they must work together.

Horror stories abound about the lack of coordination between service companies, leading to lots of headaches, heartaches, and possibly, financial woes for you. Use one merchant service provider that provides all the essentials.