If you’ve recently started a small business and would like to take your services – and profits – to the next level, a great way to increase convenience, and therefore customers, is by starting a account.
An account is a special type of account for businesses that lets you process credit cards for payments. While most consumers take the use of credit and debit cards for granted, the processes involved are actually very complicated. Additionally, the application process alone for establishing a account is rather lengthy and detailed.
If you’re new to merchant accounts and the different ways in which a business can charge credit cards, it’s a good idea to get the basics under your belt before applying for one. There are many different providers of merchant services available to business owners and many options to weigh before finally establishing your account as well. Take a few moments to learn the ins and outs of merchant accounts with this quick crash course.
There are two kinds of providers able to offer merchant accounts and their services to businesses: independent sales organizations, or ISOs, and merchant banks. Each have their special perks and drawbacks.
Merchant Banks – This type of bank differs from normal investment banks in that their main operating objective is to turn profits by making investments of their own capital. They often provide loans for small businesses in addition to offering other banking services for businesses.
ISOs – Independent sales organizations are licensed third party brokers who exist specifically to handle credit card processing. These companies act as a middleman between businesses and banks, but come with a few very practical extras. ISOs typically offer an array of services dealing with credit card processing including customer service, equipment sales and leasing, settlement management and more.
Before establishing a contract between a merchant bank or ISO, it’s important that you do your homework. Legitimate ISOs should be able to prove sponsorship by and certification from an FDIC certified parent bank. Be sure your ISO has disclosed evidence of its official affiliation with a reputable and insured bank before signing any agreements.
Types of Payment Processing
There a three basic ways of processing credit cards. When you set up your merchant account, you can choose one or a combination of methods to best suit your business. Each method, however, comes with its own abilities, limitations and fees.
Retail Merchant Accounts
Retail merchant accounts offer the most familiar way of processing credit cards. They are best suited to businesses with a storefront or other physical point of sale, such as restaurants, grocery stores or hotels. This type of account requires obtaining a credit card terminal that reads and processes swiped credit cards nearly instantly via an internet connection. Terminals are usually offered for sale or lease by your ISO.
This type of merchant account comes merchant services agent program with the cheapest fees of the three since it is considered the most secure. ISOs typically charge a processing fee of around 1.79% of the total of each credit card transaction. Retail merchant accounts require that at least 80% of credit card transactions are processed with the card holder present.
Mail Order – Telephone Order Accounts
Mail order – telephone order accounts, also known as MOTO accounts, are an excellent option for businesses that process credit cards via phone or mail order form. They also make sense for businesses that do a blend of in person and remote credit card transactions. With this type of account, business owners or employees must submit credit card information manually to the ISO via telephone or the web.
Because the potential for human error and intentional credit card fraud is much higher for MOTO accounts than other types, they typically charge the highest fees per transaction. MOTO accounts are also at a disadvantage to other types since the customer is usually not present if the card is declined.
Internet Merchant Account
Perhaps the most versatile type of credit card processing available to businesses without a storefront is done through an internet merchant account. For most smaller businesses, internet merchant accounts provide a third party payment gateway where potential buyers are directed when ready to make payments. These gateways offer secure servers where customers enter billing and shipping information.
Most internet merchant account providers offer a “shopping cart” style function that allows consumers to browse items, easily select products they wish to purchase and pay in a few simple steps. This type of account charges fees slightly higher than retail merchant accounts – around 2.3% of each purchase per transaction.