Merchant Account Pricing

A merchant account is a special account utilized by the merchant to route to and hold for transfer to the business bank account of the merchant, monies received from the processing of the customers’ credit cards, debit cards, or prepaid cards. In ecommerce transactions, this transfer process is often fully automated. In order to process card transactions, the business must establish an account with a Merchant Service Provider or a merchant bank.

Commerce is dependent upon the use of merchant accounts since most transactions, especially in ecommerce, require the use of a credit, debit or cash card.

The merchant initiates the merchant account transaction using any of several entry methods to process the customer’s card. The business can use a payment gateway, an automated response unit, or a point of sale terminal. A payment gateway is required when the business is an online retailer or ecommerce merchant. The card information is keyed into the computer account which acts the same as a point-of-sale terminal except the card cannot be swiped. An automated response unit is also similar to a point of sale terminal except the connection with the authorization center is either a land-based or cellular telephone. The customer’s credit card is imprinted while at the same time the information from the card is sent to the authorization center. The point of sale terminal is equipment which allows for the card to be swiped or keyed, along with necessary information for security purposes to allow the charge to be authorized. Point of sale terminals are usually acquired at the same time as the merchant account and are a separate agreement to purchase, rent, lease or receive free of charge in return for contractual term obligations.

Following authorization, either in real time, or on a regular basis, usually daily, the transaction details are batched and transmitted to the merchant account bank. This is generally an automated process. The merchant account bank in turn batches transactions and sends them electronically to customer’s issuing banks where the customer’s credit card account is actually debited.

Merchant accounts have essentially been developed along with the growth of credit cards. Rather than each card issuing bank being required to process transactions individually and completely, the clearing of transactions is centralized at the Merchant Service Provider or merchant bank.

Ecommerce merchants provide secure websites where the credit card information can be processed if the customer uses a shopping cart system on the merchant’s web site. Alternatively, the merchant can key in the information directly to the merchant account website using the card number, expiration date and billing address. The authorization of the cards through the merchant site can be set at varying levels of confirmation, depending on Merchant Service Provider guidelines or policy and merchant decisions.

It seems obvious that a merchant account is a sensible option for handling customer transactions, whether in a retail store or ecommerce application. The business with a merchant account will undoubtedly receive additional sales that would not have occurred with a cash only business.