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Merchant account

Merchant account – is a special account that is made for receiving payments for goods and services through a credit card.

Types of merchant account

Merchant accounts are divided on two types, depending on method of scanning the information from credit card while making a payment.

1. Card present – a method that involves the physical presence of a plastic card at the seller. In this case the owner’s signature on a plastic card is necessary – signature-based (seller can verify the signature on check with one that is on the card), or a retail merchant account. Payment is being done by scanning the information from magnetic stripe or micro-chip by terminal. Every day you can see them in modern stores, malls, service salons and cabs. Costumers can easily and conveniently pay for goods and services by plastic cards.

2. Card not present or non-signature-based – allows paying for goods and services without physical presence of the plastic card. This method is very popular while shopping over the Internet (costumer fills in an on-line form) or while shopping through the phone (the given information is been filled by operator).

By accepting payments through plastic cards you can easily lead your business and income to tremendous growth. This is an easy and convenient way to increase sells.

Without merchant account you are limited in selling goods and services either in real life or through the Internet, so your company cannot be competitive.

Bank fees for payment operations depend on the chosen method of merchant account. Without card involved fees would be higher, because those payments are more exposed to fraud then those that are made with the physical presence of a plastic card.
How does a merchant account work.

A special number – Merchant ID or Merchant Identification – is assigned to your current account by a bank or an electronic payment service company.

This ID allows to identify your company worldwide as far as it figurate in every payment, that are been made at your web-page by a plastic card. Merchant ID helps to automatically send money to company bank account after an electronic payment has been done.
Bank or a payment processor carefully examines the company and the owner’s data, and depending on a result, decision about credit limit is made, specifically a monthly transaction limit on Visa, MasterCard and other cards is established.

Simultaneously with launching a merchant account, often the opening of a corporate bank account is required. It is necessary for receiving money from account by a merchant. With that, the bank account can be opened in one bank, and merchant account - in another.

Terms of opening a merchant account

The bank or a specialized payment processor engages the opening of bank accounts for card payments. While reviewing an application for a merchant account opening, financial institutions consider the following factors:

• credit history of your company and / or your credit history;

• the expected volume of sales;

• the average check;

• the type of goods or services that you offer.

Difficulties in opening a merchant account may occur when company offers products or services from the high-risk categories, such as online gambling, pornographic websites, pharmaceuticals, alcohol and tobacco products, prepaid phone cards, tourism service sector and others. Intentional concealment or distortion of the proposed products or services nature while applying will lead to immediate invalidation of a merchant account.

What is required for opening a merchant account?

In order to open a merchant account the following data and documents must be provided:

• a corporate bank account;

• corporate documents - a company incorporation certificate, license for operating activities, statute, incorporation deed, etc.;

• corporate website;

• information about the company's refund policy;

• the segment organization or bank recommendations;

• a copy of identification document.

Providing these documents is necessary for identification the person of the applicant and verification the legality of its business.

The costs for opening and servicing a merchant account

The cost of opening and servicing merchant account depends on the provided information (listed above).

The current fees (approximately):

• A one-time fee for processing the application and documents for a merchant account opening (often referred to as the registration fee) - depends on the receiving bank terms and varies within $ 200-700.

• Discount rate - the rate of total sales you pay to the payment processing bank varies within 2.5-7%. This rate is determined by the order of indicators, such as the maximum price per unit, the planned monthly amount of total sales, assessment of possibility for the payment returns demands, etc. With a large turnover, change in discount rate has a great impact on the company's costs.

• Fees are $ 0.1-1 per transaction charged by a bank or a payment processor that provides merchant account. Some banks do not charge a commission per transaction, hiding it in the discount rate to create a more attractive and competitive conditions. Therefore, make a careful research in order to compare the costs of different providers.

• Fee for preparing the report - includes the costs of making reports about the account state. Its size is insignificant and equals $ 10 or less, some banks or payment processors do not charge this fee at all.

• The monthly minimal fee - charged by some banks and payment processors in case of no exceeding the minimum size of the discount rate and the fee for the operation by your company.

• Chargeback - charged when customer demands a refund to a credit or debit card. The fee is $ 10-25 per return. A large number of complaints about refunds leads to loss of the merchant account owner status.

How to avoid chargebacks?

Chargeback – is a fee for a refund. Because of online fraud it is almost impossible to completely eliminate chargebacks. But by following the recommendations for a specific sphere of your company activity, you can reduce the number of chargebacks to a minimum. For example, provide an obligatory receipt for an address delivery – this will serve as a proof of delivering and receiving goods and will protect your business from fraudulent actions of dishonest individuals.

Rolling reserve

Whenever a bank or a payment processor suspects an exceeding the level of established risk by a company, but it has not been exceeded, and you cannot be refused in servicing, you will be required to open the reserve account. The purpose of opening this account - is transferring a certain percentage of sales in order to create a fund that merchant account provider can use in the case of a large number of refunds or stop the company activity completely. So, they can request a 10% of the planned sales for 6 months. However, unlike chargebacks, Rolling reserve can be significantly reduced (up to 5-3%) and in some cases even completely eliminated. In case of the complete elimination the company should have a business plan for the next five years, company should been working for over a year and also cooperating with other processing centers at least for last 6-12 months is required.

What we offer

During our work we have launched more than 100 merchant accounts for companies with various types of activity including high risk.

See also a related theme articles:

Opening a Merchant Account

Merchant account for high risk businesses

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