Internet Merchant Accounts Tutorial

What is a merchant account?

An account set up with a financial institution, and that allows you to accept a credit card payment directly from your client is merchant account.
A Merchant Account involves a special type of arrangement with a bank or clearing house that allows you to accept credit card payments into a special bank account (your "Merchant Account"). The results of any credit card transactions passed through your online authorization company are then, credited to your account if the transaction is approved. 
Having a Merchant Account is the most cost effective way of accepting payment by credit card. Once you have a merchant account (and a company who will authorize the payments online), you will be able to accept credit card numbers on your site, and then receive any payments due to you.

How does it work?

Getting the money from your customers credit card and into your account involves several stages. The first is actually approving the sale and taking the customer's credit card details on your Web site. Next, the card has to be verified and approved, to check that it's not been stolen, or has expired.

After the card has passed rigorous security checks, your merchant account provider then passes the details to their credit card processor who debit the customer's credit card and deposit the money into your merchant account.

How an e-commerce site works

To establish what needs to be done before applying for your merchant account, let's run through a sample e-commerce site. Your customer arrives at your site, and is invited to browse a database of items. Product descriptions, pictures , and prices are all displayed to the customer by the database driven e-commerce software. They pick and choose from a variety of products and these are placed into their 'shopping basket'.

Now the user clicks on the Checkout button. Having decided to purchase their chosen items, the user fills out a delivery and payment form, handing over their credit card details, address, and other relevant information. Where do things go from here?

This is the point where different systems/methods can be used. If you're using an online authorization company who provides a secure server for your orders to be sent to, then once the user submits their payment details, it will go to the processors secure Web site, they will pass through the instruction to debit the card, and e-mail you the rest of the details (delivery address, product choices, etc.).

On the other hand, if you run your own secure server, the details will be sent to your own server. Then, depending on the setup, forwarded onto your credit card processor via programs installed on your server, or stored on the server for you to send, or process, manually.

Most Merchant Account Providers can provide you with equipment and software to allow you to process all credit card orders yourself, saving you from paying an online credit card processor to do it. However, this means you will have to provide the secure server for accepting the credit card information, and then you'll have to take each order and run it through your software or credit card terminal. Using an online credit card processor simplifies matters by sending the details straight to them, and they process the orders automatically.

After Processing
After the card has been processed by yourself, or your online authorization company, the customer's card will be debited, and your Merchant Account credited within usually a couple of days. The Merchant Account Provider will also take a commission per transaction.

Once you have the details of the order, the products selected and the delivery address, you must take action straight away and e-mail your customer a digital invoice, or at least a confirmation of the order. Many e-commerce software packages will deal with this for you, so there shouldn't be a need to worry.

Linking your Credit Card Processor with your Merchant Account
If you opt to use an online credit card processor in conjunction with your e-commerce software, you will need to supply the credit card processor with details to link transactions to your merchant account. When you get a merchant account, you will be provided with a e-commerce merchant account number, which you can supply to the credit card processor. When a transaction comes through on your account, it merely delivers the money (minus commission) to the specified merchant account.

Establishing a merchant account at your site
You will need to accept credit cards at your Web Site if you do not want to lose 70% and more of your sales. Internet is an impulse buying so do not expect anyone to call you on the phone and order your products/services that's extra work. They might not even get you on the phone, they would have to leave a message. Do not expect anyone to send you a check after all they don't even know you and nothing can guarantee them that you will ship the merchandise after they've sent a check. 
You will need to choose:

• Payment Gateway (LinkPoint, AuthorizeNet, Cybercash)

• Shopping Cart compatible with the Gateway 

• Merchant Account 

• Integrate the Payment Gateway to your Web Site (Might require some programming skills) 

You will need to reassure customers that your site is secure since you process credit cards through a secure server (SSL). You will need to pay the usual fees Discount Rate, Transaction fee, Monthly Minimum, Payment Gateway, and Statement Fee. As a professional you should always get back to your customer, acknowledge their purchase, congratulate them and keep them updated on the shipping of their order. Do not hesitate to keep in touch with them from time to time and let them know about promotions that you might have. 

Choosing a merchant account provider

Choosing among thousands of Merchant Services Providers is certainly not an easy task. You should focus your choice on a company that will provide an outstanding customer service and a great technical support to help you set up your online store. Also it is extremely important that the provider explains to you the rules of Visa & MasterCard which will help you avoid eventual future problems. The customer service should have a Toll-Free number and be able to answer in a timely manner and with consideration to all your questions concerning your account, when the money is to be credited to your account, questions you might have on your statement, billing etc...Also your choice should be based on the fact that there should be:

• No Application Fee

• No Set up Fee 

• No Programming, No Installation Fee 

• No Annual Fee 

• No outrageous Discount Rate Fee

• No Hidden fees 

Discount Rate and Per Transaction Fees.

The discount rate and per transaction fees are usually the most important items to consider. The discount rate is the percentage of each sale the processing bank will keep. The standard rate for a “swiped” merchant account is around 1.59%. This means for every $100 you accept in credit card payments, the processing bank will keep $1.59. A “non swiped” rate is usually around 2.29%. Both require a per transaction fee of some sort. Per transaction fees are an additional fee per transaction ranging between $.10 and $.99. A common pitfall of merchants is thinking lower discount rates and higher transaction fees are more cost effect. This may be, but you have to do the math to be sure. If you average small sales less than $20 a ticket, you will be better served by negotiating a contract with a higher discount rate and lower per transaction fee. 
Here are 3 examples to consider.

1.49%, $.30 a transaction x 100 transactions of $20 each = $59.80
1.59%, $.20 a transaction X 100 transactions of $20 each = $51.80
1.69%, $.10 a transaction X 100 transactions of $20 each= $43.80 

You see, the 3rd rate is better for high volume low ticket price merchants. The opposite is true for low volume, high ticket merchants.

1.49%, $.30 a transaction x 10 transactions of $200 each = $32.80
1.59%, $.20 a transaction x 10 transactions of $200 each = $33.80 
1.69%, $.10 a transaction x 10 transactions of $200 each = $34.80

What do you need to open a merchant account

You will need to reassure customers that your site is secure since you process credit cards through a secure server (SSL). You will need to pay the usual fees Discount Rate, Transaction fee, Monthly Minimum, Payment Gateway, and Statement Fee. As a professional you should always get back to your customer, acknowledge their purchase, congratulate them and keep them updated on the shipping of their order. Do not hesitate to keep in touch with them from time to time and let them know about promotions that you might have. 

Qualifying for a Merchant Account:

Some ISOs and particularly Banks will want you to meet some requirements to approve you for a Merchant Account. Banks are very conservative and do not want to take risks and some ISOs are known to take more risks than others. What do mean mean by risks? Traditional businesses doing businesses face to face with customers swiping their credit card are usually not considered risky businesses. However Internet and Home Based Businesses who take credit card orders without a face to face with the credit card holders are considered risky businesses since the chargeback ratio is much higher. A chargeback occurs when the credit cardholder disputes the transaction. The customer's Bank will ask for money to be returned and the Merchant Account Provider will then ask the Merchant to show proof of the disputed transaction and eventually take the money from the merchant's account till the dispute is resolved. Most of the time the customer will get his money back. If the Merchant has closed his account or filed bankrutpcy, the Acquiring Bank or ISO whoever is liable will be left with the bill. That is why ISOs and Banks have to evaluate the risks they are taking when approving a business. Risks will be evaluated depending if you swipe the credit card or not, the estimated monthly sales volume, the average ticket/transaction and the type of industry the business falls in. Travel Agencies, Collection Agencies, Jewelry stores, Multi Level Marketing, Adult Web Sites are just a few of the businesses that are categorized as risky businesses and may be required for a Reserve which will be returned to the business usually after 6 months of good standing. 

Choosing an Online Payment Gateway:

To process credit cards online you will need three things:

• A secure form on your site to capture credit card information. 

• A payment gateway to authorize and post transactions. 

• A merchant account with a financial institution 

The Payment Gateway capture the credit card transaction, send the encrypted information and route it to the processing center for verification. 
Acceptance confirmation is sent to the customer and site owner via e-mail within a few seconds. 
Funds transfer to your Internet Merchant Account 
You can manage transactions through reports, make refunds, search and much more 
Uptime should be around 99.9% 
Affordable solution 

Your payment gateway, like the ones provided by Cardservice, should have a password-protected management features allowing you to review transaction, make refunds, void and view previous transactions. Also a Virtual Terminal will allow you to take credit cards over the phone if a customer calls you for information.
Easy to integrate to your Site through the help of the technical support and your Webmaster. Usually it is just some line of HTML Code, CGI or Perl Script. There are many Payment Gateways on the market and depending if you already have a shopping or not we will recommend you the appropriate one. Some Payment Gateways have the shopping Cart integrated already so you won't need to buy a Shopping Cart.

Real-Time Online Processing

This means that all credit card orders are processed automatically without your assistance, which is made possible through the Payment Gateway, all this is executed within a few seconds. Both the Merchant and the customer receive an e-mail notification with an approval or a decline of the transaction. You may also take credit card orders with a PC Software but you will have to enter all credit card orders manually and your customers won't know anything about the order until you notify them. Convenience is the most important reason why people want to buy on the Internet, so your customers will want immediate confirmation of their transaction. If you intend to sell e-books or software that consumers can download immediately after the approval, you will need " Real-Time online credit card processing". 

The Online Merchant Account Application is fast and easy. Click on the links below and apply online

Completing and submiting your account application online takes just minutes! 

• The Cardservice Online Merchant Account Application is simple to use! 

• Merchant Account application and processing fees are clearly displayed! 

• Help assistance is provided for every item requested! 

• Your information is protected by VeriSign data encryption security! 

• Retail Merchant Account - click here to apply