What is a merchant account?
If you own an online store, you know how important it is to accept credit cards as payment. It will be several more years before society switches to an utterly non-cash amount. But today, according to statistics, more than 70% of buyers prefer to pay with cards. The ability to process them on your site is directly related to the increase in sales, site conversion, and cash flow of your store.
Unfortunately, you cannot just take and start working with bank cards on your company’s website. To do this, you will need to open a merchant account and conclude an agreement with a processing center. The latter will process card transactions.
If you are new to the e-commerce business, you are probably wondering what a merchant account is (in English, the merchant is “seller” or “merchant”)? How does it work, and what does it take to get it? What benefits will come after opening an account? Stay tuned as we are going to provide you with the answers you came for.
Merchant account definition
If you are determined to accept payments in your online store, then a prerequisite is the opening of a trading account. A merchant account is an account that receives money after the buyer has paid with a card, and the payment system has processed his data.
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Funds that are debited from user cards go through a processing center and are transferred to your seller’s account. Then, you receive funds to your bank account within 1-2 days.
From the very beginning, it’s worthwhile to understand why the amounts go to the seller’s account, and not your commercial one. In sales, everything is not always smooth. Sometimes, buyers may request a refund of their funds, as the goods did not fit them or the amount was debited from the card as a result of fraudulent transactions. In such cases, money is withdrawn from your merchant account, and the remaining amount is removed to the bank. That’s why opening a merchant account is your first priority if you decide to conquer the world of e-commerce.
The main types of merchant accounts
A merchant account can be of two types: trading and the Internet. The whole difference is that the first requires a card when paying, and the second does not. What does it mean? A trading account is used in ordinary stores where POS-terminals read payment card information. An online account involves online payments and is mandatory for online business owners.
There is another division of accounts, namely high risk (payments with high risk) and low risk (payments with low risk). Opening a merchant account of the first type is more difficult, but possible. The risk level of your activity will be assessed by the bank to which you are applying for account registration.
Benefits of Using a Seller Account
Although opening a merchant account is not an easy task, having such an account has many significant advantages:
Multicurrency. Having a merchant account, you can accept payments in various currencies. Thus, expanding the boundaries of your business is a matter of time.
Security. It does not matter if you register an account using a payment system or independently through a bank, the merchant account is inextricably linked to the PSP certificate. Possessing this document, you guarantee your customers the security of their payment data.
Increase in income. Every seventh person prefers to pay by card. Besides, large and impulsive purchases are most often paid by credit cards. By accepting cards on the site, your profit will increase significantly.
Customer acquisition. Flexibility and freedom of choice are the main requirements that customers put forward on the network. Providing them with many payment options, you are already a cut above your competitors.
Service 24/7. Your business will not depend on the work of banks. Customers will be able to make payment at any time, whether it is a weekend or night.
Transaction rate. It doesn’t matter what turnover your online store has now. The ability to conduct more than a thousand operations per minute opens up incredible prospects for you to increase revenue in the future.
How does a merchant account work?
Online shopping has opened the door to a different dimension for people, where everything happens quickly and conveniently, you just have to press a button. More than 2 billion people around the world prefer online shopping, and this number is growing at lightning speed every day. Almost every fourth person at least once interacted with a merchant account. On the part of consumers, the procedure for paying for purchases looks simple: I added the product to the basket, decided on the calculation method, and paid the required amount. How does the merchant account actually work?
After the buyer has chosen to pay by card, he enters its information: number, validity period, CVC-code.
The received data is forwarded to the payment gateway, which, in turn, checks the transaction for fraudulent transactions.
Further, the request is sent to the bank, and it informs the payment system (American Express, Visa, MasterCard, and others) about the transaction.
The next step is to confirm the sufficient amount in the buyer’s account and the validity of the card. When the issuing bank (the one that issued the card) confirms the data, the system notifies the acquirer bank of this.
He gives the payer ID, which is tied to the account of the company. Funds are sent to the merchant account, and the client finds out that the transaction has been approved and the amount has been debited from the card.
The above operations take a few seconds if all processes are in place. Therefore, it is imperative to entrust your online store with a reliable payment system that will process card transactions without interruption.
How to open a merchant account?
The starting point for creating a merchant account is the credit card brand analysis. Who would you like to work with? When deciding, do not ignore local payment instruments, as they can increase your traffic. And, of course, make sure that your customers will be able to use the services of such large credit card operators as MasterCard and Visa.
The next step is to prepare all the necessary documents that relate to your financial situation (an average bill, estimated turnover, and sales). Also, banks request tax returns, so put them in order before submitting them to financial institutions.
Next, you contact the acquirer bank to sign the agreement. Experts advise opening a merchant account with a bank in the country where the business is registered. To facilitate the registration process, do not neglect the institutions where you issued your current account.
When you apply for opening an account, these are the factors that will influence the success of the operation:
Failures and achievements.
Both ups and downs matter. If your business was on the verge of bankruptcy or there were debts on your accounts, most likely you will be refused.
Experience. Are you a businessman with many years of experience or an enthusiastic beginner? The answer to this question can become a factor influencing the situation when opening a bank account.
Type of your organization. Depending on this, possible risks will be assessed. If your business is not safe enough, the bank has the right to refuse you. They do not want to be targeted for frequent scam attacks.
If the decision is made in your favor, you receive a merchant account, which is assigned a specific ID in the electronic payment system.
Alternative solution
To avoid the time-consuming procedures involved in opening an account, contact your payment service provider. This solution will save you money and require virtually no effort on your part.
The payment solution provider will take full responsibility for the security of transactions. Also, you will be provided with regular reports on all cash transactions in your store. Another advantage of using intermediary services is the simple integration of payment methods and currencies.
If you plan to work not only in the local market but also internationally, the payment method aggregator is a win-win solution. The thing is that transaction processing will be slow if you have an account with a local bank and you accept payments abroad.
Also, payment platform solutions are suitable for those whose business has been on the market for less than two years or is in a high-risk area. Cooperation with the provider will increase your chances of obtaining a merchant account and protect you from fraudulent attacks.
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