What Kind of Merchant Account Will Work Best For You?
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A Merchant Account is an arrangement with a bank or credit card processor that allows your business to accept credit card payments from your customers. Credit card payment is a major form of exchange in the developed world so if your business does not offer customers and clients the option to pay with their plastic your business is definitely going to suffer and lose sales. Placing this in perspective, over 80% of transactions carried out on the internet use credit cards, so if you have any e-Commerce ambitions you are going to require a merchant account in one form or another.
Broadly, there are four different types of merchant account, each has it's own requirements in terms of technology and hardware and there are differing charging structures depending upon the merchant account type and the provider you choose. This article will outline the features of the different merchant account types so you can assess which is most likely to suit your business needs. It may very well be that you deploy more than one type of merchant account if you have different sales channels.
The Traditional Swipe or Retail Merchant Account
We have all seen and used these merchant accounts as customers whenever we have paid for our groceries, gas or a meal at a restaurant and our card has been passed through a swipe machine. This account requires the installation of equipment to process the credit card payment by contacting and obtaining authorization from the credit card company electronically (though rarely this is still done by physically making a telephone call).
This type of account is typically used in retail businesses with high volumes of customer transactions and the fee structure reflects this. There is generally a low discount rate (the amount of the credit card payment taken as a fee) however the flat monthly program fee is high for merchant accounts. There are the least amount of restrictions placed on the account which reflects the low risk associated with the transaction. The credit card can be seen and is in the possession of the customer while the equipment is handled within the merchant account holders premises. This minimizes the risk of theft and credit card fraud.
MOTO – “Mail Or Telephone Order” Merchant Accounts
This is the merchant account that you see whenever a TV infomercial runs with an offer. Typically used to process customer orders that are received as a result of direct mail and telephone call-ins in response to advertising.
There is no equipment needed for the MOTO merchant account and there are lower monthly program fees but the discount rate is higher than a traditional merchant account. The reason the discount rate is higher than a traditional merchant account is because the seller does not see the credit card only the credit card information given by telephone or mail. The incidence of fraud is greater with a MOTO account and the higher fee reflects the higher risk.
Internet Merchant Account
As we've already noted, over 80% of internet transactions are through a credit card and the importance of this trading platform is set to increase as more and more e-Commerce retailers establish themselves. Demand for internet merchant accounts is high as a result with a wide range of merchant account providers and derived service offerings such as Paypal available.
There is no equipment needed for this merchant account and the fee structure can be considered as an intermediate one between MOTO and traditional accounts with a moderate monthly fee and discount rate.
It is worthwhile to note that the incidence of fraud is also high with internet based merchant accounts. The risk is not only in terms of theft and fraud involving money and goods, there are also the security implications for ensuring that credit card information provided by customers is kept secure.
Mobile or Wireless Merchant Account
Mobile merchant accounts have emerged to satisfy the demand for credit card processing off-site. By off-site we mean away from the retail or business premises and typical scenarios include when an attorney is at a clients premises and needs a retainer paid, or when a contractor is called to your home to make a repair. The mobile merchant account is ideal for small businesses, one man band professional firms, contractors and tradesmen – in fact any business that is constantly on the move from one job or client to the next.
No equipment is needed for the mobile merchant account except access to a telephone for processing the credit card payment from the client. The fee structure is a low monthly program fee with a higher discount rate.
Conclusion
To compete and succeed in a modern business environment you need to offer credit card payment as an option for your customers. Merchant accounts are very simple to establish and use and while different types of account exist to cater for different selling models, the main differentiator between them is the fee structure. Pay particularly close attention to the monthly program fee and the discount rate and be aware that there can be hidden “administrative” extras that find their way in to the total cost of a merchant account. Ensure you obtain all the fee information from any prospective merchant account provider before you commit to a program.
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