A merchant account is an agreement set up between a bank/financial institution and your business that allows your business to accept credit cards for payment. Usually this is done through a merchant account provider who deals with the bank on your behalf and can provide the necessary equipment. One great benefit of accepting credit cards is your store is open 24 hours (if you have a website), and you can make sales from all over the world, 24 hours per day. With a cash only store, you are limiting yourself to local clientele. Having a merchant account will make your business much more visible and potentially profitable. Generally, there are four types of merchant accounts that can be set up: retail, internet, phone/mail order, and wireless. One or more of these can be set up for you depending on how you do business. Retail Merchant Account This type of account is for retail storefronts like grocery or clothing stores to name a couple. Generally, these types of accounts process large volumes and are for point of sale (face to face) transactions only. These types of accounts generally feature the lowest rates because the sale in made in person, and the likelihood of fraud is lower. InternetIf your primary way of making sales or doing business is through your website, you would need an internet merchant account. These types of accounts allow customers to enter card information through your website either through a virtual terminal or shopping cart. Then a payment gateway authorizes the transaction. Phone/ Mail OrderThis type of account is for orders that are placed over the phone or through mail order businesses. It is similar to an internet merchant account in that the credit card is not present at the point of sale. Customers are purchasing from home. You will need some type of equipment, either pc based or a traditional retail terminal. WirelessWireless accounts are becoming increasingly popular. They process cards through a wireless terminal or with a card reader attached to a cell phone. This option is a great way for mobile businesses or independent professionals to broaden their customer base by having the ability to accept credit card payments. Also, this could be a beneficial option for restaurants. Customers can swipe their card at the table, cutting down on the possibility of employee fraud. Businesses are not limited to a single merchant account. If you have a larger business-say you operate a store and an associated website where customers can shop. You would then need a retail account and an internet account. The main difference between merchant accounts is the costs associated with them. All carry some type of fees. Retail accounts usually carry the lowest fees since there is the least amount of risk involved per transaction. Internet accounts usually carry somewhat higher fees primarily because there is a higher fraud risk as the card is not present at the point of sale. Wireless and phone/mail order usually fall between the other two. The fee structure is different depending on your provider, but this is a good guideline of what to generally expect.
David Toro is an entrepreneur with several years of experience running his own businesses and has had several different merchant accounts from several different providers. He is also the creator of Merchant Account Consumer Reports, a site where he provides unbiased reviews of merchant account providers based on actual customer feedback.
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