Merchant account

From Wikipedia, the free encyclopedia

You have new messages (last change).
This article or section does not cite its references or sources.
Please help improve this article by introducing appropriate citations. (help, get involved!) This article has been tagged since September 2006.

A merchant account allows a business to accept credit cards, debit cards, gift cards and other forms of electronic payment. This is also widely known as payment processing or credit card processing.

Merchants, or business owners who receive payment for their goods or services, must apply for a merchant account. The merchant account may or may not be established based on several factors of which risk is the most important. Merchants who own businesses with poor or no credit may find it difficult to establish a merchant account.

Contents

[edit] Rates and fees

Merchant accounts are not free and fees are charged whenever a merchant processes a credit card for payment. These fees vary amongst providers but all fees are based on something called Interchange. Interchange are the base rates dictated by Visa and MasterCard from which all merchant account providers mark up their rates.

Interchange is made up of varying tiers. These tiers describe costs for different kinds of credit cards when processed under different kinds of circumstances. For example, a check card costs less than a consumer credit card which costs less than a business card. The method of how a credit card is processed changes which tier of Interchange is applied. For example, a swiped credit card costs less to process than one keyed into a credit card terminal.

The most common rates that affect merchants are mentioned below.

[edit] Qualified rate

A qualified rate is the percentage rate a merchant will be charged whenever they accept a regular consumer credit card and process it in a manner that is acceptable with their acquiring bank. This is the lowest rate a merchant will incur when accepting a credit card. The qualified rate is also the rate commonly quoted to a merchant when they inquire about pricing.

[edit] Mid-qualified rate

Also known as a partially qualified rate, the mid-qualified rate is the percentage rate a merchant will be charged whenever they accept a credit card that does not qualify for the lowest rate (the qualified rate). This may happen for several reasons such as:

  • A consumer credit card is keyed into a credit card terminal instead of being swiped
  • A special kind of credit card is used like a rewards card or business card

A mid-qualified rate is usually 1.00% - 1.50% higher than a qualified rate. Mid-qualified rates only apply to retail businesses. Mail order, telephone order, and Internet businesses do not have a mid-qualified rate.

[edit] Non-qualified rate

The non-qualified rate is the highest percentage rate a merchant will be charged whenever they accept a credit card. All transactions that are not qualified or mid-qualified will fall to this rate. This may happen for several reasons such as:

  • A consumer credit card is keyed into a credit card terminal instead of being swiped and address verification is not performed
  • A special kind of credit card is used like a business card and all required fields are not entered
  • A merchant does not settle their daily batch within the allotted time frame

A non-qualified rate is usually 1.00% - 2.50% higher than a qualified rate.

[edit] Transaction fee

Also known as a per Item fee, the transaction fee is charged each time a transaction is successfully processed by the acquiring bank. This fee is a flat fee and only varies based on the qualification level of the sale. Typically mid-qualified and non-qualified transaction fees cost slightly more (approximately 10 cents) than a qualified transaction fee.

[edit] Authorization fee

The Authorization fee is charged each time a transaction is sent to the acquiring bank to be processed. Even if the transaction is declined this fee is assessed.

[edit] Statement fee

The statement fee is a monthly fee associated with the monthly statement that is sent to merchant at the end of each monthly processing cycle. This statement shows how much processing was done by the merchant during the month and what fees were incurred as a result.

[edit] Monthly minimum fee

The monthly minimum fee is a way to ensure that merchants pay a minimum amount in fees each month. If a merchant's qualified fees do not equal or exceed the monthly minimum they will be charged up to the monthly minimum to satisfy their minimum fee requirements.

Example: A merchant has a $25.00 monthly minimum fee. Their qualified fees for their most recent complete month of processing total only $15.00. This merchant will be charged an additional $10.00 to meet their monthly minimum requirements. Contrary to what some sales agents will try to make merchants believe, the monthly minimum fee is not required by Visa or MasterCard.

[edit] Batch fee

A batch fee is charged to a merchant whenever the merchant "settles" their terminal. Settling a terminal, also known as "batching", is when a merchant sends their completed transactions for the day to their acquiring bank for payment. This special transaction may incur an extra fee although not all providers charge this fee.

[edit] Chargeback fee

If a merchant encounters a chargeback they may be assessed a fee by their acquiring bank. This fee is typically charged whether the chargeback is successful or not and is not dependent on the amount of the chargeback.

[edit] Methods of processing credit cards

For a credit card transaction to be processed correctly it must be sent electronically to an acquiring bank. The method of processing credit cards will vary by industry. A merchant account provider typically has the ability to sell or establish a means to process credit cards for a merchant.

[edit] Credit card terminal

A typical credit card terminal that is still popular today.

A credit card terminal is a stand-alone piece of electronic equipment that allows a merchant to swipe or key-enter a credit card's information as well as additional information required to process a credit card transaction. A credit card terminal is a dedicated piece of equipment that only processes credit cards although it is common for related transactions including gift cards and check verification to also be performed. A credit card terminal typically must be plugged in to a power supply and connected to a telephone line. However, newer terminals may be powered by batteries and communicate over the Internet. Some credit card terminals are connected to satellite dishes and communicate wirelessly. When a credit card is run through, it contacts the network to verify that the credit card can be charged. The actual billing of the charge is done at the end of day batch where all sales from the terminal of the day are sent out.

[edit] Automated Response Unit (ARU)

An ARU allows the manual keyed entry and subsequent authorization of a credit card over a cellular or land-line telephone. A business typically imprints their customer's card with an imprinter and then processes the transaction instantaneously over the phone.

[edit] Payment gateway

A payment gateway is an e-commerce service that authorizes payments for e-businesses and online retailers. It is the equivalent of a physical POS (point-of-sale) terminal located in most retail outlets. A merchant account provider is typically a separate company from the payment gateway, but normally has the ability to provide payment gateways to their customers. Some companies can provide both a gateway as well as a merchant account.

[edit] See also

[edit] External links

[edit] References

Retrieved from "http://en.wikipedia.org../../../m/e/r/Merchant_account.html"