Merchant Accounts for Ecommerce Websites
Accepting
credit cards for online payments
requires a merchant account in the payment chain, however it
is important to stress that it doesn't have to belong to you.
Here we will look at the types of merchant
account that are available, how to obtain one and whether or not
your really need one at all.
Types of Merchant Account
There are generally three types of merchant account on offer:
-
Customer Present: The customer comes
into your store, you swipe their credit card through a Point
Of Sale machine and they sign a receipt. This type of account
isn't suitable for e-commerce.
-
Mail Order/Telephone order: This type of
account falls into the card not present category- which means
neither the card nor the cardholder are present at the
point-of-sale and the customer and the order taker are not
face-to-face. This account is generally not usable for
Internet sales but is usually easily upgradeable to one that
is.
-
Internet: An Internet merchant account
falls into the card not present category which means neither
the card nor the cardholder are present at the point-of-sale
and the customer and the order taker are not face-to-face. For
a merchant to be able to accept credit cards and debit cards
for payment on the Internet, the merchant must have an
Internet merchant account.
Obtaining an Internet Merchant Account
Obtaining a merchant account is a time
consuming step and if you're a new business you may find it
difficult to obtain an internet merchant account at all. The
procedure might take weeks to complete, and obviously involves
costs.
An Internet merchant account is obtained
from an acquiring institution (usually a bank). The acquirer
authorizes the purchases made with the card and ensures that
the funds are deposited into the merchant's bank account.
The costs involved vary depending on country
and acquiring institutions and are effectively bank charges.
These costs can be considerable especially
for small
businesses with low sales.
The costs fall into the following
categories:
-
Setup costs- one off cost at start.
-
Monthly costs- A recurring cost.
-
Transaction costs –A percentage of transaction or fixed
charge per transaction or both. There may also be a minimum
charge per transaction, which is an important consideration if
you sell lots of small value items.
-
Reserve Costs: Banks may demand a bond to cover contested
charges, refunds and fraud. In each case when disputes are
settled in favour of the credit card holder a charge-back occurs.
This involves refunding the customer for the
disputed sum and imposing a charge-back fee on the merchant.
This means that in addition to losing the amount of the sale -
the merchant loses the amount that the bank charges in
chargeback fees. In addition, if the merchant has too many
charge-backs he's at risk of losing his merchant account.
The amount demanded by the bank varies
considerable but is based on the level of risk perceived by
the bank. This in turn is greatly dependant on the type of
business being operated by the merchant.
Who Needs A Merchant Account
Generally speaking a merchant account only
becomes cost effective when you have
lots of sales. Although it is difficult to be very specific due
to the wide range of fees involved merchant accounts only come
into consideration when you are making in excess of around $1500
per month.
For new small and new businesses a third party merchant account like
that provided by Paypal is the best option.
Third Party Merchant Accounts-Merchant Account Alternatives
Because of the initial set up costs of merchant accounts, the length of time taken, and the difficulty in
obtaining them there are a number of
merchant account alternatives
available which are more suitable for the small
business and for anyone starting out on the Internet.
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