More and more, businesses are accepting credit and debit payments for purchases. For customers, this means less hassle in fumbling with cash; for businesses, it brings about a complex yet rewarding process. Every establishment that accepts plastic must have a merchant account associated with their business. For the betterment of your business, we’ll cover what merchant accounts are, how they work and the different types available.
What Merchant Accounts Are:
Merchant accounts are specialized bank accounts which permit businesses to accept credit and debit card payments from customers. Such accounts rely on intricate agreements between the merchant, supporting bank maintaining the account, individual card providers (Visa, Master Card, etc.) and any additional third party bodies charged with actual processing. If a business aims to make sales through card payments, an appropriate merchant account is necessary.
Types of Merchant Accounts
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Retail/Card Terminal
Establishments wishing to accept plastic at their physical location, such as storefronts or restaurants, must have a retail account set up. This essentially involves having the bank account set up and using a device called a credit card terminal. These terminals can be small devices that feed off of a cash register and simply allow swiping of a card or more technologically-advanced machines involving magnetic strip readers, keypads for debit PINs, electronic screens for customers to sign for authorization and touchscreen computer monitors for merchants to input information about the transaction.
The associated account for this method of processing is simple enough to contend with. No matter what kind of account your business wishes to use, each credit card purchase is accompanied by a transaction fee. Those purchases processed through a retail merchant account have the benefit of incurring low transaction fees, averaging at around 2% of the total price. Such accounts do necessitate that the majority of card payments be accepted in person, however, as opposed to customers providing information over the phone, for instance.
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Online Merchant Account
Merchant accounts for websites result in convenience on the customer end, but do require a few things for merchants to manage. For starters, each credit card network (Visa, Master Card, AmEx, etc.) has an application procedure that must be followed in order for a merchant to accept each of these types of cards. The account itself is still managed by the merchant’s bank, but rather than hardware like terminal machines, merchants must have supporting digital components to accept and process payments.
The digital counterpart of a physical terminal is the payment gateway. Operating in conjunction with a shopping cart feature that allows consumers to add items to a virtual order, a gateway does everything that a merchant and his/her machine would do in-store. The system enters items to be purchased, collects financial information (which in this case a customer would key in onscreen) and sends payment through to the merchant’s processor run by their bank. When all of this is done, purchase information is passed to the credit card company for final approval and then to the merchant to collect payment. In terms of transaction costs for merchants, online credit card orders typically incur a higher cost of the total purchase.
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MOTO and ARU Accounts
Beyond accepting remote purchase payments via merchant accounts for websites, businesses have long been able to accept credit card payments through the mail and over the phone. That’s where Mail Order Telephone Order (MOTO) and Automated Response Units (ARU) come in. The “MO” of MOTO is easy enough to understand. If you’ve ever torn out the subscription card inside a magazine and filled in the order information along with your credit card, you’ve completed a mail order. Similarly, orders may be taken over the phone, where the customer talks directly to the merchant (Has your mom ever ordered something from the shopping channel?). In both cases, merchants have to enter the order information into their system in order to process the transaction, keying it into a physical terminal at the store or into an online account. Because of all the back and forth, such transactions incur higher fees.
ARUs are a bit different because although these accounts are operated over the phone, they are still part of a computerized process. When a customer submits payment via automated response, he/she “talks” to a menu system. This menu acts as a gateway, providing options for entering customer user information and choosing how to pay. If you’ve ever paid your cell phone bill through the provider’s automated system, the concept is easy to understand. A robotic voice may ask questions and provide options for how to answer in the form of pressing the appropriate numbers on your phone (i.e. “To pay the total amount due of X dollars, press 1.”). Just like any other merchant account, banks and processing services run the show behind the scenes of these transactions and charge corresponding fees.
Plastic payments have come a long way through the years, and for merchants that means maintaining separate bank accounts. While it’s true that credit card processing costs money and involves coordination with others, it’s more clear than ever that accepting this mode of payment leads to higher business profits. Whether you’re just now beginning to accept plastic via credit card terminals or you’d like to expand your payment options by taking your business to the web, different merchant accounts are available to meet your needs!
Authored By: Jimi Romanus
