A merchant account is an account that allows you to process debit and credit card payments. Funds are typically held in the account before being transferred to your business account. A small fee is also charged for each transaction, which is typically a percentage of the amount processed.
Setting up an Account
Various domestic providers and banks offer merchant services. In order to approve and set-up your account, the provider will ask you to complete an application. Other information that may be required includes:
1. Any business accounts you hold.
2. Current and/or projected turnover.
3. Average transaction amount.
4. Transaction frequency.
5. Percentage of total transactions that are by card.
6. Type of product or service.
7. How the product/ service is delivered.
8. The amount of time between taking payment and full delivery/provision of service.
9. A reference from a current supplier.
The time it takes from start to completion can vary from 48 hours to four weeks, with the typical approval time between seven and 14 days. Your business will be assessed for risk and the terms offered will be based on those results. If your business is in a higher risk industry (like gaming/gambling) or your credit is not good, the terms offered will reflect it.
Other factors that can result in less favorable terms include:
1. Taking online payments. As there is an air of anonymity surrounding online payments, they are considered to be a higher fraud risk.
2. Level of turnover. The higher the turnover, the higher the risk to the merchant account provider.
3. Amount of time between payment collection and delivery. As with turnover, the longer the time between collecting payment for a good/service and its delivery, the higher the risk.
4. Age of business. All new businesses are considered higher risk; therefore, you can expect terms to reflect that. This includes extended deferred settlement periods, which can be as high as up to 30 days. You may also find that your cost per transaction is higher than with more established businesses.
While your reputable merchant account provider will have measures in place to help protect you (and them) from fraud, there are things you can do as well:
1. Provide a delivery address that is the same as the cardholder address. Items deemed high in value generally should be delivered to the same address the card is registered to.
2. Beware of excessive pushing for quick delivery. While everyone wants their order delivered as soon as possible, overly aggressive customers pushing for faster delivery times can be a sign of fraud.
3. A lack of concern for the amount being spent is also something to look for. Businesses spend millions in advertising in order to part people from their money; when it comes too easy, it is time to be aware.
4. If you deal in international orders, be aware of those countries that are considered to have high levels of fraud.