About Merchant Accounts

 

Defining a Merchant Account:

 
A Merchant Account is not really an “account” but it is rather a contract where an acquiring bank lends credit to a merchant that wishes to accept credit card payments. In essence, it is the ability for a business to accept credit cards with a form of credit protection from a bank as payments for services rendered.

 
In the information age, consumers now expect to pay for products and services with their credit cards. Business owners will lose out if they do not cater to their customer’s expectations.

 
Merchant Account Types:

 
The credit card processing industry is quite confusing with its complex rules. For starters, there are different ways to capture the card numbers in different merchant account types with different rates. The merchant accounts can be broadly categorized into two different types.

 
“Swiped” merchant accounts typically have lower rates because it requires a face to face interaction with the customer and their credit card to be physically swiped through a credit card machine when a purchase is made. Retail merchants like your local department store, restaurants, hotel or lodging, and mobile merchants with a wireless credit card machine are some examples of swiped merchant accounts. 

 
“Keyed” merchant accounts typically have a higher rate than the swiped account because the customer and the credit card does not have to be present at the time of transaction. The higher rate is a result of more risk that the banks have to assume due to the difficulty in verifying the customer’s identity with such accounts. Mail order, phone order, and ecommerce merchants are great examples of keyed merchant accounts.

 
Learning about the Discount Rate:

 
In understanding the discount rate associated with merchant accounts, you have to understand how banks define a card type. From a swiped debit card, to keyed rewards cards, to swiped business cards; each card type and how it is accepted at the time of purchase is defined a specific way, thus has its specific rate associated to it. Since the banks define over 100 different card types, there are over 100 different rates!

 
Typically, a low rate quote should not be trusted. The companies making such quotes are only quoting the lowest rate out of the hundreds that the banks have defined. The reality of it is that the card holder has to have a specific type of credit card and the merchant will need to accept the card a certain way in order to get that low rate.

 
The low quoting is a tactic that is often used by unscrupulous companies to get merchants to sign up for their services. Their services also require the merchant to agree to a contract, which can last up to 5 years! Once the merchant is in a contract, the unscrupulous companies typically raise their rates and/or introduce hidden fees. If the merchant realizes the unethical treatment, they would have to pay a hefty contract termination fee just to get out. Either way, these unscrupulous make money regardless!

 
So buyer beware: If the rate is too good to be true, it probably is!