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What is a full service merchant account?

Saturday, December 27, 2014
As a business professional, are you familiar with the term "full-service merchant account"? If not, you're not alone. Opening or expanding a small business is rewarding. But it isn't easy to keep up with the definitions of the terms describing today's rapid technological changes. 

And yet, being a successful modern entrepreneur requires familiarity with a wide range of new and evolving procedures and technological terms and concepts. You must be able to take advantage of these new concepts to maintain an edge in today's competitive business world.  A merchant account is a concept with which familiarity is essential for every business that accepts credit and debit card transactions as payment for goods and services. Opening a merchant account facilitates the acceptance of at least one type of debit or credit card payment. A full-service merchant account offers complete, comprehensive payment processing capabilities, thereby eliminating the need to have accounts at separate companies for a variety of payment options. Debit and credit card payments, online or in-store payments, gift card sales, and loyalty programs can be administered through a single payment system with a full service merchant account.    
 

An overview of today's card payment process

Full-service merchant accounts provide a range of payment solutions – a variety of services that make many types of transactions possible. A full-service merchant account is a necessity if your business plan includes accepting debit and credit cards. 

Since the majority of shoppers prefer to pay for their purchases with debit or credit cards, the ability to process them efficiently via any type of device is essential to the success of your business.

Whether processing payments through a virtual terminal associated with an online store or a brick and mortar point of sale (POS) system offering contactless payment, access to credit card processing companies is essential. The best way to facilitate your ability to accept debit card and credit card transactions easily and securely is to arrange to have your payment-related merchant services met by a full-service merchant account provider. 

What are the types of merchant services necessary for doing business today? How do merchant accounts work? How can you select a full-service merchant service provider that's a good fit for your business? The following is an exploration of the most important points to consider when establishing a full-service merchant account. But first, let’s look at what a merchant service is. 

What is a merchant services provider?

Before we explore the details of merchant service accounts, we need to further clarify the meaning of the term “merchant services”. 

The term "merchant services" refers to the types of services, as well as software and hardware products, that permit merchants to accept and process credit or debit card transactions, and a merchant service provider is a business that specializes in offering software, hardware, and services.

POS systems at brick and mortar businesses must connect with the network of a payment processor who can service the business's needs when it comes to payment services. 

When customers pay with Visa, American Express, Mastercard, debit cards, or innovative payment methods like Apple Pay, a merchant service provider is needed to process the transaction. Merchant service providers also enable businesses to issue and process gift cards.

What is a merchant account and how does it work?

A merchant account is a type of bank account that is set up to accept funds from processed transactions and then transfer them into the specific business account that is designated to accept them. The bank arranges the communication and various aspects of electronic payment transactions. 

A merchant account involves an agreement between a retailer, a merchant bank, and a payment processor. The agreement focuses on the settlement of credit card or debit card purchases in a manner most compatible with the merchant's needs.

The fund transfers that are initiated by purchases are normally completed on a daily, weekly, or monthly basis. Businesses are required to partner with a merchant acquiring bank. The bank facilitates communication and various aspects of electronic payment transactions.   

At least one internet merchant account is needed if you plan to open an ecommerce business which will accept credit card payments and debit card payments online. This is in addition to a merchant account you may already have to process debit and credit card payments at a brick and mortar business.
 

How are transactions processed with merchant accounts?

Application Program Interface (API) is a type of connection that allows computers or computer programs to interact automatically. Merchant accounts allow for a complex, automated transactional process when a credit or debit card payment is initiated.

Card communications are sent from a business through an electronic terminal to a merchant acquiring bank in an electronic payment transaction conducted with a merchant account.

Once the transaction is in process, a seamless chain reaction occurs. The merchant acquiring bank contacts the branded card processor, who contacts the card issuer. The card issuer then authenticates the transaction. This occurs via a set of approvals that include fund availability checks and security checks. Europay Mastercard and Visa (EMV) technology facilitated by the "chip" in today's credit cards enhances the security of transactions by creating an extra password requirement when machines "talk" to each other during the transaction process.  

Approval is sent to the merchant acquiring bank through the network processor once the transaction has been authenticated. Then, the merchant acquiring bank authorizes the transaction, and the settlement of funds in the merchant's account has begun. An Automated Clearing House (ACH) network is used for electronically moving money between bank accounts to finalize transactions.

These card communications and associated per-transaction fees for the merchant occur within a matter of seconds. The fees are deducted from the merchant account and paid to the merchant acquiring bank.

A per-transaction fee, monthly fees, and, potentially, fees for special situations, are also charged to merchants by merchant acquiring banks. The merchant acquiring bank receives fees for such things as covering certain electronic payment card risks that originate from certain transactions, and for providing the service of settling transaction funds. 

How to get a merchant account

A merchant must find a merchant acquiring bank and establish a merchant account if the company's plans include offering customers electronic payment options for purchasing their merchandise or services. Merchant acquiring banks are essential to the maintaining of electronic processing of payments and transaction settlements. 

Merchant accounts are established between businesses and merchant acquiring banks through the formation of a merchant account agreement. These agreements outline all the terms on which the relationship is based. 

The terms of a merchant account may include a combination of fees:
Types of fees that apply to merchant accounts include:

  • Per-transaction costs to be charged by the bank or the bank's card processing network.
  • Established fee structures within the network of card processors. 
  • Any additional fees the bank may charge for various services. 
The market for issuing merchant accounts is competitive, and not every account application receives approval. Vendors must minimize risk, so they are required to implement a variety of considerations before their merchant account application can be accepted. 
Assessing merchant account applications for risk
To get a merchant account for your business, you will normally be required to go through an application process. Approval is based on issues like:

  • The type of business and the risk for credit card fraud or returns.
  • How long the company has been in business.
  • The overall history of the business. Have there been bankruptcies, defaults, etc.?
  • The business owner's personal credit history. 
  • Whether the applying business has previously been awarded merchant accounts. 
New businesses are more likely to be approved if they apply through the bank that holds their existing business and/or personal accounts. 
A high-risk business may still receive approval, but the vendor might require that the merchant pay higher transaction and other types of fees to make up for the risk. The fees can be renegotiated once the business becomes established and is in good standing.  

 

Selecting the perfect full-service merchant account provider for your business

Research options to ascertain whether you have a good understanding of the benefits and disadvantages of different merchant accounts and merchant service providers.

Each merchant service provider offers a unique combination of products and services. You'll need to make certain the provider you choose offers the features you need before you sign up for a merchant service account. 


Ready get a full service merchant account in place at your business? 

Heartland is the point of sale, payments, and payroll solution of choice for entrepreneurs that need people-powered technology to sell more, keep customers coming back, and spend less time in the back office. Nearly 1,000,000 entrepreneurs trust Heartland to guide them through market changes and technology challenges, so they can stay competitive and focus on building remarkable businesses instead of surviving the daily grind. Learn more at heartland.us