Merchant Account Basics

Merchant Basics

If you have a business and you want to accept credit cards as a method of payment, you need a merchant account. From the small mom-and-pop shop down the street to the biggest and best of department stores, all businesses that take credit cards must have their own merchant account.

A merchant account is the single most cost-effective way of accepting credit cards from your customers or clients. Simply put, a merchant account is a business arrangement between you and a credit card processor that allows you to accept credit card payments from your customers. Those payments are then deposited into your bank account by the credit card processor after the sales are complete.

There are two basic types of merchant accounts. A merchant account for card-present transactions is used when the credit card and cardholder are physically present at the time of the sale and the card is swiped through a credit card terminal, as in traditional point-of-sale retail. A merchant account for card-not-present transactions is used when neither the card nor the cardholder are present for the sale, as is typical in e-commerce or MOTO (mail order/telephone order) sales. Some merchants or service providers need more than one merchant account, especially if they have diversified their business.

In order to get a merchant account, you’ll need to fill out an application and have it approved by a credit card processor. The processor then equips you with the products and services you need to accept credit cards, including hardware and software.

The credit card processor acts as a middleman between you and the issuing bank during a transaction. When the issuing bank authorizes a customer’s transaction, the transaction amount is credited to your merchant account by the processor. At the end of the day, you settle all of your transactions in one batch with the processor, who deposits the funds into your bank account, typically within two days.

When setting up a merchant account, it’s best to use a credit card processor like TransFirst® that will let you use the bank of your choice for your deposits. This account should be kept totally separate from any other bank accounts you may already own.


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