CREDIT CARD PROCESSING BASICS
Accepting credit and debit card payments through your website is essential for your e-commerce business. When offering your customers safe and secure online payment options, they will thank you with a return business and you will be able to build a solid customer base. Your sales revenue will increase beyond imagination, as the ability to pay with credit cards online increases impulse purchase and raises the average sale’s dollar amount.
However, before you will be able to accept credit card payments through your website, you will need to take certain steps and meet certain requirements. But don’t worry, with the basic knowledge of this industry, you will be able to save some of your time and complete the application process fast and hassle free.
WHAT IS A MERCHANT ACCOUNT?
After you have decided that you want to accept card payments online, the first thing that comes to your mind is probably what kind of an account do you need. The answer is that you will need a merchant account. It is a special type of a bank account with a purpose of holding funds received from credit card sales. From there, the funds are wired to a merchant’s business bank account, either daily or on a weekly basis. A merchant account defines your relationship with the processing bank. While some banks provide merchant accounts directly, others use merchant account providers to sing up with new businesses.
However, if your monthly processing volume will be under 5K, a direct merchant account won’t be the best solution for you, as there are some setup costs and processing fees that need to be paid. In this case, you may consider an indirect Payment Service Provider account, also known as a 3rd Party Aggregated Account. This is the cheaper substitute to a direct merchant account, as usually with this type of account you won’t be charged with a setup fee or other scheduled fees. In this case, the payment provider won’t open an individual account just for you, but your transactions will be funnelled along with other user’s transactions through shared accounts. The only bad side of this type of an account is that account terminations and withholds of funds are more likely to happen than with direct merchant accounts.
WHAT IS A PAYMENT GATEWAY AND DO I NEED ONE?
A payment gateway is an online application that transfers payment information from your e-commerce website to the issuing bank, to check if there are sufficient funds on the credit card, and in the end to the payment processor.
All e-commerce and MOTO businesses who wants to accept credit card payments need a payment gateway, however, some retail businesses might need one too.
WHAT IS AN ACQUIRING BANK?
An acquiring bank, also known as an acquirer or processing bank, is an institution that provides you with a merchant account. As the acquirer takes the responsibility that you as a merchant will remain solvent, most of acquiring banks won’t provide an account for businesses that have a high chargeback ratio and other high risk factors.
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