Merchant Account Guide for New Businesses (part 1)

by Jamie Estep

As a new business owner you may have been looking into your credit card processing options, or a merchant account provider may have already contacted you about credit card processing for your business. There is basic knowledge that you should know before you decide on a merchant account provider, that will help you chose a fair reputable company, that isn't out there to steal your money.

By seeing this article and taking the first steps of researching the industry you are already ahead of thousands of new merchants who take the first offer that they receive. The internet is the best place to research merchant services.

What is a Merchant Account

Lets start with the basics. A merchant account, which is setup through a merchant account provider, will allow your business to accept credit cards. Merchant account providers also can provide electronic debit, check, and gift card services for retail and online businesses, but this article will focus on credit card acceptance. There are literally thousands of merchant account providers in the US. Many of these companies operate legitimate businesses that are looking to form a long-term relationship, or more appropriately a partnership with your business. But, there are also a lot of businesses that are only looking to make a quick dollar and are trying to scam unsuspecting businesses out of their money.

When you process a credit card, the merchant account provider, gets a very small percentage of the transaction. The remainder of the transaction goes to the card issuing bank (Chase, Bank of America, etc) the card issuer (Visa, MasterCard, AMEX, etc), and the processing bank (FDMS, NOVA, VITAL, etc). The processing bank is the company with all of the electronics and software that processes the credit card transaction. The processing bank is not the merchant service provider, but the merchant service provider is an authorized distributor for the processing bank. The merchant service provider gets a very small percentage of each transaction, usually less than .20%. This means that on a $1000.00 sale the merchant account provider may only get $2.00 of the total transaction fee. For this reason, it is important to select a provider with a good reputation that is not going to try and scam you out of your money. Small undeveloped merchant account providers will try to get as much up front as possible, because they don't have a large enough client list to support their operation.

There are two types of merchant account providers that you will come in contact with. The first is the actual provider. This company will be sponsored by a FDIC insured processing bank, or several banks. The second is an independent sales representative. This is a reseller for the merchant service provider. Since the reseller gets a price from the actual provider, the reseller has to mark up the fees, so his price will be slightly higher than the provider's. The reseller is also usually unable to provide technical support and your business will be referred to the main office for support. A merchant service provider should have 24-hour technical support, and a good warranty policy for their equipment. You should also never have any problem talking to a real person if you try and call them. If you cant get a human on the phone during normal business hours, then find another company. Where will they be if something goes wrong and your account needs immediate assistance?

Merchant Account Guide Part 1
Merchant Account Guide Part 2
Merchant Account Guide Part 3