Dreaming up a great idea that you think could be the basis for an equally great business is the easy part of going into business for yourself. The difficult part is taking things from the idea stage to the reality stage and that requires some really serious research and planning in order to do properly. Naturally, first-time business owners run into an awful lot of practicalities that they never really considered before, even though such obstacles are certainly just par for the course.
One of these practicalities is without a doubt deciding on the method you’re going to use when it comes to processing payments from your customers and there’s more to that than you think. Since we’re living in a modern world where things no longer operate on a cash basis, a business is dead in the water if it’s unable to process payments via debit card or credit card. A merchant account is every business owner’s best friend for that reason.
What is a merchant account?
A merchant account is a special type of business bank account that allows a given merchant to accept payment for products or services rendered by way of credit cards and debit cards. When a business or merchant applies for and is approved for a merchant account, they are given a unique merchant identification number from the issuing bank. It is this one-of-a-kind merchant number that means all lights are green when it comes to letting your customers pay you via credit or debit. Without it, your customers are pretty much limited to paying you in cash or by check instead.
The obtainment of a proper merchant account is important because it is basically representative of said business’s acceptance into the official payment chain. It not only makes accepting, processing, and collecting payment easier for you as the merchant, but it shows your customers that you’re trustworthy as well, which is important in regards to any business. More or less all large businesses have a merchant account in place. Some smaller businesses do as well, but the general rule of thumb is that the smaller the business, the less likely they are to have a merchant account. However, any business that is serious about succeeding should consider getting one regardless of their size.
How does a bank that issues merchant accounts differ from the banks I’m used to?
Naturally your first instinct upon hearing the words “merchant account” is to think of the personal account that you already hold at your own bank for the purpose of paying your bills, going out to eat, making purchases, and taking care of all your other personal expenses. In some ways, it’s similar as it involves the changing hands of money, but it’s also important to note that there are some serious key differences as well.
Most of the major high street banks we’re familiar with have an acquiring division (also sometimes referred to as an acquiring arm). This is the case no matter what country you’re from or where in the world you’re doing business, including the internet. It is the acquiring arm that issues merchant IDs to businesses. There are also some organizations that that aren’t associated with the high street bank group, but offer merchant services and can issue merchant IDs nevertheless. (PayPal and American Express) are some of the better known examples. In their cases, they possess their own acquisition licenses and handle their own acquiring as a result. This is exactly the reason PayPal and like services are able to provide you with access to the merchant services that they do.
Once you’re issued your merchant ID, the issuing establishment is able to act on your business’s behalf in a number of different ways. They are the ones that authorize or decline transactions on your behalf. They also are the ones that actually handle collection of payment from the customer, as well as the issuance of that payment into your own bank account.
Do I need to pay anything in order to obtain and have a merchant account?
As is the case with just about anything of this magnitude, there are some costs involved with setting your business up with a merchant account and associated merchant ID, although what those costs may be depend on the bank issuing the account in the first place. You can probably expect for there to be set-up charges, as well as fees charged for the maintenance of the account (these are usually billed on a monthly or yearly basis depending on the establishment).
It’s also important to note that the other costs that are typically associated with the establishment of a proper merchant account. For instance, you may need to rent a physical credit card terminal that requires you to make monthly payments. Some terminal providers may insist on your maintaining a dedicated telephone line just for the sake of the terminal as well, which would naturally cost you. Last but not least – and this is really the part you hear about the most from other merchants – your business will be charged a percentage of each credit or debit transaction processed, as well as any associated bond fees or deposits associated with those transactions.
Although this may sound like an awful lot to swallow at first, it’s important to understand that associated fees attached to a merchant account should be considered part of your business’s necessary expenses. The benefits of having a merchant account more than balance out the fees and costs. This becomes the case more and more often as we progress into an age when everything is becoming automated or electronic in nature, payments included.
How do I go about getting a merchant account for my business?
As we mentioned above, the issuance of a merchant ID represents a merchant’s acceptance into the official payment structure associated with today’s businesses and financial institutions. You obtain your merchant account in much the same way you would a personal account – by choosing a bank and going through the proper channels to imply. That said, you’ll be expected to meet a few requirements in order to prove to the issuing bank that you’re trustworthy. Most merchants are expected to provide two years or so worth of audited account information. They will also be expected to provide evidence of a solid business record.
Once these requirements are all met and the issuing bank allots your business a merchant ID, it will – in most cases – only be applicable to the traditional part of how you do business. In order to expand the way you do business to include the internet, you may be required to take additional steps which are something you should think about before you apply in order to ensure you have all the bases properly covered. Most banks will only accept payment information that was processed by a payment service provider (or PSP for short) that is pre-approved.
A payment service provider’s job is to serve as the connecting bridge between a given merchant’s business website and whatever their “shopping cart” software of choice is. They are the point at which orders generated by the shopping cart are converted into approved orders for which payment is authorized and subsequently collected. If necessary, the collected payment is further transferred to yet another bank account as is called for.
Why does my business need a merchant account?
Naturally, when laid out in full the process associated with applying for, obtaining, and ultimately maintaining a merchant account can seem daunting. Some might even be wondering why a small business would even want to take on that type of hassle. Well, the answers are honestly pretty simple.
To begin with, the ability to accept credit card or debit card payments from your clientele can literally make or break your business in this day and age. Clients more or less expect to be able to utilize this level of convenience when it comes to making their payments. Businesses that operate on a cash or check only basis statistically don’t do anywhere near as well. Offering credit and debit cards as a payment option for them will ensure that your business won’t fall out of favor with the customers that keep you afloat as we business.
How do I go about choosing a bank to approach about applying for a merchant account?
While it’s certainly possible to do your own homework and compile data on each of the top banks that can provide you with a merchant ID and associated account, it’s important to realize that you only need to do this if you really want to. Enlisting the help of a site like merchantaccount.net can help make super short work of your search for the right merchant account provider.
We’ve done all the hard work for you and pre-screened all of today’s top options so that you don’t have to worry about it. All you really need to do from here is decide what benefits, features, and price points fit your business’s needs the closest and take it from there.