Merchant Account 101

May 22, 2023

Accepting online payments as a direct response company is attractive for several reasons, but if you are a new small business owner with no prior payment processing history, finding the proper payment processor for you may seem like an intimidating experience.

Let us take you through merchant account 101! We will be providing the fundamentals of all that you will need to know and understand about payment processing as far as the obligations of the ecosystem, the known rates and fees, and locating the right payment processing company for your business.

The Payments Ecosystem

When making a payment, you simply swipe your credit card to pay… it’s like magic right? In the world of cellular and with other innovative payments technologies coming out daily, it’s easy to believe that nothing else goes into it. However, payment processing is composed of an entire ecosystem. This ecosystem is comprised of information that makes up Merchant Account 101.

Merchant — A retailer is a business, such as you, that sells goods and services to customers. The merchant has a contract with an acquiring bank or merchant processor to take card payments via a merchant account.

Gateway – A payment gateway offers merchants services to accept online payments with credit cards, debit cards, direct debit, bank transfers and real-time bank transfers via your merchant account.

Risk Control — Payments firms work to safeguard your business with risk management tools and services. These tools include security against chargebacks, that’s the alteration of a sales transaction formerly processed by your company; help using PCI compliance and tokenization, which is when credit card numbers are replaced with a randomly generated series of numbers and letters known as tokens, which can’t be used to create fraudulent purchases.

Processing – Payment processing can be placed on the processing of any sort of payment, also it has rules and regulations put from the payment systems. It’s the online procedure for the exchange of data and funds between the customer, credit card, merchant, the payment service provider and the acquiring bank.

Obtaining – An acquiring bank is an alternative to your payment bureau. An acquiring bank is tied to the merchant/business, and enables retailers to accept payments online through their online merchant account and support services. When a customer purchases something, the funds have been deposited to the merchant’s bank accounts, which can be held by the acquiring bank. They aren’t the card issuer, which can be tied to the consumer.

Charge Card Institutions or Payment Networks — This term identifies the four major card brands, Visa, MasterCard, American Express and Discover. These networks regulate card acceptance rules for example processing compliance demands and interchange for their member financial institutions.

Issuer –A card issuer is a bank or financial institution that issues credit cards to consumers on behalf of the card associations (payment networks).

Client — A customer uses a credit card, obtained in the issuer to purchase a service or product.

To comprehend how the ecosystem fits and flows collectively, Paysafe has produced an infographic that explains the series of events involved with online payments.

Recognizing Rates & Fees

What exactly are the payment processing fees all about?

Payment processing charges are necessary because, as with any technology-heavy business, development and maintenance are costly. But, with all the millions of transactions worldwide, the impact on any one merchant is included.

What’s interchange?

Interchange fees are transaction fees that the merchant’s bank account must pay each time a customer employs a credit/debit card to create a purchase from their shop. Interchange contributes to the most significant portion of the credit card processing expense. The charges are paid to the card-issuing lender to pay handling costs, fraud and bad debt expenses and the risk involved with approving the payment. Interchange fees are also sometimes called Dues and Assessments. These are determined by the payment networks and are usually just passed along to the customer without any additional fees.

What’s a processor fee?

A chip fee is charged by the payment processing company for its services. The charges can be computed in a variety of ways. Some payment processors using their own gateways have the choice of never charging a gateway fee to their client. It’s not uncommon for chips to charge unique fees for services like NSF, Chargebacks and Address Verification to list a couple.

Finding the Right Processor for your Business

To find the right payment processor for the own business you need to discover the one that fits your needs and covers all parts of the payment processing value chain.

The capability to accept card-not-present (CNP) payments and other electronic transactions is essential for your direct response company. What’s more, it is important to find a chip with strong banking connections with a number of banks so as to find the best bank for your company. And last but not least, it is vital to start looking for a payment processor that may truly be your spouse and provide the ideal support and advice, in addition to the infrastructure for growth.

The support for expansion is determined by the advanced products and services that a payment processor can offer. Ask yourself, do they have the requirements that were learned above in the merchant account 101 payment ecosystem? If they don’t have a market- leading product offering that can be tailored to your requirements, then maybe they aren’t the processor for you. Crucial products needed to process for direct response companies are: national and international omnichannel payment gateway and virtual terminal solutions that can process through the internet, phone, mail order/telephone order (MOTO), cellular, in-app, and in stores or on the move, and can easily be customized to integrate with any existing system.

If you find a payment processor that successfully meets all of the requirements in the payments value chain, then you might have found a winner.

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