A merchant account is a type of corporate bank account that enables the acceptance and processing of credit and debit card transactions. A merchant account is often needed for various businesses, especially for doing business online. This account is specifically used to identify the seller as the owner of the purchase. Information about owners and transactions is sent directly to the bank.
This bank account is issued by purchasing a bank for a specific seller under an agreement to process payment card transactions. Sometimes an independent sales organization, member service provider, or other payment processor appears as a third party in the merchant agreement. After signing a dealer contract, the provider is contractually obliged to comply with the regulations of card associations such as MasterCard or Visa.
Merchant Account Features
There are two main categories of merchant accounts that are usually chosen by different companies based on the nature of their business. “Swiped” refers to transactions where a customer pays for purchases in person and is required to swipe or insert a credit or debit card. This type of merchant account is mainly used in retail. “Encrypted” refers to transactions in which the credit or debit card information is entered through a virtual terminal, typically over the Internet. This type of merchant account is mainly used by ecommerce merchants, but some merchants choose to use this method for in-person transactions as well as it is less expensive.
Use dealer account
Similarly, a merchant account lets you accept a card payment from a customer because you can deposit someone else’s check into a checking account. In the meantime, the merchant account does not hold any money like checking or other deposit accounts. Instead, the card payment runs through the merchant account via the payment gateway and after the funds have been settled, they are deposited in a current account. It usually takes up to 48 hours from the time of the transaction for the money to be transferred to the seller’s checking account. In addition, instead of receiving numerous deposits for each transaction, all payments from a business day are combined into one deposit payment, which is referred to as a “batch”.
The merchant account can also be declared a credit line account as the seller is paid before the actual funds are collected from the customer. This means that the seller can be subjected to a personal credit check or an obligation to sign a personal guarantee.
Payment method for merchant accounts
Although merchant accounts are widely used for trading and e-commerce, understand that they are vastly different from other types of accounts. These differences can be technical in nature, but you must understand the merchant account payment system and its features before opening one.
When a customer makes a transfer (payment) to your company through a merchant account, the entire payment process can generally be broken down into 4 main steps:
Online payment. A customer is buying something, most likely online, using their debit / credit card. This is the moment when the entry is made and the payment process is initiated;
Payment verification. The transaction is processed and authorized by the payment system service provider;
Payment transfer. Once the transaction has been verified and approved, the funds will be transferred from your customer’s bank account to your company’s merchant account.
Stack. Instead of transferring every single payment immediately, all payments are collected in your merchant account within the next few days and then transferred to your bank account in one transfer.
Advantages and disadvantages of merchant accounts
The merchant account is useful for any business to grow its customer base online. In the meantime, alternatives such as PayPal are creating stiff competition for merchant accounts due to the time-consuming and complicated procedures used by banks. Most providers are willing to open a credit line account.
Advantages
Merchant accounts also have several advantages over the PayPal account. As mentioned earlier, with most merchant account providers, the seller can expect to receive the funds paid by the customer within a day or two. When a customer pays with PayPal, the money is transferred to the seller’s PayPal account and remains there until the seller requests a transfer to their checking account at a bank. After that, the transfer process can take up to seven days. Additionally, line of credit accounts with monthly billing service fees and / or a per-transaction fee are typically less expensive. In the meantime, PayPal does not charge a monthly service fee, but rather transaction fees that are much higher than for merchant accounts.
Additionally, merchant account providers charge a monthly fee that covers quality customer service. One disadvantage of a PayPal account is the lack of customer service. Not only can this complicate your business processes, but it can also have a negative impact on your customers. In conclusion, PayPal is a great option for online businesses with low transaction volumes. As your business expands, not only will a merchant account provide better customer service, but it will also save you money.
Disadvantage
One disadvantage of the merchant account provider is the risk of the seller’s financial instability. Businesses usually receive an upfront payment for the provision of the service or product, and in the event that the seller is unable to deliver the goods while unable to repay the money received from the customer, financial liability rests with the provider of the Merchant account via.
