Why Do You Need A Merchant Account And What You Need To Know?

By Author: SifiPay
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In our articles, we discussed how to manage your merchant account, make it more effective, and protect it from chargebacks. Still, some merchants may wonder, "What is this merchant account all about?" when they first start their business. Today, we'll look into this topic for those who are thinking about opening an account.

What are a merchant account and an internet merchant account?
A merchant account is a type of account used by businesses to accept payments for their goods and services using credit cards or other forms of payment or online payment gateway.

An internet/online merchant account is similar to a traditional merchant account, but it is designed for businesses that sell products online. Some financial institutions don't distinguish between a virtual and an offline merchant account, and offer merchant account services for both offline and online transactions.

A merchant account can be obtained from one of two different types of financial institutions. The first is a merchant acquiring bank, which is a physical banking system for electronic payments. Long-term contracts, obligations, and ...
... strict verification systems are available, as well as an online merchant account and a POS terminal for physical payments.

The second option is to contact the best online payment gateway service provider that works with merchant acquiring banks. It only provides services for ecommerce merchant accounts, but with a strict set of rules and lower fees.

Both systems have advantages and disadvantages, particularly in terms of merchant agreements, commissions, and benefits. We'll get into more detail in the following paragraphs, but first, let's cover the basics.

Do you need a merchant account?
You can skip the account if your company only accepts cash payments for its products and services. However, this scenario is inconvenient nowadays: not only will you lose a significant number of customers, but you will also be unable to sell online at all.

In these uncertain times, more and more people are going cashless and opting for online shopping instead of traditional shopping. This encourages many retailers to invest in online display in order to reach the same number of customers and continue to expand. Even so, you can only open an online store after you've opened an ecommerce merchant account.

As a result, we strongly advise you to open a merchant account for your online business or retail store in order to process credit cards or, to put it another way, to accept electronic transactions.

What is the difference between a merchant account and a business account?
Despite the fact that business and merchant accounts operate in the same field, the purpose of each account, as well as the application process, differs.

It is possible to open a business account at almost any regular bank. The business wallet will be ready to operate the company's funds shortly after that.

A business account is used for all of the company's needs, including commercial transactions, corporate expenses, loan services, bill payment, and money savings.

Before you can open a merchant account, you must first have a business account. A merchant account can also be opened on behalf of or directly with a merchant acquiring bank, which is a special institution that processes card payments on the merchant's behalf.

As we previously stated, a merchant account is required in order to accept electronic payments through online payment gateway India for your goods or services. A contract between a seller and a credit card processing company is represented by these accounts. Both the issuer and the acquiring banks verify transactions individually before authorising the purchase, which takes 1 to 2 days. The money is then electronically transferred to a merchant account, and then to a business account.

What is payment processing?
Credit card processing (or any other payment method processing for that matter) is a set of tools used to successfully complete or deny a transaction between a customer and a merchant. Though it only takes a few seconds, the procedure is quite sophisticated. Payment is authenticated and processed, and possible fraud is checked, resulting in approval or disapproval, before the money is transferred.

Knowing the basics, let’s figure out how the merchant account works.

How do merchant accounts work?
Now that you've learned about the fundamentals of payment processing, we can go over what a merchant account is and how it works step by step.
You must first choose a bank or a Third-Party Provider (TPP) whose services appear to be the most beneficial for you before applying for a merchant account. Some banks will have all of the necessary software (and hardware for physical stores), while others will refer you to TPPs, which will have all of the required hardware as well as an application programming interface.

This is how a merchant account works:
Customers walk into a store or go to an e-commerce website and select an item to buy. To do so, they must either use a point of sale terminal in a store or enter their credit card information if they buy online.
A payment processor communicates with acquiring and issuing banks after receiving transaction details. A payment processor checks the validity of the bank card, the authorization, funds availability, transaction limits, and so on at this time.

When a transaction is approved, the issuer places a hold on the amount of money needed to pay for the product on the cardholder's account. The money will be transferred to the merchant after the sum is charged. If a transaction is declined, the issuing bank will send a notification to the merchant and the client, along with a brief explanation of the reason. Money would not be transferred to the merchant account in this case.
Even if a payment was successful, the merchant would not receive the full amount paid on the account by the customer. This is due to the various fees that apply at various stages of the transaction process.

Fees and services of merchant accounts
None of the bank services are provided for free, as one might expect. When it comes to merchant account solutions, however, the question isn't so much about the fee. It's more about the right combination of fees for the business, as well as all of the services that come with the acquiring bank's or payment service provider's package.

Each agreement would have different charges with different numbers, but each merchant would pay some common fees. Processors, networks, and issuers all charge fees for each transaction. There may also be a fee for setting up a merchant account, as well as fees for additional services such as supplementary tools, hardware, software, and essential setup and maintenance, depending on the contract.

When dealing with a physical branch of an acquiring bank, the rules for opening and maintaining a merchant account can be more complicated, with a long-term contract and the requirement to submit extensive documentation. Additionally, there may be additional fees, such as annual and monthly changes, terminal fees, processing commitment fees, a fee for terminating the contract, and so on. Nonetheless, this option may be beneficial for large businesses and physical stores that conduct a large number of transactions on a daily basis.

Those who are more focused on opening an online merchant account may find it easier to rely on payment service providers. There are usually fewer fees, more flexible agreements, acceptance of high-risk businesses, and less paperwork to submit.

Open a merchant account online
Now that it's clear that having a merchant account is essential for businesses, and that the account's operation is simple and straightforward.

The article outlines a set of guidelines that a business must follow in order to be considered for an internet merchant account. After that, look into some reputable financial institutions that can provide you with a merchant account.

High-risk merchant accounts
Naturally, adult-oriented businesses, as well as gambling and betting, would be considered high-risk businesses. They are, without a doubt, but there is so much more.

A high-risk business is one that faces a higher risk of chargebacks than a low-risk business. A chargeback is when a customer receives money back after a transaction. For example, a monetary refund for damaged or lost goods, or a refund for poor service.

As a result, there are numerous verticals in this category, including real estate, social networking companies, life coaching, dating websites, online games, travel services, and any subscription-based billing services, among others.

When an acquiring bank labels a business as high-risk, obtaining an online merchant account becomes more difficult and expensive. A payment service provider can help you with this. PSPs typically offer better merchant account terms because they require less documentation, have lower fees, and have a better understanding of a high-risk business.

Know more about SifiPay, please visit www.sifipay.com.