Know The Terms Of Merchant Accounts

By Author: sifip
Total Articles: 686
Comment this article

Merchant accounts can be intimidating, complex, and full of illegible words at times. Cut through the jargon and confusion surrounding Merchant Accounts or online payment gateway India.
With this handy alphabetized guide, you'll be a confident, knowledgeable merchant account holder in no time. Save this guide and refer to it whenever you need to!

Aggregate Merchant Account
Your small business does not have its own "dedicated" merchant account, but is instead added to a pool of many other businesses within a larger merchant account. It is usually faster to sign up, but you will have less control over the rates, fees, and when your money is returned to your bank account. And, as your business grows and your volume increases, you will need to switch to a dedicated merchant account.

Approval Time
When you apply, your account could be approved in as little as one day or a few hours. It may take longer if you apply on the weekend or in the evening. In most cases, having an underwriter physically look at and assess your application is part of the process, so it must take place during business hours.

Business ...
... Bank Account
The Merchant Account connects customer payments to your Business Bank Account through online payment gateway. To set up your Merchant Account with direct deposit to your bank account, you will need to provide your bank account and routing numbers (as well as a voided check).

Chargeback
The transfer of funds from your account to the customer's account, as requested by the customer. A high chargeback ratio as a percentage of your transactions is a red flag for merchant account underwriters, as the merchant account provider may be liable for the funds if they are not in your account.

A "Fraudulent Chargeback" is another classification. This is a scenario in which a consumer will attempt to obtain goods or services in advance so that by the time you bill or charge for the transaction, the consumer will have long since left with the product and will simply request a chargeback to avoid paying for the goods. When a processor detects such incidents, it will sometimes place transactions on "hold" in order to protect the merchant from such incidents.

Dedicated Merchant Account
A Dedicated Merchant Account is a single merchant account that is specifically set up for your business to counterbalance the "aggregated" model. You will have to go through an underwriting process in order for the provider to assess the financial risk, but it will give you more control over your money and the rates you will be charged in the future, which may be important as your business grows.

Direct Deposit
Direct Deposit, one of the best features of a Dedicated Merchant Account, means that funds are automatically deposited into the business bank account after a customer's payment is processed through the best online payment gateway. You will not need to request funds; they will be provided automatically.

Electronic Checks (or ACH)
A paper check in electronic form. Accepting electronic checks (or ACH payments) may necessitate the use of a separate merchant account, as most credit card merchant accounts do not accept both payment types.

Flat Rate
You can now find providers who sell a "one-flat-rate" model, which is most commonly found in an Aggregate Merchant Account. While your Effective Rate is easier to calculate, be cautious of how much you process per month; you may be paying more than if you were on a Tiered Rate plan with a Dedicated Merchant Account.

Funding Time
After you've established your merchant account, you'll want to learn more about how to access your funds. Funds are typically deposited into your business bank account within 1-3 business days. It will differ depending on the type of card. Some merchant account providers provide "next day funding," which essentially means "pre-funding" the money. Building a consistent processing history with many providers can result in faster funding time.

Growing Business
Great! Your company is expanding, and you want to offer more payment options to your customers. When deciding between an Aggregated Merchant Account and a Dedicated Merchant Account, consider your expected level of growth.

Hold
Your funds have been placed on "hold." What does this imply?
These are the most common reasons for a "hold" being placed on your account. Whatever the reason, the processor can use the hold to investigate "abnormal" activity.

A hold differs from a "freeze," in which you cannot continue to process, but both can be unsettling for a business owner. It is critical to be realistic and accurate with your transaction levels in order to reduce the possibility of holds.

Identification Number (EIN/TIN)
Your Employer Identification Number or Tax Identification Number is a way for the processor to identify your business and is frequently required when opening a merchant account. This number can also be your Social Security Number if you are a sole proprietor.

Just a Few Documents
Often, merchant account providers have a simple online application that you must fill out, but it can be helpful to gather a few documents before you begin to potentially expedite the process.

A voided check can be used to verify the business bank account or to find your routing and account number (printed on the bottom of your checks).
Marketing materials, such as a website or brochure, can demonstrate that you are actively managing your business.

Financial statements or processing statements to validate your company's stability and the processing volumes requested on the application.

Key Metric – The Effective Rate
If you only look at one metric to assess your merchant account and the competitiveness of the rates you receive from your provider, it should be the "effective rate" of your credit card processing. While customer credit card payments are processed at various rates (explained further under Tiered Pricing), the average amount you will pay is the effective rate, or the total processing fees divided by the total sales volume. It is best to calculate this rate on an annual basis because monthly variations can be significant.

License (Business)
A business licence is a document that authorises you to start a business in a specific area. It is not always required when applying for a merchant account. It can, however, be useful in the underwriting process and may be required if you work in a traditionally "risky" industry.

Merchant Credit Score
While your company's credit score is an indicator of its health, merchant account processors will also look at the owner/personal signer's credit score. A high score can speed up the process, whereas a low score may necessitate additional documentation or an upfront reserve for the account. It is critical to question your potential merchant account provider in order to better understand their risk tolerance. If the application is declined due to credit score, businesses with multiple partners may be able to apply with a different signer.

Mid-Qualified Rate
The mid-qualified rate is part of the tiered rate merchant account plan and falls between (as you might expect) the Qualified and Non-Qualified rates. A "mid-qual" rate, as we payment nerds call it, is determined by a combination of card types and payment acceptance methods (think: MOTO, web, swipe) that can provide some savings on rates that do not fall into the Non-Qualified category, the most expensive rate type.

Non-Qualified Rate
The Non-Qualified Rate, the highest rate in a tiered merchant account rate plan, is established for a bucket of credit card types or payment acceptance methods deemed the "riskiest" (not accepted in person) or are types of cards that provide high-yielding rewards for the consumer, making the transaction more expensive for all parties involved.

Online Payments
(or Payment Gateway or Virtual Terminal) – You will need both a merchant account and a payment gateway to accept payments online or over the phone. A payment gateway is essentially the payment acceptance interface that sends transaction information to the merchant account processor. You can eliminate the need for a physical POS terminal by using an online payment gateway to provide your business with a virtual terminal.

Policy for Returns
If you collect payment after goods and services have been rendered, you are considered "safe" for underwriting risk because the possibility of chargebacks is reduced. If you collect payments many months before the service/product is delivered, the merchant account underwriter may raise an eyebrow. These policies extend the window for the customer to cancel and your company to reimburse funds, increasing the risk for the merchant account provider.

Qualified Rate
The Qualified Rate, the lowest available rate in a tiered merchant account plan, is established for a bucket of transaction types that are deemed the "safest" and are frequently applied to transactions where the card is in hand (swiped) or is a non-rewards or corporate card that is less expensive to process for all parties involved.

Rewards Card
While rewards cards are highly valued by consumers (who doesn't love cash back, travel discounts, and free airline miles?! ), businesses can feel the pinch when processing them, as these will always fall into the Non-Qualified or highest rate bucket in a tiered merchant account plan.

Risk
Each provider or bank is willing to accept a different level of risk. They want to ensure that you will not hold them liable for the money you are collecting. Industries with a higher likelihood of fraud or chargebacks may classify your company as "high risk." Furthermore, your billing policies or credit score may be factored into the risk calculation. Some high-risk processors have more relaxed guidelines, but it may affect your rates, cause a hold, or require you to have a reserve on your account.

Security
Prior to 2008, PCI DSS compliance was considered a "best practise" for businesses and merchant account providers, but it is now required! There are 12 core requirements for handling credit card information, as well as nearly 250 specifications within those topics. However, they require you to meet data security requirements for how you accept, store, and transmit credit card information.

You must conduct a periodic review or assessment to ensure that you are maintaining PCI compliance over time, not just for a specific period of time.

Tiered Pricing
Tiered pricing, the most common type of credit card processing pricing, divides rates into three levels: qualified, mid-qualified, and non-qualified.

Underwriting
The process by which a processor or bank decides to grant your company a merchant account, similar to the process by which your company would obtain a loan. They will examine a number of the aspects that we have defined, including the following: Years in business, business type/industry, chargeback history, billing policy, owner credit score, and requested processing volumes

Verify Identity
Identity verification is a critical component of merchant account approval and is required by law to verify the applicant's identity. Verification is usually accomplished by answering a few questions that only you know the answers to (previous addresses, cars owned, etc.) Failure to verify correctly could indicate that you forgot what type of car you drove in 1986 (which you can correct with the processor) or that someone else is attempting to open an account in your name.

Volumes (Processing)
The underwriting process will be more seamless, and approval times will be faster, if you have a realistic idea of your current processing volumes and future expectations (both monthly average and high-ticket). Providing accurate processing volumes can also reduce the possibility of holds or freezes on your account once you are set up.

What If I’m Declined?
Poor credit score (for the guarantor or the business), excessive processing volumes with insufficient business history, "high-risk" industry, high chargeback history, inability to verify the applicant's identity, or a positive result for OFAC are some of the primary reasons a merchant account application can be declined. When it comes to new businesses or excessive processing volumes, you can solve the problem by starting small and establishing a good history with the processor before requesting higher volumes over time.

Years in Business
Businesses with long tenures are more stable in the eyes of an underwriter, so the risk of underwriting the account decreases over time. Your years in business are an important consideration to make during the application process.

Postal Code
When asked for your company's physical address on an application, make sure it's an actual address, not a P.O. Box. If you work from home, the address can be your home.