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Merchant Accounts for Business Startups

If you have a new business startup, sooner or later you will find out that you need to accept credit card payments from your customers. This is especially true if you run a website that sells a product, as online consumers are quite used to being able to make quick purchases with a Visa or Mastercard. It seems obvious enough that you should set accepting credit cards online as a high priority for your new business. But how exactly does one go about being able to accept such payments? And how does one handle a credit card transaction where a product or service is being shipped out? Keep reading.

The simple answer is that you need a merchant account, but the simple answer is not the complete answer. You can either get a merchant account, or go with a third party that will process your credit card orders for you. Either way, there is some important information you need to know before getting started. This section provides these details and a list of merchant service providers that will allow to start accepting credit cards.

What is a Merchant Account Anyway?

A merchant account is essentially a special bank account which allows you to receive payments from major credit cards. This is how a typical transaction would go: A customer makes a purchase on your website by entering in their billing address and card info, which is then sent to you, often in the form of e-mail. Once you receive the info, you must take the credit card info and process it. If you are shipping out a product, you will do so after processing the info, and your money should be in your bank account within 2 days. You can obtain such a merchant account through a local bank, or go through a company that specializes in providing merchant accounts for business startups. The later is much simpler, though you can expect more associated fees with that option.

Equipment Required for a Merchant Account

You will process transactions with a credit card terminal (those card swiping machines used in retail stores) or special processing software for your PC. The software is cheaper than the terminal in most cases, but is almost exclusively made for internet or mail order business.

This terminal or software is connected to the bank your merchant account is located at by modem, and all you have to do is send over the information to receive your money. After a successful transaction, the bank charges you a small percent of the sale, usually around 2 percent, and you ship out the product to the customer. This applies if you are offering a service as well, such as web design, a 900 number or members access to a website.

Is Getting a Merchant Account Complicated?

From the above, it would seem that the process of accepting credit cards is quite simple. It is. However, getting a merchant account setup may seem like a complicated task if you've never dealt with this before. Before the internet, getting a merchant account would mean going to a bank and applying, and those same banks would usually only offer a merchant account for either Visa or Mastercard, but not both.

Obtaining an account this way could be difficult for a home based business, which was not considered to be a mainstream type of business. If lucky enough to succeed in getting the merchant account, the owner of a home based business would likely be classified as a high risk business, and as a result would be required to put up a high security deposit and would likely be subject to higher than usual transaction fees.

Specialty Merchant Providers

With the explosive growth of the internet and online businesses, many things have changed. There are now hundreds of companies that will setup a merchant account on your behalf, and unlike before you can accept payments from Visa, Mastercard, Discover and American Express with one account. These companies will use their own reputation to secure your account, but will typically require you to purchase the credit card terminal or PC software from them at a very high price markup.

But for all the things that have changed, many have stayed the same. If you happen to run a business that is considered high risk (such as a paid membership based website) you are still likely to be hit with higher transaction fees, and a large security deposit may be required. So the question is, what is the solution for home based business?

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