1. Understanding the merchant account (credit card acceptance) model
The bankcard (or credit card) industry is separated into two entities – card issuing banks and card acquiring banks – some of which
provide both functions for the two major card Associations – Visa and MasterCard. An Issuer is a member bank that provides credit and
debit card products for consumers and businesses that wish to charge their purchases on such cards. An Acquirer is a bank or sales
entity of a bank - typically called an Independent Sales Organization (ISO) or Merchant Service Provider (MSP) - that acquire card
sales on the behalf of merchants that wish to accept credit and debit cards.
2. What other entities are involved in the process of accepting card payments?
The entity that provides connectivity between the point of sale at a merchant location and the acquiring and issuing banks is known
as the processor. Companies such as Global Payments receive sales requests – also known as authorizations – when consumers either have
their credit cards swiped on a terminal in a retail store or enter their card data into a secure form on an Internet merchant’s web
site. The purchase amount (or transaction) is then routed to the card issuer’s bank to confirm the status of the consumer’s credit card
account. If approved, the sale is captured and sent back to the merchant.
At the end of each day, the sales are “batched out” or sent back to the processor to be distributed to each cardholder’s issuing bank
for consumer billing and also sent to the acquiring institution (Visa or MasterCard’s member bank) so that the merchant can be funded
for the purchases. Funding of card sales to the merchant’s operating account generally takes 48 hours.
3. What about the other card types?
The other card companies – such as American Express, Discover Card, and Diners Club can be accepted through the same merchant account
although a separate application - hence pricing and credit process - is required. Merchant funding usually adds another day to the process.
4. Will I be able to accept debit cards as well?
There are two types of debit cards that are issued by banks – offline - also known as signature debit and online – or PIN (personal
identification number) debit. Signature debit cards are used in the same manner as a standard Visa/MasterCard credit card - the difference
being that the purchase amount is deducted from the cardholder’s checking account of their bank instead of being posted against a credit
line of their credit card account. Online debit cards require the use of the cardholder’s PIN number to authorize a transaction in lieu
of a signature and also are posted against the consumer’s checking account.
With regard to the cost for a merchant to accept them, an offline card will cost the same as a standard credit card to accept (a percentage
plus a transaction fee) and the online card will only cost a transaction fee. Of course, online debit is not available for CNP merchants
as there is currently no way to enter PIN numbers.
5. What is the process to establish a merchant account?
A merchant application that details the costs, terms, and conditions for using a merchant account must be submitted to the ISO – either
electronically or via a paper document. Acquiring entities must take great care in determining the creditworthiness of each merchant as
they are at great risk of loss due to businesses that may be used for fraudulent purposes or subject to failure from poor business practices
or at risk from losses due to a high rate of chargebacks.
The Associations and other card companies consider any merchant who operates in a non-retail (face-to-face) environment – such as Internet,
mail order, and phone order –to be high risk merchants because signed consumer receipts are not viable to prove that a consumer in fact
authorized a sale. High chargeback rates could result in businesses losing their ability to continue accepting card payments.
6. What will it cost me to accept credit cards?
The Card Associations establish pricing based on industry type and the method of acceptance – Card Present vs. Card Not Present environment.
Merchant costs are reflected as a percentage of each sale plus a per transaction fee. Retail merchants that utilize POS (point of sale)
terminals enjoy the benefit of lower rates because each sale is confirmed by a signed sales slip from each cardholder. Furthermore, some
industries, like supermarkets, are given preferential pricing due to the expected lower average tickets and higher transaction volumes.
CNP merchants pay higher rates because of the acquiring banks’ higher risk for loss. Other fees that are typical include chargeback/retrieval
fees, statement fees, monthly minimum fees, surcharge fees, etc.
7. What about equipment and or software costs?
Retail merchants need a mechanism into which cards can be “swiped” to receive the benefit of the lowest discount rates. Stand-alone
terminal equipment is the norm with “all in one types” – terminal, printer, and a pin pad for debit – being the most effective and
space friendly. Special applications for different merchant types – retail, restaurant, lodging, – further defines the appropriate type.
As an option, there are many software applications for PC based point of sale – (POS) solutions that work in conjunction with a mag-stripe
reader that can be attached to a keyboard. Furthermore, there are many specialized POS systems that can integrate other functions – like
food ordering, inventory management, etc. that are available. An experienced bankcard representative would know the best solutions.
E-Commerce and MO/TO – mail order/telephone order – merchants would either use PC based software into which cardholder information can be
keyed or they can use an Internet based payment gateway such as Authorize.Net to have consumers purchase goods online in real time. The
right solution would depend on the unique needs of each merchant taking into consideration the tighter security standards for which Card
Not Present merchants are being required by the Card Associations. The knowledgeable bankcard rep can give the most prudent guidance here
8. How do I get started?
To apply for a merchant account online click here – or to contact us for more information – click here.