A merchant account is a specialized type of financial account that allows businesses to accept payments via credit or debit cards, as well as other electronic payment methods. It serves as an intermediary between the business, the customer, and the payment processing network, facilitating the authorization and settlement of credit and debit card transactions. A merchant account retains funds temporarily until they are transferred to the merchant's primary business bank account. If you accept payments, you need a merchant account because it serves as a dedicated financial gateway that allows you to securely receive and process electronic payments from your customers.
When a customer initiates a card transaction, your payment terminal or online payment gateway sends a request for authorization to the card issuer. The issuer checks the customer's account for available funds or credit limit and responds with an authorization code if the transaction is approved or a decline message if it is not.
Requirements for obtaining a merchant account
Obtaining a merchant account is essential for businesses if you want to accept electronic payments, such as credit and debit card transactions. However, there are certain requirements that businesses typically need to meet in order to qualify for a merchant account. These requirements may vary slightly depending on the merchant account provider and the specific industry, but here are the common requirements:
- Business Type: Most merchant account providers require that you operate a legitimate business entity, such as a sole proprietorship, partnership, corporation, or LLC. Some high-risk industries may have additional requirements.
- Operational History: Many providers prefer businesses with a history of operation, typically at least three to six months. Startups may face more stringent requirements or higher fees.
- Business Location: You may be asked for proof of a physical business location, which can be a brick-and-mortar store or an online business with a verifiable physical address.
- Business Bank Account: You must have a business bank account where the funds from card transactions will be deposited. This account should be in the name of the business, not a personal account.
- Tax ID or EIN: A Tax Identification Number (TIN) or Employer Identification Number (EIN) is usually required for tax reporting purposes. Sole proprietors may use their Social Security Number (SSN).
- Financial Stability: Merchant account providers may evaluate your financial stability and creditworthiness. They may check your credit history and financial statements to assess risk.
What is a merchant services provider?
A merchant services provider, often referred to simply as a "merchant provider," is a financial institution or company that offers services to businesses to enable them to accept electronic payments, primarily credit and debit card transactions, from customers. These providers play a crucial role in facilitating the payment process between customers, merchants (businesses), and the payment card networks.Merchant services providers typically fall into one of three categories:
- Banks, also known as acquirers or acquiring institutions, are financial institutions that directly establish relationships with businesses (merchants) to enable them to accept electronic payments.
- Payment processors like Qualpay, also known as payment service providers (PSPs) or third-party processors, are companies that specialize in processing electronic payments on behalf of merchants.
- Independent Sales Organizations (ISOs) and Payment Facilitators are entities that act as intermediaries between merchants and acquiring banks or payment processors
What are the fees associated with a merchant account?
If you're looking to understand merchant account fees, you'll want to know that these are the charges associated with having and using your merchant account. These fees can vary widely depending on the provider and the specific services offered, but here are some common merchant account fees you might encounter:
- Setup Fees: Some merchant account providers charge an initial setup fee when you first establish your merchant account. This fee covers the administrative costs of creating your account.
- Monthly or Annual Fees: Many merchant accounts have ongoing monthly or annual fees. These fees cover the cost of maintaining your account and providing access to payment processing services.
- Transaction Fees: Transaction fees are charged for each payment processed through your merchant account. They can be broken down into two types:
- Per-Transaction Fee: This is a fixed fee charged for each individual transaction, regardless of the transaction amount.
- Percentage Fee (Discount Rate): This is a percentage of the transaction amount that is charged as a fee. For example, if the discount rate is 2.5%, and you process a $100 transaction, you would pay a $2.50 fee.
- Interchange Fees: Interchange fees are fees paid to card-issuing banks and card networks (e.g., Visa, Mastercard) for processing card transactions. These fees are set by the card networks and are typically a percentage of the transaction amount plus a flat fee.
- Monthly Minimum Fees: Some providers require businesses to meet a minimum monthly transaction volume. If you don't meet this threshold, you may be charged a monthly minimum fee to make up the difference.
- Statement Fees: This fee covers the cost of providing you with monthly statements that detail your transaction history and fees. It may also include access to online reporting tools.
- PCI Compliance Fees: Merchants are required to maintain Payment Card Industry Data Security Standard (PCI DSS) compliance to protect customer data. Some providers charge fees related to PCI compliance, such as for security assessments or scans.
- Chargeback Fees: If a customer disputes a transaction and initiates a chargeback, you may be charged a fee for each chargeback occurrence. Chargebacks can result in the reversal of a transaction and the return of funds to the customer.
- Gateway Fees: If you use an online payment gateway to process transactions on your website, you may be charged gateway fees. These fees are separate from your merchant account fees. A solution like Qualpay offers an integrated Gateway that can reduce and sometimes eliminate this fee.
- Early Termination Fees: Some providers may impose fees if you decide to terminate your merchant account before the end of your contract term.
- Additional Service Fees: Depending on your provider and the services you require, you may encounter additional fees for services like virtual terminals, recurring billing, or fraud prevention tools.
Be sure to carefully review and understand the fee structure provided by each merchant services provider. Keep in mind that merchant account fees are indeed just one component of the fees associated with accepting credit card payments. When a business accepts credit card payments, there are multiple fee components involved, including interchange fees, assessment fees, processor markup, and various other fees, which collectively determine the cost of processing credit card transactions.
How to select the right merchant account for your business
When selecting a merchant account for your business, industry expertise becomes a critical factor. Let’s say you operate a propane delivery business. The merchant account and payment processing solution you select will need to support the unique nature of your business. Here are the most important factors to consider when to help you choose the right merchant account provider:
1) Assess Industry-Specific Needs: Begin by evaluating the specific requirements of your business. Understand the unique payment methods and challenges related to propane delivery transactions.
2) Research Merchant Account Providers with Industry Expertise: Look for merchant account providers that specialize in serving businesses within your industry. For a propane delivery business, taking advantage of industry-specific interchange rates is key to reducing your overall credit card processing fees. Be sure that the merchant service provider you select can guide you to the Utility Program or other special opportunities for your industry.
3) Examine Fee Structures: Carefully analyze the fee structures of potential providers, focusing on setup fees, monthly fees, transaction fees, and any industry-specific charges. Ensure that the pricing aligns with your budget.
4)Know your business and how much you can expect to process in credit cards and ACH. This alone can determine whether you might want to consider a flat fee/no obligation with higher transaction costs versus taking advantage of lower rates offered by companies like Qualpay.
5) Evaluate Contract Terms: Review the terms and conditions of merchant account agreements, paying attention to contract duration and early termination fees. Opt for providers that offer flexible contract terms suitable for your business.
6) Propane Payment Processing Options: Confirm that the provider supports payment processing solutions that cater to the unique needs of propane delivery and/or Energy Marketers in general, whether it involves in-person transactions, online payments, or both.
7) Prioritize Industry Compliance: Verify that the provider complies with industry-specific regulations and standards related to your industry. Compliance ensures the secure handling of payment data.
8) Integration with Propane Systems: Ensure that the merchant account can integrate with your existing systems, such as propane delivery management software or fleet tracking tools.
What can you do to reduce credit card processing fees?
Analysis is the first step in evaluating whether you're enjoying the interchange rates your company is eligible for, get started by following the link below. Ensure your interchange fees are optimized by taking Qualpay’s Savings Challenge. Simply upload one of your latest statements and we will create a custom audit of your interchange charges to see if you are paying more than you have to. Qualpay's cutting-edge technology ensures you are utilizing the correct criteria to achieve the lowest interchange rate—the target interchange. That means properly setting up all the qualifying data necessary to meet the card brands' rules. It also means passing along the correct industry classifications. And should you need further help qualifying for the lowest interchange rate, our support staff is always ready to assist you.
About Qualpay
Qualpay is a fully-integrated payments platform that utilizes the most up-to-date technology to reduce costs and streamline back-office operations. Its comprehensive system addresses and resolves the payment challenges businesses face, ensuring a stronger, more robust infrastructure that allows companies to focus on growing their business. Qualpay's reporting intelligence and data analytics allow customers to quickly and efficiently manage their payment finances, saving them both time and money. Simply put, Qualpay provides a better way to manage payments. For more information, please visit www.qualpay.com.
