A kind of bank account that facilitates a merchant to accept debit or credit card payments is called a merchant account. If you wish to accept credit/debit card payments from your customers, having a merchant account is a must.

It serves as a cash-free arrangement between the retailers, merchant and payment processors, allowing customers and the merchant to do business without the need for cash.

There are 3 types of merchant accounts, which are:

•   Mail Order- Telephone Order merchant account- This merchant account is used when credit cards cannot be physically swiped at the swipe machine. Like when a customer places the order through mail or on the telephone. It charges a highest transaction rate.

•    Retail merchant account- With this account it is mandatory that the card be physically swiped, at the terminal. The transaction fee is the lowest in this case, but the minimum credit sales required is a bit high. These types of accounts are mostly in use at grocery stores, restaurants and small hotels.

•   Online merchant account- These are somewhat similar to the MOTO accounts, we talked about first. However, online merchant accounts can be used only for internet based transactions. This payment service is nowadays available with almost all major web-hosting packages and it comes with custom designed HTML forms and shopping carts.

How do merchant accounts work?

•    The first step is processing of the credit cards. On swiping the credit or debit card or manually entering the credit card number at the credit card terminal, an electronic request is transmitted to the network. The processing network, set up for handling such requests, forwards the request to the customer’s bank or credit card Company requesting for funds. Once approved, the merchant and the customer are informed about it.

•    Whenever a credit or debit card company receives the request, verifies whether the card is valid and whether the account has the required money to finish the transaction.

•    If everything is in-order, the bank then sends out an approval which goes through the same network. An authorization code is electronically issued which reaches the seller via the same network. In case, anything goes wrong the seller and the customer will get a message “transaction declined”. Interestingly, this whole process takes no more than a few seconds.

Why is it important to have a merchant account?

Merchant accounts make the process of payment a lot easier and cash-less. You can start accepting credit and debit card payments. And if you’ve got and online store its even more important because it’s the only way your business can have a global reach.

Also, customers are glad because it is a hassle free mode of payment and studies have shown that customers using credit cards tend to spend more than others. Hence, either way a merchant account is a must for every online business.