Introduction to Merchant Accounts
The subject of merchant accounts is probably one of the most difficult subjects to understand. There are so many questions that come up, and much of the time people answering them are high-powered sales people who typically slant the answers in their own direction to generate a sale. Our advice is to take your time and research slowly before you sign on any dotted line. Check out sites with .gov in their domain because these are not usually promoting any commercial business. Here are a few basic questions that someone might ask when trying to understand the subject of merchant accounts.
What is a merchant account?
A merchant account is the ability for a business owner to accept credit cards online or in a retail atmosphere. It allows you to accept the credit card transactions for which gets processed and deposited into your bank account. A merchant account is an industry term when a business owner / merchant and a bank have contracted to accept credit card payments. Establishing an account with a bank, Independent Service Organization (ISO), or Merchant Service Provider (MSP) allows you to process credit card transactions or electronic payments received from your customers. The bank, ISO, or MSP will deposit the sale proceeds into your business checking account, less a small commission.
What to ask before signing up for a merchant account?Before signing a Merchant contract, you should take the time to research merchant service providers that offer a single-source solution for your retail or Internet business. As a merchant, it is important that your concerns or issues be addressed 24/7 and with one phone call or email. Take into account the level of assistance received during your selection process. Did you reach an automated voice system or a real person that was friendly and helpful? Were you placed on hold or was your call transferred to an available representative? Were technical needs addressed quickly and processing questions answered thoroughly? Most importantly, did the merchant provider offer inclusive services so you did not have to contact other multiple vendors for a payment gateway, shopping cart, POS terminal equipment and supplies, et cetera?
What is a Cardholder?
A cardholder is a person who gets issued a credit card from their bank or financial institution.
What is an issuing bank?
It is normally the bank that issues the card to cardholder.
How are transactions processed?
Once you are a merchant account customer you will start taking credit cards either online or in a retail atmosphere. At that time the credit card transaction is done buy swiping with a credit card machine or virtual terminal. The transaction is then processed by your Merchant Account Provider and then deposited into your bank account.
There are many instances where a red flag can arise if there is any reason of fraudulent behavior or if there is a substantial increase of volume happening. There are transaction rates and fees that are assessed monthly and per transaction and based on your choice of processor this amount varies.
Who does the Credit Card system protect?
When that transaction is approved you are making a promise and commitment to deliver those goods to your customer. There are many implications a merchant can come across if the goods are not delivered and are faulty. There are many cases depending on industry that will inquire a certain amount of charge backs if goods are not as promised.
There is no way the system can recognize the validity of your commitment to your end user so the merchant must always remain in good standing with the sponsoring bank and as well with all parties involved. The protection is for both sides and is not bias towards one or the other. The main goal of the Credit Card Processor, Merchant and customer is to supply resources, goods and an adequate system that can provide confidence that all transactions will go smoothly.
There are many instances in the world of credit card transactions and online shopping where the cardholder isn't satisfied with the goods or performance of the merchant. There is times where the customer is unsatisfied and want there money back (return).
If the customer doesn't receive the goods or appropriate services retrieval is issued and is sent to the cardholders bank in which is relayed over to the Merchant Account Provider who contacts the merchant responsible. This seems like a chain reaction of events and it definitely is but all parties involved must be contacted accordingly.
You as the merchant must retain all copies of invoices, receipts and documents to protect yourself and all parties involved. When shipping commodities online the merchants must protect themselves and provide tracking information to your customer to avoid any mishaps or misunderstandings. You must try to eliminate charge backs completely and avoid having to deal with your issuing bank and sponsored banks. There are many instances where your account can be cancelled and will become nearly impossible to open another one without paying high-risk fees.
What are Charge backs?
A charge back is where the processor has been notified by the cardholder that there was misrepresentation in goods received or services and is asking for a refund. The main thing to remember about charge backs is try to avoid them. You must have a system in place where it allows the customer to be confident in the transaction. In case of a lost card or stolen there are many delinquents who try to take advantage of these individuals and try to charge credit cards without validation and you have to pay for it in the long run.
As a retail merchant having the machine and ability to look at the card and verify its ownership is everything. This gives validation to the system and identifies the cardholder to the issuing bank. Note: The transaction rates are lower when actually swiping the card.
If you are accepting credit cards online then you must have a system in place that safeguards you and the customer. In these instances complete information is necessary. For example: phone number, address, email, and cvc code in the back of the card and at time if necessary contacting the cardholders issuing bank to verify user. Make sure that there are security measures in place when applying for a merchant account.
Make sure not to ship to an address that is not the same as the billing address.
If time permits try to contact the cardholder and verify his address and product details if any to secure yourself with the order.
You must be careful especially if the goods or services you are providing are high dollar. This can come back to you and shoot you in the foot with return costs and charge back fees. Always use your best judgment in these cases before the goods are shipped.
Make sure the customer is aware of any returned or restocking fees and warranty. You must be obligated to come through on your business propositions and promises because the customer is always right in most cases. There are costs involved in returns so be aware of these costs so not to hurt the bottom line.
In most cases all the refunds and credits should be done in a timely fashion. If they are not expedited immediately this could cause a charge back and avoid other fees involved.
Hold true to your refund policy and exchanges and keep records of all the transactions and remind yourself to make the credits accordingly. Your reputation as a Merchant is online if charge backs accumulate in a short period of time and you can be recognized as a non-legitimate business. Your issuing bank is counting on you to make prompt decisions on your refund policy. Once again being cancelled or removed from your processor it will make it difficult to go elsewhere.
Submitting a deposit:
The merchant is responsible for submitting a deposit to the cardholder if goods are not received or if returned. The money generated from a transaction from the point of movement from the cardholder to the merchant's bank account is technically not the merchants until goods are received and are satisfied. Two parties, the cardholder's bank and the merchants processing company provide the protection of the Cardholder and Merchant. The deposit format safeguards the two on a joint agreement that if funds are accepted and goods are received then a deposit and chance of charge back can be eliminated.
The issuing bank protects the cardholder and their processor protects the merchant. The two work hand in hand with the cardholder to insure that both parties come to an agreement over stated goods and services. Below are a few things to look for.
1. Are you fulfilling your shipment dates and quality commitments according to the expectations you have set in the mind of your credit card customers?
2. Are you promptly responding to Cardholder requested returns and refunds according to your policy, and submitting the appropriate credit transactions to your Processor?
3. Are you doing everything you can to verify that the credit card numbers you are accepting for your goods and services are from the actual Cardholders, and not from someone else that happens to know the card number?
4. Are you meeting the terms of your agreement with your Processor regarding charging the card and timing of delivery?
You must be aware that the safest methodology of accepting credit cards is by having the card present. In online situations where verification isn't possible be careful that the card and address is matching along with the cvc in the back of the card. Verify with the online merchant provider of top security measures within there system. We here at Infomerchant hope you and your business continued success and are to help in providing you with the best merchant solutions possible.