Payment processing is an integral part of any online business as it forms the backbone of sending and receiving online payments. Ecommerce businesses, services providers, online sales markets, food delivery businesses and bookings and ticketing, all these industries require payment solutions which in turn need merchant account services. There are several merchant account providers which offer a platter of different payment solutions ranging from debit/credit card payments to services like eCheck and electronic payments via mobile wallets and digital payments.
What is a merchant account?
A merchant account is your business transaction account. It is a special kind of commercial bank account that allows business owners to send and receive payments to their business from multiple payment methods. It facilitates these transactions by acting as a holding account for funds. They furnish businesses the capability of accepting cards and other kinds of electronic payments. They are an essential component of online businesses. These accounts are set up by the merchant acquiring banks.
Why is a merchant account needed?
A merchant account acts as the conduit between your customers and your commercial bank account. It holds the funds that customers pay in return of your products and services. You can withdraw these funds as per the rules of this account. There is also a fee that is charged for transactions using your merchant account. Before you can start accepting payments for your online business, you need to set up your merchant account with a merchant acquiring bank. This is done under an agreement on an agreement that outlines the terms and conditions of this relationship. This also includes fee structure which involves several kinds of fee and charges like:
• Per transaction cost charged by the bank
• Charges of the bank’s card processing network
• Monthly and annual fee charged by the bank
• Fee charged by the card processing networks
A merchant account is an integral terminal in the whole payment processing cycle. A simple card transaction which is completed in a matter of a tens of seconds involves a whole process of repeated communications between the bank, consumer, merchant account and the payment processing networks. Here is a short summary of this process for your reference:
1. A customer asks to pay at a terminal via a debit/credit card.
2. The merchant sends these card communications to the merchant acquiring bank.
3. The bank then communicates with the card processing network.
4. The card issuing company authenticates the card via the details provided by the consumer through various approvals.
5. Security checks are performed and availability of funds is established.
6. Once approved the card network sends the approval to the merchant account bank through the card network processor.
7. Post this, the transaction is approved by the merchant acquiring bank and the bank starts moving the funds to the merchant account.
A monthly fee is also paid to the merchant acquiring bank for taking care of several electronic card payments that are risky in nature and also for the service of settling several transaction funds from time to time.