Merchant Accounts 101

Merchant Accounts 101

We’ve been receiving lots of questions about merchant accounts here at Volusion, so this week we sat down with a few members of our merchant account team to get more information about merchant account basics. Read on to learn more!

Q: What are merchant accounts, exactly?
A: A merchant account is how online stores accept credit cards (Visa, MasterCard, Discover and American Express); it requires a payment gateway and payment processor. The payment gateway encrypts customer data to send it securely from the online store to the payment processor. A payment processor then gives the transaction information to the card provider, which approves or declines the transaction. The processor then moves the money from the customer’s account to the seller’s account and voila – you’ve been paid!

Q: Does an online store owner really need a merchant account or can he/she just use Pay Pal or Google Checkout?
A:
When you are using Pay Pal/Google Checkout, the customer shops on your site but when they’re ready to purchase they have to leave your site so they can put in their personal information and payment details to complete their order. When this happens customers can get scared off and abandon the cart because it looks different from where they were just shopping, so a merchant account is not a requirement, but many online store owners opt to have one because they see greater returns with a merchant account.

Q: That reminds me- I have heard rumors that the shopping cart abandonment rate can be lower if you have a merchant account (so you can offer traditional credit cards instead of just offering Pay Pal as a payment option). Is there any truth to that?
A:
Well, imagine running a retail store where customers come in, browse, put products in their shopping carts and then have to push them outside and around the corner to pay for the products. It is much the same online. When a customer feels comfortable shopping on your site, they most likely do not want to leave to complete the transaction because it feels like they are giving their personal information to a third party rather than the person selling them the products they have selected. This can lead to shopping cart abandonment.

Q: Are there any other benefits to having a merchant account?
A:
Letting customers stay on your site to complete their transaction is also faster for the customer because they do not need to be transferred to another site. Lastly, it provides much greater control over the order process when you can have customers buy directly from your site because you get to decide what information you will require for an order to be completed, rather than letting Pay Pal/Google Checkout make that determination for you.

Q: What kinds of fees should an online store owner expect?
A:
There are some standard fees that all merchant account companies will charge, namely:

  • Discount rate– which is a percentage of your monthly sales that is held by your merchant account company
  • Transaction fee– a small fee assessed to each transaction you process
  • Statement fee– an amount paid each month to have your statement prepared

Then there are a number of fees that you will find elsewhere in the industry but Volusion does not need to charge because we only provide merchant accounts to our clients (i.e. stores that are set up and hosted with Volusion) so we already have familiarity with, and access to your store. Those fees include:

  • Application fee– a processing fee to have your application submitted (which needs to be paid whether or not your application is approved)
  • Set-up fee– a charge to have your merchant account synched up with your online store
  • Customer support– A “per month” or “per call” fee to get support for your account or troubleshoot technical issues (which can get very pricey very quickly)

Q: Are the only differences between providers just the customer service aspects?
A:
No, there is a difference in actual service offerings as well. Most online merchant account providers only provide the credit card processing and then you have to find your own compatible gateway to encrypt the data being sent. One of the biggest benefits of using the Volusion merchant account is the efficiency of having your gateway and processor with one company.

Q: Can you explain the advantages of having the gateway and processor with one company rather than using separate companies?
A:
Online store owners that have experience with merchant accounts can attest to how frustrating it can be to diagnose and remedy a problem. When your credit card gateway and credit card processing are handled by different companies, they are more willing to pass the blame to the other one when an issue arises which means more down time until they can fix it. Having them together makes the process much much smoother! You can also be assured that your credit card processor and gateway will be compatible with each other. Surprisingly this is not always the case- there can be situations where your processor and gateway actually aren’t compatible and therefore can’t communicate to process the transaction. Lastly, getting a credit card processor account and access to a gateway from the same provider is less expensive.

Q: What is the application process like to get a merchant account?
A:
There is not really an industry standard when it comes to applying for a merchant account- each company will handle applications differently depending on which parts are done in house and which parts are outsourced to third parties. This is why one online store owner can get a merchant account application approved in days while another store owner using a different merchant account company may have to wait for weeks.

Q: Okay, well can you tell us about the Volusion merchant account process then?
A:
Sure, when you apply for a merchant account through Volusion these are the steps you will have to take:

  1. Fill out the online form
  2. Within a few minutes you will receive a merchant account contract in your inbox- you must sign, date, and initial the contract
  3. Obtain a voided check (or a bank letter if you do not yet have checks for the account- starter checks cannot be accepted) for the business checking account where your funds will be deposited
  4. Fax the completed contract and voided check/bank letter to (800) 424-3021
  5. Our merchant account team will review the contract, voided check/bank letter, and your website to make sure everything is complete
  6. Your materials are submitted to the credit underwriting department to review their accuracy, your business’s history (unless it is a new business), and your personal credit history
  7. Just 2-3 business days later you will receive the response from the credit underwriting department regarding your application.
  8. Once you are approved for a merchant account your merchant account information will be set up on your site that business day by our merchant account team and you will be ready to process credit cards
  9. Instructions to test your merchant account will be emailed to you that day so that you can run small practice transactions
  10. At this point you will be able to process credit card payments from your Volusion admin area

Q: Is there anything I’ve forgotten?
A:
Remember, no matter which merchant account provider you choose, a valid SSL certificate will need to be installed on your site before you run any transactions or you will find yourself non-compliant with credit card industry regulations- which can result in steep fines and even your online store being shut down.

Happy Selling!
-Kate Pierce, Volusion

3 Responses to “Merchant Accounts 101”

  1. CALIE

    merchants accounts in america are much easier to be approved for in general than any other geographic are.merchant accounts are readily available and have the lowest processing rates in the world in terms of set up fees, per transaction costs, monthly billing and discount rate.

    merchant services
    http://www.occent.com.

    Reply
  2. Volusion

    […] Merchant Accounts 101 | Volusion’s eCommerce Blog (onlinebusiness.volusion.com) – October 20, 2009 […]

    Reply
  3. Dat To

    You’ve identified a huge problem visitors leaving someone’s site to enter payment info when a site owner uses paypal or google checkout. Other problems with these merchant account ‘alternatives’ are:
    -3-4 bus days to get your funds compared to 1-2 bus days for a merchant account
    -when there is a chargback (customer disputes a charge), then they freeze your whole account including every pending transaction even though the dispute is with one specific transaction

    Reply

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