Merchant Account Know How

Any business owner can tell you that there is a certain percentage of money lost due to refunds for products or services, returned checks, and charge backs from credit card transactions.  When going online, there are still risks, but these are a whole new set.  Many merchants elect to use a merchant account to process credit card transactions.  This not only involves having the merchant account provider to gather the sales information, but the provider will also obtain authorization for credit cards, collect funds and transfer them to the business owner.

Using a merchant processing company does involve some merchant account risk.  As with all things financial, someone will lose money if something goes wrong.  Finding a reputable provider with good accounting practices can decrease the chances of losing money, or else you might find yourself in the cold.

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It is important to keep accurate records yourself in case there is ever a discrepancy in records, and this includes making sure you have all of your credit card receipts.  Being a responsible business owner is the biggest key in risks.

When considering risks, you must look at it as the merchant and the merchant provider’s risk. There are several different types of risks:  strategic, credit and transaction risk.  The merchant account providers are well experienced in the risks, and have fee schedules set up to accommodate the risks for providing services.

Strategic risk is the risk the bank takes offering the merchant account services.  By not having a strong business plan,  the bank may take some financial hits while figuring out how to effectively manage an online service.

Credit risk comes about from charge-backs.  These affect the acquiring/processing bank down to the business owners.  Charge-backs are payments taken back from the credit card company due to consumer complaints.  Good for the consumer, but not so good for the merchants.

Charge backs are more common in certain areas, which will equal larger fees for the merchant.  Things such as high-end jewelry, dating/escort services, pornographic sites, and telemarketing to name a few, are all considered high risk.

In order to protect their finances, the merchant account provider will often require a “reserve”.  Once the merchant has gone out of business or files bankruptcy, the merchant provider can no longer collect charge backs.  With a reserve, any charge backs received after the business closes are still available to the merchant provider.

The last type of risk is transaction risks.  This may be due to employee errors (in entering information), system breakdowns, or other natural calamities.  This is why it is important to be especially careful in keeping accurate records to make sure that as the merchant you have all the funds deposited that you have earned.

Merchant account services greatly streamline the online shopping experience.  Just make sure to do your research and find a company with experience to avoid risk when interacting with your merchant account provider.

*** Learn how to avoid merchant account risk, CLICK HERE ***!

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Having a basic understanding of the language of internet financing providers will make it much easier to navigate to find the right one for you.  Here is a basic breakdown of the most common terms.  When looking for your merchant account provider, make sure to read the fine print, understand your contracts and have an understanding of merchant account vocabulary.

Acquirer: This is a bank or processor alliance in the business of processing the credit card transactions.  Called and acquirer since they are always acquiring new merchants.

Acquiring Financial Institutions: The institution that contracts with the bank and the merchant to enable a credit card transaction.  The acquirer (from above) is responsible for depositing the daily credit card sales, while debiting the processing fees.

AVS: This is an abbreviation for an address verification service.  This will protect the seller from fraudulent credit cards since the provider will give an authorization code that gives the accuracy of the address for the issuer’s records.

Authorization:  Important before sending the product, the authorization is the verification of funds in the cardholder’s account before approving the sale.

Batch: This is simply a statement of the days transactions run from the merchant’s terminal that once run, frees the merchant account provider to transfer funds.

Chargeback: When the consumer files a disputes the delivery or product dissatisfaction, the credit card transaction will be billed back to the merchant after the sale has been settled.  Much like a refund, but issued through the provider and not the seller.

DDA Account: This is simply the merchant’s demand deposit account, or the hometown bank account where the merchant wants funds deposited from credit card transactions.

ISO: This is an independent sales organization.  This represents the bank/processor alliance.  The ISO is allowed to mark up fees upon signing up merchants.  Consider this either the “middle men” (the sales force who links the merchant with the service).

MID: Merchant identification numbers, used by the merchant account provider, are simply an account number to track sales, adjustments, and fees.

Secure Payment Gateway: A company that helps processors by providing secure socket layer technology – or basically, a system that passes the secure information through the internet using encryption technology.  This is often used by banks and processors so that the banks don’t have to create their own secured web system.

Settlement: Going to the batch, this is the process of sending the merchant’s batch report to the network to process for payment.  The bankcards will pay from the bank, and the non-bank issued cards will be paid from the merchant provider and billed to the credit card company.

Shopping  Cart Software: This is a program attached to the merchant’s website that captures the credit card information, by employs the secure gateway provider.  This allows secured transactions.  This is done through a computer code to designed to communicate with the gateway and shopping cart application.

Terminal: The equipment provided to the merchant to capture, store and transmit all credit card transactions.

TID: Terminal identification number.  This is much like an account number, so that the processor knows which merchant to credit monies to.

This will give you a general overview of some of the terminology associated when choosing the right merchant account providers.  As you start to explore your options, you will come across more, but by asking questions and researching, you should be able to find the right provider easily. Remember, it is necessary to understand merchant account vocabulary to communicate effective with your providers.

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