If you are an online business owner or are thinking about starting your own online business then you may find yourself signing up for a Merchant Account and Payment Gateway. These services go hand-in-hand when running an online business. They both play a crucial role in business revenue. Below, you will learn what a Merchant Account and Payment Gateway are and how they work together to support your online business.
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A merchant account is a type of bank account that allows businesses to
accept payments by debit or credit cards. A merchant account also serves as an agreement between a retailer, a merchant bank and payment processor for the settlement of credit card and/or debit card transactions.
Retail Merchant Account
This type of account is for retail store businesses where customers present and swipe their credit/debit cards. The rates for retail type merchant accounts are usually lower because there is less risk for fraudulent transactions when the card is swiped. Some merchants make a mistake of signing up for a retail merchant account without having a retail store in order to get a better rate. However, if the credit/debit card is not present or swiped, the payment processor downgrades the transaction to a non qualified transaction which is a substantially higher rate, even higher than a Mail Order/Telephone Order/Online Merchant Account.
Mail Order/Telephone Order (MOTO) Merchant Account
This type of account is for businesses which customers do not present and swipe their credit/debit cards. The rates for MOTO type merchant account is usually higher because there is more risk for fraudulent transaction.
Internet Merchant Account
This type of account is similar to Mail Order/Telephone Order (MOTO) Merchant Account above (with similar rates, terms and agreements). Some Merchant Service Providers will use the same class of account for Internet and Mail Order/Telephone Order (MOTO) accounts and some Merchant Service Providers will use a different class of account with a more customized services tailored toward an
Internet Merchant Account.
A payment gateway is a secure way of transporting a customer’s credit card information to the processor for approval. The credit card information can be entered to a payment gateway in two ways:
1. The customer enters their information directly into a website when making a purchase.
2. The merchant manually enters the credit card information into a virtual terminal.
Because the online shopping cart applications are not allowed to directly send or receive transaction information (for security reasons), you will need a Payment Gateway service in addition to an Internet Merchant Account so you can process
credit/debit cards in real-time.
Customer enters cc information into website secure shopping cart…shopping cart securely passes cc info to secure payment gateway…secure payment gateway passes cc info to the merchant account provider…merchant account provider sends info to the customer’s card issuer for approval…card issuer sends approval back to merchant account provider…merchant account provider sends approval to the secure gateway…secure gateway sends approval to shopping cart…shopping cart lets customer know the transaction has been approved. At this point the merchant sends the customer their product/service and the merchant account provider deposits money into the merchant’s bank account.
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