To open a merchant account you need to contact a payment processor. Payment processors provide online merchants with the required bank accounts and credit card machines to accept payments from customers. Payment processors also charge a fee for this service, but some banks offer interchange rates that can be cheaper than using a third party payment processor. High Risk Processing may not be available for certain businesses such as those involved in high-risk or gaming activities.
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Some of the highest risk businesses include, but are not limited to:
Businesses that process credit card transactions for sales of stamps and prepaid phone cards should be careful, because this is a very risky industry. The Payment Card Industry (PCI) does not allow the sales of phone cards online, so if you are selling phone cards on your website, you will need an alternative payment processor. Selling gift cards is also a high risk activity since they may be used to purchase drugs or stolen merchandise.
Apart from risks involved with certain products there are several other factors that influence whether you would qualify for merchant account. The most important of these is your average monthly sales volume. If your business is new and has low monthly turnover, you will probably need to wait until it grows to a reasonable level before applying for merchant account.
Other factors include:
The number of transactions you process per month is an important factor in determining the type of processing account you will need. High volume and high risk businesses can qualify for direct payment or off-line merchant accounts while low volume and low risk businesses typically qualify for online credit card processing. Direct Payment means that cardholders’ accounts are charged by the merchant at the time of purchase and settlement takes place within 2 to 3 business days after the charge. This is also known as offline credit card processing or offline authorization and settlement. The main advantage of this method is that funds become available quickly and you can ship your merchandise immediately, however it will take weeks to receive payment from the credit card company.
Online credit card processing, also known as online authorization and settlement, is very different. In this case all of the customer’s information is sent along with their order to the payment processor, who then contacts the credit card issuer for an authorization code. If approved that same day, funds are placed in a holding account until daily settlement of transactions is complete. This process often takes several days, which means you can’t ship your merchandise until you receive funds from the credit card issuer. However, there are ways to speed up this process and ensure that settlement occurs within 24-48 hours after the transaction so items can be shipped immediately.
In order to collect money from your customers, you must make sure that your merchant account is set up to accept the payment types that they use. There are several things you can do to achieve this goal. For instance, if most of your customers pay with Visa then it would be wise for you to apply for a merchant account that accepts Visa credit cards. If you are running an ecommerce business then you should also look into online credit card processing since this allows transactions to be processed instantly rather than waiting several days for funds to settle.
If you do not qualify for a regular merchant account, you might be able to get approved for an alternative payment processor account. Generally these types of accounts are used by businesses that deal with high-risk industries which are often associated with high rates of fraud. For instance, this would apply to the adult entertainment industry and escort services. Other businesses that might need an alternative payment processor account include phone card providers, online pharmacies, online gambling sites and pay day loan providers.
Most banks will not open merchant accounts for merchants that intend to sell prepaid cards. Prepaid cards may be used to purchase merchandise at retail locations, or they can be used to access funds in a checking account. Due to this risk of fraud and the inability for most banks to track where the card was purchased and how it is being utilized, most banks will not open merchant accounts for companies that deal in prepaid goods.
In general, you will need to have a business plan in place as well as a merchant account before you can accept credit cards for payment. A good way to prevent the process from being held up is by verifying that your business does indeed meet all of the requirements needed to be approved for a regular merchant account. You must then choose which payment types you want to be able to accept and research which merchant account providers offer those services.
After receiving approval from your merchant account provider, you must prepare your website for online credit card processing by entering the correct coding into the site’s HTML code. This ensures that all of your web pages can communicate with the payment processor and it will also confirm that your website’s programming language is compatible with the payment processor’s specifications.