Merchant account and payment gateway are two terms that have become synonymous with doing business in the 21st century. More and more businesses, either online or classic, have turned to use these payment tools to attract more clients and offer them a safer way of doing business. But before rushing out to your neighborhood bank and asking to open an account, you should take some time and some research to understand what they are used for and how can you use the best.
Cashless transactions are the future of almost every business out there today, and the owners of those businesses had to adjust to what their clients wanted. That meant coming up with an entirely new way of accepting payments from them and offering them the possibility of multiple payment forms as well. If in the past a simple bank account would suffice to deposit the money one received from his clients, nowadays merchant banks and card processors are working hand in hand with business owners to help them and their clients get the best and safest experience they can have while doing business.
Investopedia.com defines a merchant account as an account created to let businesses accept both credit and debit cards from clients. Although basically, this account is very similar to any business bank account, there are some fundamental differences. First of all, the account is opened with a merchant bank, which can either be the bank where the business already has an account or a separate bank altogether. Secondly, that bank account is linked to a card processor, that is used to validate the cards the clients use to pay for the things they purchase. Finally, the account itself is different from a regular account because it is kind of a waiting room for the money the merchant receives from his clients before they go into the real bank account. This transfer can be made daily or weekly, depending on the amount collected and on the volume of transactions processed.
Although not all businesses choose to open this kind of account, any online business that wants to accept credit card payments online will have to open an internet merchant account. This is because, even though the business could already have an account, processing credit cards over the internet usually involves other kinds of security measures and a special kind of account had to be designed. The fees for operating such an account could be a little higher than those of a regular one, but that is because the risk of processing payments over the internet is greater.
Although a merchant account isn’t required to run a successful business, online businesses and most brick and mortar ones are opting for one. This is because it opens them up to more clients and it also boosts their revenues. Also, online businesses need an account like that if they want to remain relevant and be able to successfully engage with their clients. Plus, paying over the internet for anything requires special security measures; measures that the bank where the account is opened, and the card processor used can ensure for the transactions to be made safe for everyone involved.
Classic businesses, such as corner shops or news-stands, might not need a special account to interact with their customers. They still rely on the old-fashioned way of doing business. That means that all they need is a bank account in which to deposit the money they receive from their clients. But when it comes to internet businesses, an online account linked with a card processor is vital to reach clients and keep on operating. These businesses have to decide who they want to work in terms of creating a said account, and, although there are many options out there, the people providing these services don’t just let anybody open an account. It’s not that they don’t want to, it’s that they have to first ask for some information to make sure that the business wanting the account qualifies for it. These questions can be along the lines of:
• Type of business?
• Level of risk of credit card fraud and returns?
• Your experience in the business?
• History of bankruptcies and other events
• Previously owned merchant accounts
• Personal credit history and records of the business owner.
These questions might seem a bit scary for new business owners, or for those that had a business and are looking to start a new one. They don’t have to be afraid they won’t get an account. Firstly, it might be easier for them to apply for an account with the bank they already have a personal account with. Secondly, if you already had a business, but failed, that only means that your fees might be a little higher in the beginning. But, as you grow and prove to be a trustworthy client of the bank, those fees can be renegotiated.
Firstly, a payment gateway is defined as a piece of software that replaces the Point of Sale terminal you would usually see in a classic shop. The term gateway comes from the fact that this software lets transactions through once they have been cleared by the bank where the client has his account. The process is relatively simple but involves a lot of parties working together to make it work. The merchant has to have his e-commerce account to be able to accept payments and a gateway. But he also has to have a special plug-in to be able to process the clients’ orders.
Secondly, any business owner should know that although there are a lot of options to choose from in terms of gateways, not all are the same. Before choosing one, any owner should do a little research and understand which one is best for his business model. Some gateways might be better suited for large companies, while others might have more features that could be more attractive for clients. A basic way of organizing gateways is in three categories:
1. Redirecting gateways
These payment gateways use platforms such as PayPal to protect clients from any kind of fraud or data leaks. They work by redirecting the clients who are ready to pay for their products or services to the payment platform. That way the business isn’t liable for any kind of security breaches. This type of gateways is especially good for small businesses because it protects their clients and helps them grow by associating their names with bigger more powerful platforms.
2. Checkout on site, payment off-site.
These gateways use a two-step approach to online payment. The client checks-out his items on the site, but then is redirected to a payment platform to confirm the payment. This is good for the business owner because sensitive card data isn’t stored on-site and so client information is protected.
3. On-site payments.
If your company is a big enough one, then maybe this type of payment gateway is the right one for you. The advantage is that you can control the entire shopping experience for each customer and improve your services accordingly. But you should also be aware of the fact that you will have to invest in servers and some strong security to keep client information safe. Also, if anything happens, you are liable for any data losses.