Finding An Internet Merchant Account: A Guide For Small Businesses
The right internet merchant account will let your business take payments online while fitting your budget, but that’s not all an internet merchant account provider can do for your business.
Whether you’re looking to launch your own online store or you simply want your foodservice business to accept online orders, accepting credit card payments online will require you to get an internet merchant account.
This may sound simple, but the truth is that not all merchant service providers are created equal. When choosing an online merchant account for your eCommerce business, you’ll need to know how a merchant account interacts with the other elements necessary for selling online, such as payment gateways, payment processors, and eCommerce website builders, also known as shopping carts. Some services combine one or more of these elements, but it’s still important to distinguish these elements from one another.
Keep reading to learn more about getting an internet merchant account.
Table of Contents
- What Is An Internet Merchant Account?
- What’s A Payment Gateway?
- PCI Compliance With Online Merchant Accounts
- How Much Does It Cost To Open An Online Merchant Account?
- How To Open An Internet Merchant Account
- What Can An Internet Merchant Account Provider Do For Your Business? Features To Look For
- How To Choose The Right Internet Merchant Account Provider For Your Business
- Internet Merchant Account FAQs
What Is An Internet Merchant Account?
A merchant account is a specific type of business account into which your customers’ money is deposited after they use their credit or debit card to make a purchase from you. After these payments are verified, the money is transferred to your business bank account, which is entirely separate from your merchant account. You have no control over the merchant account — it’s just the middleman between your customers’ money and your business bank account.
Why include this middleman at all? Wouldn’t it be easier to just accept credit/debit card payments and get the funds deposited directly into your business bank account?
Unfortunately, credit card processing doesn’t work that way. When your customer pays you, the transaction ultimately still involves two other major parties: the issuing bank and the acquiring bank.
- The issuing bank grants the customer cards and is responsible for collecting any payments from the customer.
- The acquiring bank requests and collects payments from the issuing bank and then releases them to the merchant. The acquiring bank has to ask for the funds from the issuing bank, which has to verify that the customer has those funds available and then transfer them, making for a complicated payment process.
The merchant account essentially functions as a holding space during this process or even as a sort of line of credit.
What’s A Payment Gateway?
While a merchant account is where your payment processor sends your customers’ payments before they are transferred to your business bank account, a payment gateway connects your online store to your payment processor, facilitating your customers’ online transactions.
Payment gateways enable online transactions by integrating with your eCommerce store to securely capture the customer’s payment details. The gateway then routes that information to your payment processor or acquiring bank, which assumes control of the payment process. The gateway will then send an approval or decline message back to the merchant based on whether the processor/acquiring bank accepts the payment.
PCI Compliance With Online Merchant Accounts
Following PCI compliance practices is essential for merchants. If your internet merchant account provider deems you to be PCI non-compliant, you’ll face a PCI non-compliance fee of around $30 per month until your account is compliant. And if your non-compliance results in a data breach, you can be fined anywhere from $5,000 to $500,000!
PCI compliance is mandatory for any internet merchant. For most small businesses, that means being Level 4 PCI compliant. Level 4 is the PCI standard that applies to businesses up to a certain size — it’s the lowest bar to clear. Larger businesses must comply with higher PCI standards, with Level 1 standards applying to both the largest businesses and businesses that have suffered a data breach.
Most third-party processors manage PCI compliance for you. With an internet merchant account, you’ll have to handle some paperwork, so make sure your provider offers PCI-compliant software. Your provider should also provide assistance and/or guidance for completing quarterly network vulnerability scans and Self-Assessment Questionnaires (SAQs).
If we lost you with that last sentence, just know that the best online merchant accounts offer features that reduce your workload for maintaining PCI compliance.
How Much Does It Cost To Open An Online Merchant Account?
When choosing an internet merchant account, just as when you set up credit card payments for a small business of any kind, you need to understand the different pricing models offered by payment processors. There’s the flat-rate pricing model preferred by third-party processors, interchange-plus pricing (our preferred pricing model), and membership pricing. There’s also tiered pricing, but we warn against it because it disadvantages merchants (high-risk merchants may have no other option, however).
Here’s a comparison chart that details the differences between these models.
|Pay a fixed rate for each transaction
|Pay an interchange fee (set by the card networks) + a markup (set by the processor)
|Pay a single monthly subscription fee + a flat per-transaction fee & interchange fees (usually)
|Mid- to high-volume merchants
|2.9% + $0.30 per transaction
|Interchange + 0.20% + $0.10 markup per transaction plus assorted monthly fees
|Single monthly fee + interchange fees (with no markup) per transaction
|Providers using the model
|Clearly Payments, Payment Depot
One caveat: Some merchant account providers offer multiple pricing schemes, so you may be able to choose between two — or even all three — of the above pricing types when setting up your account. In fact, pricing choice isn’t limited to merchant accounts these days, as PayPal now lets some of its merchants opt into a form of interchange-plus pricing.
For most small businesses, using a third-party processor with flat-rate pricing (such as Square or PayPal) may be more affordable than using a full-service online merchant account. Of course, this entails a much greater risk of having your account frozen or terminated, which is, in itself, a very costly thing to happen to any business.
One factor affecting what your internet merchant account will charge you is the fact that CNP (card-not-present) transactions, including online purchases, cost more to process than in-person transactions do. That’s because the chance of chargebacks and fraud is higher with transactions where the card is not present. This gets factored into the cost of processing each payment.
Depending on your processor and your feature needs, other fees you may (or may not) have to pay include:
- PCI compliance fees
- Payment gateway fees
- Fees for ACH acceptance and/or other alternative payment methods
- AVS checks and other fraud monitoring fees
- Monthly minimum (we typically recommend not using processors that charge a monthly minimum)
Our guide to merchant account & credit card transaction fees is essential reading if you want a deeper look at the complex and relatively opaque world of internet merchant account pricing.
How To Open An Internet Merchant Account
Now that we’ve discussed the types of online merchant accounts available and the various pricing models available, let’s go through the steps you’ll take to open your internet merchant account.
- Select the credit card brands you want to accept.
- Determine the pricing model that best fits your business (flat-rate, interchange-plus, etc.).
- Look for the merchant services provider that meets your needs.
- Get your eCommerce site ready to sell.
- Get all the required documentation ready.
- Submit your application to your chosen processor.
What You’ll Need To Open An Internet Merchant Account
When applying for a payment processing account, you’ll need to have some documents and other information ready to present to your prospective account provider to demonstrate your readiness to start accepting payments.
- Certificate of Incorporation
- Certificate of Incumbency
- Documents detailing your company structure, including company directors and owners
- Your company’s location, as proven by a bank statement, rental agreement, or another official documentation
- ID copies for your company’s owners and directors
- Your business plan
- Your live website (including your business’s terms and conditions)
- A description of the products and/or services you offer
- Your suppliers’ details (if applicable)
- Your delivery process (if applicable)
What Can An Internet Merchant Account Provider Do For Your Business? Features To Look For
Let’s go through some of the features that may be included in your internet merchant account package.
How To Choose The Right Internet Merchant Account Provider For Your Business
We know we’ve just hit you with a boatload of information. If you’re feeling overwhelmed, don’t panic! Merchant accounts are Merchant Maverick’s original specialty, and we’re here to help you delve into the essence of merchant account pricing, features, and provider options. We’ll also warn you about the practices and services that should be avoided.
Now that you know more about the world of online merchant accounts and what they entail, our guide to processing payments online contains a rundown of some of our favorite eCommerce-oriented payment processors. You may also be interested to see our picks for the best credit card payment processing providers for small businesses more generally.