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The million dollar question: What exactly is a merchant account? There are many different classes of merchant accounts, each depending on what type of business you run and your credit card acceptance needs. If you maintain a brick and mortar business, then you require a merchant account that accepts point of sale (POS) transactions (the buyer ‘swipes’ his or her credit card) at the time of purchase. If you run a mail order or telephone order business, then you need a MOTO (Mail Order/Telephone Order) merchant account.
 If you wish to accept credit cards over the Internet you need a MOTO merchant account.
The type of merchant account needed for e-commerce businesses is similar to the type of merchant account needed for mail order businesses. The main difference between a traditional (retail establishment) merchant account and a web-based merchant account is that online and mail-based transactions are riskier for the underwriting bank. In web-based or mail purchases, the buyer and credit card are not physically present. This is known as a ‘cardholder not present’ (CNP) transaction.
Merchants will have a larger cost for accepting credit cards via the Internet because an authorization for a CNP (Cardholder Not Present) does not assure payment of the transaction since there is no guarantee that the cardholder is initiating the transaction. In other words, the chance of fraud is increased which increases the “risk”. In turn, these types of merchant accounts tend to be more costly.
There are two options available for applying for your Internet merchant account - through a bank or through an independent sales organization (ISO). An ISO acts as a third party between the merchant and acquiring bank (merchant bank).
If you have a brick-and-mortar business and wish to sell online, it may make more sense to apply at your current bank (for an Internet merchant account) because you already have an established account with them. In this case, your current bank has access to your existing accounts and financial information, making the application process faster and the likelihood of securing a web based merchant account is increased. If you acquire your Internet merchant account through a bank with which you normally do not conduct business, it is important to ensure that your Internet merchant bank is willing and able to transfer funds to your regular bank.
Banks are known to offer security, reliability and stability, but have the reputation of being more conservative and selective when issuing Internet merchant accounts. ISOs tend to be more flexible towards riskier businesses, such as casinos or adult sites, but they generally charge more for bearing the risk. |
