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Merchant
Account Tutorial
by Peter Cooper
(1)(2)(3)(4)(5)
Chapter 1
What Are Merchant Accounts and Why Should You Want One?
Scenario
You've decided to get yourself into business
on the Web, or you're an established company who wants to sell goods
and services on-line. While browsing around your favorite sites,
you've noticed a plethora of adverts which grab your attention.
"Take Credit Cards Now", they scream, "0% Commission!".
Fighting your way through the jungle of
e-commerce hype can be difficult, but iBoost wants to make it simple
for you. You need a merchant account? You want to sell on-line?
Let us help you find some answers to those nagging questions.
Credit Cards? Who cares?
Your customers are all using credit cards
to make purchases on the Web already, so don't ignore the demographics!
Retailers refusing to enter the e-commerce
arena are probably digging themselves an early grave. You know you
want to make money using the Internet, especially if you already
have an existing site promoting your business. Take it a step further,
and actually sell your products online.
You're worried about the cost? It's significantly
cheaper than opening a new shop!
What is a Merchant Account?
A Merchant Account involves a special type
of arrangement with a bank or clearing house that allows you to
accept credit card payments into a special bank account (your "Merchant
Account"). The results of any credit card transactions passed through
your online authorization company are then, hopefully, credited
to your account if the transaction is approved.
Why use a Merchant Account?
Having a Merchant Account is the most cost
effective way of accepting payment by credit card. It's not the
only way, as will be discussed in our Doing It Without A
Merchant section. But, put simply, once you have a merchant account
(and a company who will authorize the payments online), you will
be able to accept credit card numbers on your site, and then receive
any payments due to you. It's as simple as that.
How does it work?
Getting the money from your customers credit
card and into your account involves several stages. The first is
actually approving the sale and taking the customer's credit card
details on your Web site. Next, the card has to be verified and
approved, to check that it's not been stolen, or has expired. Your
Merchant Account company may provide this service, or you may choose
to use an online authorization company, such as DataCash. It's wise not being
too cheap with companies who provide authorization services, since
accepting invalid credit card transactions could cost you dearly.
After the card has passed rigorous security
checks, your merchant account provider (or online authorization
company) then passes the details to their credit card processor
who debit the customer's credit card and deposit the money into
your merchant account. This chain of events takes between 1 and
2 days with most merchant account providers, although the features
that your chosen provider offers may turn out to be different. We'll
be covering a number of merchant account providers in our reviews.
The other method
While some Merchant Account Providers offer
an 'all-in-one' solution where they, supposedly, handle your merchant
account and the processing of the credit card orders, you
may prefer to let separate companies handle each section. For example,
you may let one company provide the online authorization service,
and get a merchant account yourself with your chosen bank.
When we come to review services, later
on in this series, we'll investigate both methods. Remember, however,
that using the 'all-in-one' method may mean a larger commission
is taken out of your transactions, whereas the latter method may
just cost you a larger startup fee.
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