A merchant account is an account that enables merchants to accept credit card payments. They can be obtained through a bank, credit card company, or other payment processor. Any merchant who wants to take credit card orders must establish a merchant account.In this day and age, a merchant account is essential for almost any merchant. Merchant accounts can greatly drive revenue and growth for your business as they expand the purchasing capabilities of the consumer not only from the local landscape but internationally as well.
Why Merchant Accounts Are Necessary
In today's business world the concept of a "cashless society" is edging closer to reality. The ability to accept credit cards has become essential to the survival of many operations. According to Javelin Strategy and Research, a business consulting firm, more than half of all purchases are completed using credit cards, debit cards or other payment forms processed through a merchant account. Merchant accounts have become relatively easy to obtain and require very minimal upkeep, so this trend is likely to continue at brick and mortar stores. Online operations, however, may see credit cards replaced by other payment methods such as PayPal or the Revolution Card.
How Merchant Accounts Process Credit Cards
When a merchant accepts a credit card as a payment instrument, the credit card machine or computer takes vital information, such as card number and expiration date, from the credit card and electronically sends it to the appropriate credit network for processing. However, when the machine makes a network connection, it does not connect directly to the Visa, MasterCard, Discover or American Express network. Instead, the terminal or computer dials a host machine operated by the merchant account operator as an interface to the credit networks. The financial institution that holds the merchant account receives the credit card transaction data, parses it into the proper format for transmission to the card issuer and forwards it out onto the appropriate network. Key data in the credit card information, especially the first eight digits of the card number, identifies the card issuer. The merchant account processors use these identifiers to forward the transaction for processing.
How Merchant Accounts Provide Real Money
When the merchant account holder forwards the transaction for processing, the financial institution adds identifying information to facilitate the transfer of funds. If the credit card purchase is approved, the bank that issued the card electronically transfers funds in the amount of the purchase from the card holder's account to the merchant account processor. The financial institution that holds the merchant account waits for the arrival of these funds, deducts their fee and electronically deposits the balance into the merchant's bank account. Because each of these steps takes about one business day, the merchant receives actual funds approximately three business days after the credit card transaction is processed.
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