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4 merchant account types to know

Before selecting a merchant account, or a bank account that allows you to accept card payments, it's important to have a solid grasp of the different account options available -- and how they work. "You need to be prepared to accept payments from customers where and when they want to pay you," explains Don Weary, vice president of product management for Sage Payment Solutions--Sage North America.

Some merchant accounts, for instance, will allow you to accept cards in person, while others make it possible to take payments when you're not face-to-face with a client.

Read on to understand your options, and determine the solution that will best fit your needs.

Retail merchant account

This type of account is designed for businesses with a brick-and-mortar location and have customers that pay by swiping their credit or debit cards. For this type of operation, you'll need a point-of-sale (POS) system and credit card reader. Merchant account

The rates for a retail merchant account are usually lower than the rates for other types of merchant accounts. This is because the risk of fraud decreases when customers pay in person, and can thus have their identities verified when the transactions take place. There hasn't been an increase in rates as a result of recent data breaches, says David Waring, small-business expert and co-founder of

There can be fees to set up a retail merchant account. Other fees can include costs per transaction, and also a percentage of the transaction. If you process a large number of transactions that are small in dollar amount, such as less than $25, you'll want to focus on minimizing the fees charged per transaction, notes Waring. If you process fewer transactions that are larger in dollar amount, you'll want to look at minimizing the percentage charged for each transaction. 

Wireless merchant account

Similar to a retail merchant account, a wireless merchant account is set up for customers who are present when making a purchase. This type of account is designed to allow payments to be accepted through a mobile device such as your phone. You'll be able to take payments by swiping a card through a card reader that attaches to your phone, or by entering the transaction details into your phone. The information is then transmitted for processing and authorization.

You'll often have to pay a monthly service fee, as well as fees for each transaction that takes place. Fees can vary, depending on if the card is swiped, or if the details of the transaction are entered into the mobile device.

Internet merchant account

If you carry out, or plan to carry out, sales online, "you really need to decide how much you'll be doing and what kind of system you want," says Waring.

Say you only process a small amount of transactions, such as less than 50 per month. You might find an option such as PayPal fits your processing needs; PayPal allows you to integrate a button on your site so customers can pay with this method. PayPay is quick and easy, notes Waring.

If your business is set up to carry out more than 50 online transactions each month, however, you'll likely require an Internet merchant account. That's because PayPal is generally a more expensive option than the rates you'll be able to find through a merchant service provider. 

In most cases, you'll also need a payment gateway, which acts as the online version of a credit card reader. A payment gateway is an e-commerce application that allows a link to be made between a website and bank so a transaction can be carried out in real time. It can be provided by your merchant account provider. If you sell a variety of items, you'll also want a shopping cart so customers can select the merchandise they want to purchase.

MOTO account 

MOTO, which stands for Mail Order/Telephone Order, accounts are designed for businesses that accept payments by mail or telephone order. This often includes catalog businesses and delivery services, notes Patrick Gardner, director of business development at Transparent Merchant Services.

For this type of account, a customer service representative can enter the card information and amount for the sale into a virtual terminal, which can be accessed from a browser.

Even if you don't have a company that solely takes orders through the mail or phone, you might find that this type of account fits into your business model. For instance, if you have a retail store that also takes orders over the phone, you may need a setup to accommodate these payments as well. 

There may be fees involved with setting up the account and virtual terminal. You might also have to pay a monthly fee for having the virtual terminal. In addition, charges for processing transactions will also be part of the expense of a MOTO account. 

A word on security

When dealing with accepting payments and handling sensitive financial information, "security is always paramount," says Weary. Make sure any company you work with, as well as your own business, follows the Payment Card Industry Data Security Standard (PCI DSS). PCI's security standards apply to all merchants or organizations that accept, transmit or store cardholder data, and are required by Visa and MasterCard.

See related: A new way to accept credit cards -- with a webcam

Published: November 24,2022

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