How Internet merchant accounts work

How Internet merchant accounts work

Internet merchant accounts let you accept credit cards online

You can increase online sales and profits by accepting credit cards on auction sites or your own e-commerce Web site. No matter if you have your own merchant Web site or simply sell stuff on eBay, credit cards can become a vital part of your business. By accepting MasterCard, Visa and other credit cards using an Internet merchant account, you offer convenience to your customers while increasing online sales and profits.

Equipment needed for an Internet merchant account
The nicest part about electronic commerce is that you can make sales from just about anywhere in the world. For online transactions, you simply need access to the Internet, either through a high-speed cable or DSL connection at home or the office. A laptop equipped with a 3G Internet card adds real mobility to your online business.

Setting up an account
The first, and arguably most important, step of the online credit process is setting up a merchant account with a credit card processor, also known as an "acquiring bank." This financial institution acquires or accepts credit card transactions from your Web site, even if it did not issue the credit card.

Without this type of account, you will not be able to accept credit cards from customers. The bank deposits the daily proceeds from sales into this account, deducting all service charges and fees as well. Opening a merchant account requires approximately the same effort as applying for a credit card. You fill out an online application with your personal information and wait for an approval notification from the processing company. The bank will then validate your information and, if you are considered a good credit risk, open the merchant account.

With every credit card transaction, there are fees, however. You will be charged a small fee for each sale, plus a monthly maintenance charge. There also is an "interchange fee," which you, as a merchant, have to pay to your acquiring bank for processing your credit card transactions.

Opening the Internet payment gateway
After you have been approved for a merchant account, you then need to contact an Internet payment gateway provider. This company acts as the middleman between you and the credit card issuers. The provider encrypts the credit card information, passes the data to your credit card processor and sends the approval or decline message back to your Web site.

On a Web site, the gateway takes the form of a virtual "shopping cart" or "buy now" button, which can be added with software supplied by the gateway company. Customers browse your online inventory, adding selections to their cart before heading to the "checkout" page, which is where their credit card information is processed. Internet payment gateways also screen for questionable transactions, helping to reduce the number of bogus transactions and online fraud.

Virtual terminals
If you don't have your own Web site, most acquiring banks will allow you to set up a "virtual terminal," which is a secure Web site. Customers can call you with credit card information, which you can then enter by hand into a form on the Web site. The purchase is then approved or declined by the credit card issuer.

See related: 6 questions you should ask about merchant accounts, Merchant account terms:Glossary, definitions, How merchant account transactions work 

Published: May 6,2023