How retail merchant accounts work

How retail merchant accounts work

Nothing seems simpler than swiping your credit card at your favorite retail store, but the process is a little more complicated when you're standing on the other side of the register. A retail merchant account is like the middleman in a credit card transaction, and it's necessary for any retail business to accept credit cards.

The process
When a business uses a retail merchant account, it is simply paying a service to accept, verify and process credit card transactions. A customer swipes his or her credit card at the terminal, and the purchase amount and other information is carried to the card issuer bank via the retail merchant account.

From there, the bank determines whether there are sufficient funds available on the card to cover the purchase and will accept or reject the transaction accordingly. This is important because, without retail merchant accounts, business owners would lose a significant amount of protection with each sale.

Additionally, retail merchant accounts allow business owners to check instantly to see if a credit card presented for purchase has been reported lost or stolen. This protects both consumers and business owners and helps to catch identity thieves.

The hardware
To use retail merchant accounts, business owners must purchase or rent the necessary hardware. To accept credit cards, you will need a credit card swiping terminal with a keypad, plus access to a phone jack.

Many business owners choose to mate their credit card terminals with their POS systems for ease of use during checkout. In this case, the retail merchant account is used in conjunction with the POS software to increase efficiency and streamline record-keeping.

The choice
When you decide to look into retail merchant accounts, you'll find many options. We live in a competitive marketplace, and there are plenty of vendors from which to choose. Before jumping at the first offer on the table, consider each merchant account separately.

For example, there is no set standard price for retail merchant accounts. Each service provider sets its own fees, and you can easily find yourself overpaying. You'll have to pay a certain percentage of purchase price on credit card sales, plus additional fees for equipment rental, bank statements, charge-backs, customer service and membership.

Some retail merchant accounts will waive certain fees depending on the average number of credit card transactions you initiate every month or based on the purchase price of credit card transactions. This is something you should ask about.

Make sure all retail merchant accounts you consider are FDIC-insured. It's also a good idea to choose a service provider that allows you to accept a wide range of credit cards: Visa, MasterCard, Discover, American Express, the list goes on. Limiting the card issuers you can accept may hurt your business.

And finally, don't get roped into a long-term contract with retail merchant accounts. If this is your first foray into the world of credit card transactions, you'll want time to test the waters so you can make an informed decision. If you find you cannot afford the rates charged by your merchant account, a short-term contract gives you the chance to change providers.

Published: September 2,2023