What happens when you set up a merchant account?

What happens when you set up a merchant account?

So, your small business has done just fine for many years without either credit card processing or a merchant account. But these days, everyone is telling you that you need a merchant account for credit card processing. You also need a computer device to make it happen.

Maybe that's the part that's stopping you from getting one of those newfangled merchant accounts for credit card processing. Computer equipment can be intimidating.

Chances are, you have a reasonable understanding of the merchant account process. A customer uses a credit card. A bank fronts the money to you in exchange for a fee -- usually around 2 percent -- that covers the bank's risk for credit card processing. Yes, you understand the concept; you just aren't sure how the computer part of it works.

Getting started with merchant accounts
Was it easy to learn to drive an automobile the first time you tried? No, but you did it. The same goes for learning to operate a merchant account for your small business. In fact, you can do a merchant account test drive, just like test driving an automobile, to see how this credit card device truly works. Then you can decide for yourself whether a merchant account would be good for your small business. If a representative at your local bank won't give you a demonstration, then you will want to look elsewhere.

During the merchant account test drive, you will learn that the entire process boils down to six simple steps:

1. The customer produces the card.
2. The customer swipes the card through the electronic reader.
3. Purchase details are sent electronically to the merchant account bank.
4. The merchant account bank forwards the data to the issuing bank for MasterCard or Visa, or directly to Discover or American Express.
5. The issuing bank or credit card network accepts or declines the transaction.
6. The merchant bank moves the funds into your business' bank account.

This all usually takes 15 seconds at most. Then, at the end of the business day, another simple computer function called the "settlement" or the "transaction capture" takes place.

Before you look into getting a merchant account for credit card processing, you will want to learn a few terms. Make sure you don't get a bad deal on the "discount rate" or the "daily closeout fee," for example. Understand how "chargebacks" work. Comprehend the difference between a "reserve" and a "holdback." Merchant Account Guide's glossary of terms can help you get up to speed.

Having a merchant account for credit card processing really can improve your sales, maybe even more than you think. Some of your regular customers might really appreciate the ability to pay with plastic, while new potential clients might bring even more business your way. Not bad for a single business move.

Published: June 18,2023