Your small business doesn’t have its own “dedicated” merchant account, but rather gets added to a pool of a large number of other companies within a larger merchant account. It’s usually faster to sign up, but will probably mean less control on the rates, fees, and when your money is disbursed back to your bank account. And, as you reach a higher volume (when your business grows) you will need to switch to a dedicated merchant account.
When you apply, it might be as short as one day or a few hours for your account to be approved. However, if you apply over the weekend or in the evening, it can take some time. Part of the process, in most cases, is to have an underwriter actually physically look at and assess your application, so it will need to happen during business hours.
The Merchant Account is the link from your customers’ payments to your Business Bank Account. You will need to provide bank account and routing numbers (and probably a voided check) to set up your Merchant Account with a direct deposit to your bank account.
The reversal of funds, requested by the customer, from your account back to the customer. A high ratio of chargebacks as a percent of your transactions is a red flag for the merchant account underwriters, as the merchant account provider can be on the hook for the funds if they aren’t in your account.
There is also a classification called a “Fraudulent Chargeback.” This is a scenario where a consumer will try to get products or services upfront so that by the time you bill or charge for the transaction, the consumer can be long gone with the product and simply request a chargeback to neglect to pay for the goods. A processor, being able to spot incidences of this, will sometimes place transactions on a “hold” in an effort to protect the merchant from such incidences.
To counter-balance the “aggregated” model, a Dedicated Merchant Account is a single merchant account specifically set-up for your business. In order to open a dedicated merchant account, you’ll have to go through an underwriting process to for the provider to assess the financial risk, but it will allow for more control of your money and the rates you will be charged in the future, which might be important as your business grows.
One of the best features of a Dedicated Merchant Account, Direct Deposit means that after processing a customer’s payment, funds will be automatically deposited into the business bank account. You won’t need to request funds — it happens automatically.
An electronic form of a paper check. You may need an additional merchant account to accept electronic checks (or ACH payments), as most credit card merchant accounts don’t offer both payment types.
Most commonly found in an Aggregate Merchant Account, you can now find providers who sell a “one-flat-rate” model. While easier to decipher your Effective Rate, be cautious if you are processing more than $5,000-$8,000 per month; you might be paying more than if on a Tiered Rate plan with a Dedicated Merchant Account
Once your merchant account is set up, you’ll want to know more about access to your funds. Typically, funds are deposited into your business bank account between 1-3 business days. It will vary depending on the card type. Some merchant account providers offer “next day funding,” where they are essential “pre-funding” the money. With many providers, faster funding time can be earned by building a consistent processing history.
The dreaded word – your funds are on “hold.” What does this mean??
These are the typical reasons a “hold” can be put on your account. No matter the reason, the holder allows the processor to investigate “abnormal” activity.
Ahold is different than a “freeze” – where you can’t continue to process, but both can be disconcerting to a business owner. It’s important to be realistic and accurate with your transaction levels so the chance of holds can be minimized.
Often a requirement for opening a merchant account, your Employer Identification Number or Tax Identification Number is a way for the processor to identify your business. If you are a sole proprietor, this number can also be your Social Security Number.
A document that authorizes your ability to start a business in a particular area, a business license is not always required when applying for a merchant account. However, it can be useful for the underwriting process and might be required if you are in a traditionally “risky” industry.
While the business credit score is an indicator of the health of your company, merchant account processors are also going to look at the owner/signer’s personal credit score. Having a good score can make the process go quickly while having a marginal score might mean additional documentation or an upfront reserve needed for the account. It’s important to ask questions of your potential merchant account provider in order to better understand their tolerance for risk. Businesses with multiple partners might be able to apply with a different signer if the application is declined due to a credit score.
The process by which a processor or bank decides to give your business a merchant account, similar to the process your business would undertake to get a loan. They will look at a variety of the facets that we’ve defined, including the following: Business Type/Industry, years in business, chargeback history, billing policy, owner credit score, and requested processing volumes.
A key component to merchant account approval, identity verification is actually required by law (under the Patriot Act) to verify the applicant’s identity. Verification is typically accomplished by answering a few questions that only you could know (previous addresses, cars owned, etc.) Failure to verify correctly could mean that you forgot what type of car you drove in 1986 (and can be remedied with the processor), or that someone else is attempting to open an account in your name.
By having a realistic idea of your current processing volumes and future expectations (both a monthly average & high-ticket), the underwriting process will be more seamless, and approval times will be faster. Providing accurate processing volumes can also make sure that once you are set-up, you reduce the opportunity for holds or freezes on your account.
An acquiring bank is a financial institution that provides merchant accounts and processes credit and debit card transactions on behalf of a merchant. A merchant account is a certain type of bank account that allows you to accept credit cards. All merchant accounts must be sponsored by an acquiring bank that is a member of the card associations (Visa, MasterCard, American Express, etc…). They are responsible for depositing the funds into your checking account.
An address verification system is when, during the authorization of a credit card transaction, the issuing bank compares the cardholder’s address on record with the cardholder’s billing address (number, street, zip code).
The six-digit code sent by the credit card issuing bank to the merchant upon the approval of a transaction.
Authorization is the process of verifying there is available credit in the card holder’s credit card account. A positive authorization reduces the cardholder’s available credit and reserves the funds for settlement. A negative authorization means there is not sufficient credit. The settlement is the process of deducting the funds from the card holder’s account.
A credit card issued by Visa or MasterCard is called a bank card because it is issued by a bank through Visa and MasterCard. Credit cards from American Express and Discover are issued directly to the credit cardholder.
An assembly of one day’s worth of transactions. Rather than combining batches throughout the day, terminals and payment processors assemble all the day’s transactions and submit a batch at the end of the day.
Once a batch is complete, it receives a batch ID number. Every transaction in the batch shares this number. If a transaction does not have a batch ID number, the transaction has not been settled.
Capture occurs when a credit card transaction is submitted for settlement. Authorized credit card transactions must be captured and settled for a merchant to receive his/her funds.
The owner of a credit card during a sale is also known as the cardholder.
A demand by the credit card provider for a retailer to make good on the loss in a disputed or fraudulent credit card transaction. Successful chargebacks by consumers result in chargeback fees assessed to the merchant.
The clearing is the exchange of financial transaction details between the acquiring bank and the issuing bank to facilitate the posting of a cardholder’s account and reconciliation of a customer’s settlement position. Clearing and settlement occur simultaneously.
A plastic payment card issued to consumers (cardholders) as a way of paying for goods and services. Credit cards come with a predetermined spending limit and expiration date.
The comparison, or ratio, on which one country’s currency can be exchanged with another country’s. For example, one U.S. dollar would convert to 0.89 euros. In a transaction, the currency is converted into that of the issuer.
The CVC2/CVV2 is a three-digit security code that is found on the reverse side of a credit card. It appears in reverse italics above the signature panel at the end. This security program – started by Visa and MasterCard – ensures the cardholder is in possession of the card during a transaction. American Express has a four-digit security code on the front of the card while Discover Card’s three-digit code is similar to that of Visa and MasterCard.
The card used to complete a bank account withdrawal directly from a cardholder’s bank account. Unlike credit card purchases, debit card transactions are deducted automatically from the cardholder’s bank account.
A secure database containing bogus credit card numbers: fraudulent, stolen and those involved in chargebacks. When a credit card number has been placed within our ‘declined’ database, they are voided for future use with any Octapay merchant.
A small percentage an acquiring bank charges a merchant for the right to use their merchant account.
A paperless transmission of funds originating from a terminal, computer or telephone.
When the merchant account provider (ISO/MSP) underwrites and endorses merchant accounts within their own company (in-house).
The process of checking card validity by utilizing either of the following tasks:
A type of bank account that allowing merchants to accept credit card payments online that, unlike traditional merchant accounts, do not require a cardholder’s signature. Because a signature is not necessary, internet merchant account businesses are typically classified as having a higher risk profile.
A merchant that accepts credit cards online, by telephone or through the mail.
The bank that issues the credit card to the customer and transfers funds to the seller’s merchant account when the card is utilized by the customer. The issuing bank then debits the cardholder’s credit card account for the amount of the purchase.
Transactions initiated by a consumer using the telephone or postal service instead of retail terminals or online.
A retailer, company or corporation that accepts credit cards as payment.
A type of bank account used to receive the proceeds of credit card transactions. The merchant’s bank is responsible for taking payment from the consumer and depositing them into the merchant account.
The bank that provides merchant accounts to businesses and merchants, thereby giving them the ability to accept credit cards. The merchant bank is the same or similar to an acquiring bank.
Often referred to as a payment service provider, a merchant provider is third-party company providing merchant accounts to merchants. Merchant providers, such as Octapay, usually have partnerships with different banks that operate merchant accounts.
Merchant providers either have their own system of validating and processing transactions, or they serve as third-party resellers of processing systems.
MID is an acronym for a merchant identification number, a number assigned to a merchant to identify the merchant to the ISO, payment processor and acquirer.
Monthly minimums refer to the minimum monthly amount a merchant must pay in discount rate fees. If the merchant’s monthly sales result in his paying discount rate fees greater than or equal to the agreed-upon minimum monthly amount, no further fee is required.
If the merchant’s monthly sales result in his paying discount rate fees less than the agreed minimum monthly amount, the merchant is responsible for making up for the deficiency.
A company, such as Octapay, that performs the actual processing of payment – a credit card, ACH, or MOTO transaction – separate from the merchant account or acquiring bank which merely acts as the recipient of the transaction proceeds.
The Payment Card Industry Data Security Standard (PCI-DSS), formed in 2006 by MasterCard, Visa, American Express, and Discover, oversees the Payment Card Industry. PCI compliance is a series of requirements to which merchants must adhere to earn the distinction ‘PCI compliant.’ PCI compliance protects consumer information during the processing, transmission, and storage of cardholder data.
A private code, usually four digits, that allows the credit card issuer to authenticate the cardholder in a credit card transaction. The cardholder enters the PIN into a PIN pad. The PIN is required to complete an ATM/Debit card transaction.
The physical machine that enables a merchant to swipe or insert a credit card to facilitate a transaction. POS machines are most common in retail stores and environments.
A transaction for which authorization was received at a prior time.
The gateway which automatically collects the details of a transaction and transmits them to your acquiring bank. The processing gateway allows for automated real-time processing. Examples of such include Cybercash and Authorize.net
A payment solution – whether it be a POS terminal, software or virtual product — which enables the merchant to transact with his merchant account and payment processor, for the purpose of verifying and approving payment transactions.
Credit card processing performed in real-time and online while the consumer is still viewing the website.
A repeated transaction – used in subscription services – in which the cardholder has given a merchant permission to periodically charge the cardholder’s account. An example of such could be Netflix, a magazine subscription or a predetermined, recurring bill payment.
An alert message displayed on a point-of-sale (POS) terminal when electronic authorization is denied and must be authorized by calling a voice authentication center.
A percentage of a merchant’s funds in a merchant account held by the merchant account provider as security for future contingencies, usually chargebacks and returns. Reserves are usually required only from certain high-risk merchants.
A secure internet standard practice which ensures cardholder information is safe during the online payment process.
The process by which authorized transactions are sent to the processor for payment to the merchant.
A plastic card, similar to a gift card or prepaid card, with a computer chip that can contain a dollar amount available for all purchases.
The unique number is given to a credit card transaction device (such as a POS terminal), identifying the merchant’s equipment to the processor and bank card data transmission networks. A TID is also used to identify other software applications such as payment gateways.
A per-transaction charge – such as $1 or as low as $0.25 – that a payment processor imposes on merchants for each processed transaction.
Credit cards that prohibit consumers from carrying a balance, that usually requires payment in full each month. Examples include American Express, Discover Card, Diners Club International, etc.
A telephone or mail-order transaction after which the credit card processing is completed online by the merchant. The consumer gives his credit card details to the merchant, who processes the orders manually at a later time.
When a transaction is authorized, but later reversed before settlement. Settled transactions require the processing of credit in order to be reversed. A void does not remove any hold on the customer’s open-to-buy.
This is among the most common payment processing questions. With 3D Secure payment processing—or what is more commonly known as Verified by Visa or MasterCard Secure Code—cardholders create one password associated with their credit card account to authorize transactions. However, since many merchants do not use 3D Secure payment processing, cardholders often forget their password. This causes their credit card issuing bank to decline the transaction.
Yes. E-commerce merchants can process payments for as many websites as they wish. However, if the products on Website A are different from those on Websites B and C, then you will need to apply for separate merchant accounts for each website. To process payments for a new site through an existing merchant account, your account manager must approve it if it was not originally included on your application.
This is also among the most common payment processing questions. If you change the nature of your business, then you MUST inform your merchant account manager. We will then determine if your new business type breaches your payment processing contract. However, if the nature of your business changes so drastically, your acquiring bank may not be able to provide you with a merchant account. In this situation, we will help you obtain a new merchant account through one of our many banking partners.
Additionally, if you do not notify Octapay or your merchant account manager of such changes, it is considered a breach of contract . Merchants may be subject to fines, delays in payouts, merchant account interruptions or even a terminated merchant account.
If you sell goods or services to customers internationally, some of them may see an additional charge called the international transaction fee. International transaction fees range from $0.45-0.60 and as much as $1.25. Neither Octapay nor your acquiring bank imposes this fee. It comes from the cardholder’s issuing bank.
Although similar, authorizations and settlements are two different things.
Authorization occurs when your customer’s issuing bank approves the transaction request. Either the customer has sufficient funds in his bank account to process the debit card purchase or he had enough credit left on his account to make a credit card purchase. Alternatively, if there were insufficient funds in either bank or credit card account, the issuing bank would decline the transaction.
There are several other reasons why a bank would decline a transaction request: Expired card, incorrect information provided, or the cardholder canceled the account. The merchant does not receive approved funds at this part of the transaction.
A settlement occurs when the pending amount of approved funds has successfully transferred from the bank or credit card account to your merchant account.