Merchant accounts. A very simple concept.

Lets begin by stating that merchant accounts are the base of this whole internet deal. Yes, without them websites couldn’t charge users for the products sold and that would mean a complete different world. Ok, you might be one of those currently thinking: Ya, who pays for stuff on the internet now days? Well, there are many of us out there still doing it so, if you are currently exploring the idea of launching your own website and pretend to charge users for a service, product or a subscription, sooner or later you would have to get familiar with term "merchant account". To begin with, lets clarify that the term merchant account does not only relates to the Internet. There are basically three types of them, which are: MOTO or Mail Order/Telephone Order, Retail and Internet merchant accounts however, since the purpose of this blog is sharing knowledge of the many options out there to charge users online, we will use the term to refer to the last type.

A merchant account is simply a bank account for your online business that allows communication with a gateway, which is only a company that works as a “translator” between the websites payment page and the bank. What happens is that the gateway sends the encrypted information introduced by the user on the payment page to the bank, the bank responds to this request and sends an reply back to the gateway to either charge the credit card or reject the transaction. Bottom line, user gets charged (or declined) and the website gets such credit into his bank account. Now, keep in mind that all this communication occurs within fractions of seconds. Now, depending on your websites target audience (industry), volume or how the user will see the charge in his credit card statement (refer as Billing Descriptor) merchant accounts can be categorized as follows. Please keep in mind that I am only categorizing them to the provide an easier way to understand the terminology. For example, a brand new site (startup) within a low risk industry could begin with either a third party account or a first party account.

Industry:

1. Low Risk merchant accounts: Used for standard ecommerce websites where users purchase a product or service, unrelated to a highly fraud activity and usually selling to all audiences.
2. High Risk merchant accounts: Used for industries such as gambling & adult.

Volume:

1. High Volume: refers usually to processing above 25k-50k per month and with processing references.
2. Startups: Processing history has not yet been established.

Billing descriptor:

1. First party: Allows users to set their own billing descriptor reference in credit card statement of users, the company name and customer service number will appear on it. Example: CBSSRVCS+8005555555
2. Third party: With this kind of accounts the payment page is hosted outside of your website. This means user will be redirected to another link/page to enter their credit card details. This is the fastest and easier way to obtain an account to start doing business however, depending on what you are selling its not the most effective payment option. The most known worldwide its Paypal. But there are others such as 2checkout and alertpay.