This article will explain how internet merchant accounts work, how to apply, and some advantages and disadvantages of having this type of payment process.
What Is an Internet Merchant Account?
An Internet Merchant Account (IMA) is a business bank account that allows businesses to accept payments by credit card, debit card or bank transfer over the internet. An IMA is vital for any business wanting to conduct business over the internet.
A bank that offers an internet merchant account is called an acquiring bank, and is responsible for holding and transferring money from customers into your account via a payment gateway. Some IMAs are handled by Payment Service Providers (PSPs) like Paypal or Netbanx, which lie outside traditional high street banks.
Even though high street banks offer IMAs, they are not like normal bank accounts. The balance in an IMA is cleared at regular intervals by the account provider. The balance will be transferred into the account holder's regular business account. This is known as 'settlement'.
Generally, the more risky the business is perceived to be, the longer it will take for the settlement process to occur because banks want to make sure that the funds have cleared.
Applying for an IMA
If you want to apply for a bank or PSP based IMA the application process is relatively simple. It is generally quicker to apply for a PSP based web merchant account than a bank based account. The application can be completed entirely online and is very straightforward to complete.
Since web based merchant account providers like Paypal and CCbill generally have much lower charges for business clients, the potential for increased profits for customers with IMAs is significant. These PSP will require certain obligations from a business prior to issuing an IMA.
These will include, but not be limited to:
A detailed business plan
A functioning website
Information of the businesses services and goods
How the business will make delivery of purchased goods
Details of the business’ online Terms and Conditions
Secure server data
The forecast revenue, level of transactions and average number of credit card payments
Current banking details and trading history (if applicable)
Bank vs PSP
Banks tend to have higher charges for business customers than PSPs and are generally more reluctant to give accounts to smaller sized businesses.
PSPs however, like Paypoint, are generally much more favourable to smaller businesses. They will also give you an account much more quickly than a bank, usually within 24 hours. Banks can take much longer, sometimes a week to ten days from applying, to give you an account.
PSPs are more specialised than banks and focus much more on payments and transactions online. So if you are a small to medium sized business looking for an IMA, a payment service provider is much more likely to look favourably on your application than a bank, because that's what they specialise in.
Advantages of an IMA
The most obvious advantage to having an internet merchant account is that it enables you to receive card payments online, quickly and easily. There is no need for cheques, faxes or credit card terminals with an IMA.
Customers like the convenience of being able to pay online instantly, and having this option on your site makes customers more inclined to purchase things at the time of actually visiting your site, if the option isn't there, you might lose their custom.
It also helps to ensure that they will return to your site in the future. Also, web based merchant accounts are usually very secure because of their reliance on credit and debit card payments, and this gives customers just that little bit of extra peace of mind when they make online payments.
Costs of an IMA & Potential Disadvantages
A bank will usually charge a set-up fee of around £200. On top of that there will be a monthly charge (usually between £15 to £30 a month) and the provider or bank will usually take a percentage of every transaction, usually around 3%.
Potential disadvantages are that you may not pass a merchant account provider’s vetting procedure, since many have quite strict requirements, and your website will need to be up and running before they will allow you to have a full web merchant account.
Apart from that however, the potential benefits of an IMA for a small to medium sized business far outweigh the possible drawbacks. The potential for broadening your customer base is very high, and ecommerce profits are growing exponentially every year in the UK.
Terms and Conditions
The most important part of your contract with your merchant account provider will be the settlement terms. This is the period set by the bank before releasing funds from the IMA into the business account. This can vary from 3 days to 4 weeks, but is negotiable and depends on the nature of the business and its trading history. New businesses and high risk ventures are likely to have to have longer settlement periods.
Online transactions are subject to very strict international security requirements, so if you are setting up an IMA, you will need to consider how your business will meet these requirements.
Your business must have:
A secure network
Encryption software for cardholder data
Rigorous internal controls
Regular tests on networks
An information security policy and vulnerability management plan
All these requirements fall under PCI compliance, which you will need to become familiar with if you are selling online.
The acquiring bank will be able to advise you on how the online part of your business can meet your security requirements. It is important to have this in place as it influences your liability if there is theft of customer details.
What Are the Security Requirements?
Online payments are 'card-not-present' transactions and therefore present a higher risk of fraud. For this reason, IMA providers want to ensure that there are sufficient anti-fraud measures and encrypted connections in place to protect your business and give your customers peace of mind.
Authentication services, such as Verified by Visa and MasterCard SecureCode, provide additional fraud protection and may be mandatory. Businesses must also comply with the Payment Card Industry Data Security Standard (PCI DSS).
Failure to comply and resultant security breaches can result in large fines. Businesses that have an IMA directly with a bank and maintain their own payment web pages are responsible for ensuring they comply, but those who have a combined payment gateway and IMA usually have compliance built-in.
If you are interested in hearing more about setting up an internet merchant account for your business, then fill out the form at the top of this page and a select group of excellent suppliers will get in touch with you.