What are Merchant Accounts?
Any company or business wishing to accept payment for goods or services by credit or debit card will need to have a Merchant Account. Whether the transactions are face to face with the customer, by phone, mail order or over the internet, the facility must be in place to process the sale. The service, generally offered by all the major High Street Banks, acts as a contract between the business (client) and the 'acquiring' Bank, guaranteeing them the facility to accept 'remote' payment for transactions with their customers.
Opening a Merchant Account for Transactions
Before opening a Merchant Account, it is advisable to shop around as rates and services will vary from bank to bank. It is not necessary to open the Account with your existing bank, if more beneficial terms can be secured from a different institution. When the decision has been made, the chosen bank will ask for detailed information concerning the history of the business, its profitability and projected annual turnover. They will want to know what goods or services are offered and how they are delivered, the projected values and volumes of transactions to be processed and what proportion of them will be face-to-face, by phone, mail order or over the internet. If the business will be processing sales from a number of different sources, in person, by phone and web generated, they will need to open a separate account for each line of trade. These details will help the acquiring Bank to determine the level of fees to be charged against each card transaction; on average between 1.6% and 2.8% for credit cards and 20p-50p per transaction for debit cards. There may also be an additional monthly fee for the rental of a terminal for processing Chip and PIN sales. The 'set up' charge for opening a Merchant Account can be from £75-£250 (+VAT), depending on the Bank used, and the average length of time to open a Merchant Account is between 1-4 weeks, however if the business is new, it may take longer as additional information will be needed.
Why open a Merchant Account?
There are many advantages for a business in having the facilities offered by a Merchant Account; they can bow to customer preference, the majority of people expect to pay for their goods and services with a debit or credit card. It can facilitate impulse buying as it allows customers to make a purchase whether or not that have the available cash in their pocket, and extend the client base for a business, delivering the potential of phone, mail order or internet trading. There are also benefits for improved cash-flow as it will, generally, be quicker to process a card transaction than for a cheque to clear and the funds to become available. If a business deals mainly with card transactions, there will be less cash held on the premises, leading to a more secure working environment. Finally, when a customer makes a purchase by card, a number of security checks are made; has the card been reported as lost or stolen and are funds available in the account to pay for the goods? This all provides extra security for the trader, and the customer, making the shopping experience more simple, stress-free and enjoyable.
The only obvious disadvantages of a Merchant account are the fees charged by the acquiring bank; although these are not excessive when evaluated against the potential benefits, and the added exposure to potentially fraudulent transactions being made by those with criminal intent. Although the risks are present, the system has extensive safeguards in place to minimise the possibility of these occurring, and, with the appropriate staff training, the opportunity for fraud is relatively low.
