Merchant identification numbers are one of those perplexing terms that are volleyed around casually in the payments industry. They’re also referred to as Merchant IDs.
Now, here’s where it gets a bit confusing: merchant ID numbers are not the same as merchant account numbers. But don’t worry. We’ll break both terms down for you in a moment.
Your merchant identification number is a unique ID given to you by your payment processing company. Thankfully, they’re a lot less complex than they seem at first glance.
In this article, we will demystify merchant identification numbers and talk about what they are, why you need one, and other FAQs about the process.
Let’s dive in.
What is a merchant identification number?
A merchant identification number is a unique ID that businesses use to accept and process card payments with a merchant account.
Why your business needs a merchant ID number
Your business needs a merchant ID number for credit card processing. It’s how your bank (the acquirer or acquiring bank) receives funds from your customer’s bank (the issuing bank).
So how does this work? Your customer’s credit card issuer uses your merchant ID number to verify that your business is legitimate.
Your merchant ID number is your unique identifier when your payment processor interfaces with your customer’s bank account. It’s how your customer’s bank knows where to send your money from each transaction.
Merchant ID number vs merchant account ID
Your merchant account ID number identifies your entire business’s payment gateway on your merchant statement. Whether you use your POS system or mobile credit card terminals, your merchant account ID remains the same.
It also remains the same no matter what business is processing a transaction. This is especially pertinent for businesses that share the same payment processing equipment under one roof.
Your merchant ID number, on the other hand, is an account number for a specific merchant account. If you share a space with another business, you won’t have the same merchant ID number as other business owners. You’ll process debit and credit card payments under your own unique codes.
Your merchant ID number will allow your payment processor to identify which transactions came from which business – even when you’re all using the same payment gateway.
Your merchant ID number will also be used to differentiate different branches of the same business during e-commerce transactions. Say your small business has a different online channel for shoe sales, camping equipment, and jackets. You’ll process cardholder transactions under a unique merchant ID number for sales on each channel.
How to get a merchant ID for your business
You can get your own merchant ID number from your merchant services provider when you open a payment processing account. Your unique code can then be used to reference your account and verify transactions.
However, third-party payment processors like PayPal and Square don’t issue merchant ID numbers. That’s because they operate from one big aggregate merchant account, instead of differentiating between businesses like most payment processors.
How to keep your merchant ID safe
Perhaps the biggest thing you need to know about your merchant ID, is that it’s important to keep it safe. Fraudsters can use it to steal money or misrepresent your business. If fraud leads to chargebacks –– often caused by “friendly” fraud –– your business may be flagged as “high-risk.”
Chargebacks can lead to a processing freeze, meaning your business won’t be able to process any transactions. It can also lead to withheld funds or full-scale account termination. It’s scary stuff.
A recent survey from PwC found that 48% of respondents were “the most concerned about” data privacy and cyber security. Fortunately, there are a few easy ways to protect your merchant ID number and prevent chargebacks:
- 3-D secure. This means requiring a PIN code for account verification, thus adding another layer of protection from hackers.
- Address verification service or AVS. A tool used by credit card processors given to merchants to help detect suspicious activity and fraud. AVS verifies the buyer’s billing address and the credit card holder’s address.
- CVV verification. This means requiring the back-of-card security code to process card transactions.
The bottom line
As you can see, keeping your merchant ID number safe is an important component of running a successful retail business. That’s why it’s important to partner with a payment processing company with built-in safety measures to protect your data.
Payment Depot doesn’t just offer a pricing structure that helps merchants save an average of $400 a month on credit card processing. We’re also PCI compliant and take full responsibility for the customer information under our purview. We protect your company’s data, so you can focus on running a successful business. Contact us today to learn more.
Quick FAQs about Maerchant ID
Q: What is a Merchant ID and why is it important for my business?
A Merchant ID (MID) is a unique identification number assigned to businesses by payment processors. It is crucial for processing card payments as it helps banks verify and route funds correctly from customer transactions. Without an MID, a business cannot accept credit or debit card payments, making it essential for operations.
Q: How does a Merchant ID differ from a Merchant Account Number?
A Merchant ID is a unique identifier for each business to process transactions, while a Merchant Account Number is linked to the financial account where funds are deposited. They are distinct entities that serve different purposes in payment processing.
Q: How can I obtain a Merchant ID for my business?
You can get a Merchant ID by setting up a payment processing account with a merchant services provider. This involves an application process where the provider evaluates your business to determine the suitability for issuing an MID.
Q: What are common security measures to protect my Merchant ID from fraud?
To protect your Merchant ID, employ measures like 3-D Secure for additional authentication, Address Verification Service (AVS) to check billing addresses, and CVV verification to confirm cardholder authenticity. These steps help prevent unauthorized access and fraudulent transactions.
Q: Can third-party payment processors like PayPal provide a Merchant ID?
No, third-party processors like PayPal do not assign individual Merchant IDs. They operate under an aggregate merchant account, which groups multiple businesses under one system, differing from traditional payment processors that issue separate MIDs.
Q: What happens if my Merchant ID is compromised?
If your Merchant ID is compromised, it can lead to fraudulent transactions and chargebacks, potentially classifying your business as high-risk. This can result in processing freezes or account termination. It’s crucial to secure your MID to avoid such risks.
Q: Why do different branches of the same business need unique Merchant IDs?
Different branches or e-commerce channels often require unique Merchant IDs to accurately track and manage transactions separately. This ensures clarity in financial records and facilitates better transaction reporting and analysis.
Q: What role does a Merchant ID play in preventing chargebacks?
A Merchant ID helps in accurately identifying transaction sources, which is vital for dispute resolution in chargebacks. Properly managing and securing your MID reduces the likelihood of chargebacks due to fraudulent activities.
Q: Are there any costs associated with obtaining a Merchant ID?
While some providers may offer a Merchant ID as part of their service package, others might charge setup or maintenance fees. It’s important to review the terms and conditions with your merchant services provider to understand any associated costs.
