What Is an Internet Merchant Account and How Do You Get One?
Do you want to accept credit or debit cards at your online business? Then you need an internet merchant account.
Like regular merchant accounts, internet merchant accounts are essential for credit card processing. But unlike regular merchant accounts, internet merchant accounts are used specifically by online businesses for payment processing. If you have an eCommerce business or one that involves online transactions, you’ll need an online merchant account.
In this article, we’ll take a look at how online merchant accounts work and how they compare to alternatives. We’ll also discuss how to find the right merchant account for your small business and cover some commonly asked questions.
Let’s delve in.
What Is an Internet Merchant Account?
The eCommerce market in the U.S. is projected to reach $875 billion in 2022. In this day and age, internet merchant accounts aren’t optional for business owners with online sales. They are designed to process online credit card transactions and online payments from debit cards.
How an Internet Merchant Account Works
Your internet merchant account allows you to accept payments from card companies like Visa, Mastercard, and American Express. Once a customer enters their card information on your online checkout, it’s deposited into your internet merchant account. It sits there while your (acquiring) bank validates that your customers’ (issuing) bank has the funds available.
As you can see, your internet merchant account is not the same as your small business’ acquiring bank. This is also called an issuer, merchant bank, or business bank account. Like your business bank, however, you’ll pay different transaction fees depending on the solution provider you choose. So, finding a merchant account provider with competitive rates for your type of business is essential to maximize ROI.
Merchant Accounts vs Third-party Aggregators
These are two very different things. A merchant account is a business bank account that serves as a middleman while funds are being verified. It allows your business to accept credit/debit card transactions. Your merchant account holds onto transaction details while your customers’ bank confirms that it has funds available. It then deposits those funds into your business bank account.
A third-party aggregator, on the other hand, uses one big merchant account for all of the businesses it hosts. There are no setup costs to using a third-party payment processor. This makes them an attractive choice for entry-level businesses. PayPal, Square, and Venmo are examples of third-party payment aggregators.
But it’s not all roses and sunshine. Third-party aggregators have higher transaction fees than traditional merchant account service providers. Your account can be frozen or suspended with no prior notice, significantly disrupting the flow of your business. This isn’t a risk most SMBs can afford to take.
Opening an internet merchant account is more feasible for long-term business success than using a third-party aggregator. Yes, there’s an evaluation and approval process. But you’ll pay less and there’s less risk involved with a traditional and online merchant account than a payment aggregator.
Traditional Merchant Account vs Online Merchant Account
At first glance, you’d think traditional merchant accounts and online merchant accounts are pretty similar. But there are a few key differences. Traditional merchant accounts kick in when a customer swipes their card at your point-of-sale station. So, they’re focused on in-person transactions using a physical card reader at your POS station.
Online merchant accounts are for eCommerce transactions. Your SMB’s pricing and payment options will be largely dependent on the type of business you run. High-risk businesses may have difficulty getting approved. However, keep in mind that online merchant accounts typically have higher fees than traditional accounts. This is mainly because of the fraud risk involved with online transactions.
What to Look for in an Internet Merchant Account
In choosing a solution provider for your internet merchant account, you’ll want to go beyond just weighing processing fees. Let’s take a look at the factors to consider when choosing between payment solution providers.
- Payment gateway. This facilitates communication between your online store and your payment processor. Physical stores may have payment gateways built into their POS stations. eCommerce websites will have online payment gateways.
- Transparent pricing. Nobody wants a surprise on their monthly bill. Transparent pricing ensures you’re able to sufficiently budget for any fees that arise.
- Shopping cart. An online shopping cart goes beyond a physical cart with wheels. It works with your customers’ payment gateway to determine the total cost of goods after taxes, coupons, and delivery fees.
- Multiple ways to pay. Offering a diverse range of payment methods is becoming table stakes for online retail. It reduces cart abandonment. Online payment services like Amazon Pay and PayPal are the third most popular form of payment after debit and credit cards.
- PCI compliance. You’ll want to be sure that your payment services provider offers PCI compliance as part of their security package. This eliminates the need to monitor for compliance on your end and prevents your company from being fined for non-compliance.
- Multicurrency support. Not all payment processors support international customers’ credit and debit card payments. If you do business outside of the U.S., you’ll want to confirm that your potential account provider supports international currencies.
- APIs and SDKs. Application Program Interfaces and Software Development Kits sound like esoteric technologies, but they determine the user experience. They refer to the software you will use alongside your payment technology. So, look for ease of use, debugging options, and easy communication between platforms.
How to Obtain a Merchant Account for Your Small Business
Contrary to popular belief, internet merchant accounts aren’t just a one-and-done software solution. There are a few steps required to get approved and set up your account:
- You’ll need to provide documents such as your business registration certificate, operating licenses, and existing account/card information.
- Where your business is located, type of sales, and volume of sales will be taken into account.
- Your SMB will also need an online payment gateway to process credit card payments with an internet merchant account.
- Your company’s credit history will be reviewed. This means any chargebacks, refunds, and overdrafts will be taken into account.
What Are Some Alternatives to Merchant Accounts for Credit Card Processing?
You may be looking at alternatives to internet merchant accounts, particularly if you want to save on your monthly fee or have a high-risk business that got declined elsewhere. If this is the boat you’re in, have no fear. There are a few viable alternatives to internet merchant accounts:
- Third-party aggregators
- Written checks
- ACH debit accounts
- Online check clearing services
However, keep in mind that check clearing takes an average of 3-7 business days. If you’re operating on a lean budget and need to access funds immediately, this won’t be the right fit.
How to Choose the Right Merchant Account Provider for Your eCommerce Business
Now that you know how internet merchant accounts work, it’s time to evaluate different pricing models. You’ll experience recurring billing with all payment service providers, but your ROI will vary significantly depending on the payment processor you choose.
Payment Depot has the highest rated customer support in the business and saves merchants an average of $400 a month on payment services. Our wholesale pricing model helps merchants like you get incredible rates on payment processing. No hidden fees. No surprises. Just first-rate payment processing and industry-leading customer service.