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What is a Merchant Account

A merchant account is a bank account, under which a bank extends a line of credit to a business owner. A merchant account makes it possible for a business to accept a credit card, and/or a debit card as payment. Although the account is offered by regular banks, yet the transactions are not the same as those connected with the savings account, you have in a local bank. Merchant account is more like a contract between the business owner and the bank providing the account. It has its own set of rules, about how the products and services are sold and how the payments are made.

Merchant Account

Merchant Account

Types of merchant accounts:

There are basically two types of merchant accounts that a business owner can apply for. They are as follows:

  • OTC (Over the Counter) merchant account and
  • MOTO (Money-Order/ Telephone-Order) merchant account

The OTC or over the counter account has all the ingredients of a typical retail merchant. The transactions fees are lower than those of the MOTO merchant account fees. This is so because in retail establishments, the credit cards are physically swiped through a machine to make the transaction.  Whereas in Money-Order/Telephone Order merchant account, it takes two steps for credit card processing. The risk of fraud is also higher in this case.

Internet based businesses require a Money Order/Telephone Order merchant account for their transactions. The customers get an online form on the website, where they need to fill in all the information. The data is then sent out for verification and the money is debited out of the cardholder’s limit. In some cases, the credit card processing takes place only after the product is shipped to the customer.

Common beliefs related to merchant accounts:

Many people believe that newly established businesses are not eligible for getting a credit card merchant account, but it is not true every time. There are many merchant account providers who offer as high as 98% acceptance rates of applicants.

It is also a common belief that it is too expensive for the average small business owner, to have the ability to accept credit card payments. Some of the accounts provided by banks may be expensive as they charge an annual fee. But there are numerous providers that charge a small percentage of the sale amount when a credit card is processed.

Importance of merchant accounts in ecommerce business

Ecommerce business is becoming very popular these days. Its success highly depends on the ability to accept credit cards. It has been proved that the websites that only accept payments through bank accounts or by mailing check or money order are not as successful as those accepting payments through credit cards.

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