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Merchant Accounts FAQ

Frequently ask questions about Online Merchant Processing Accounts.

What is a merchant account, and do I need one?
How do I accept credit cards online?
Do I need a Shopping Cart for Online Sales?
Why are there different rates for different accounts?
What is a monthly minimum fee?
What is a discount rate?
What fees are involved in Online Merchant Processing?
Why are the fees higher for Online Merchant Processing?
What is the difference between a 3rd party and a direct account?
What is Rolling Reserve?
What is a Chargeback?
How can I avoid chargebacks?
What are CVV, CVC, and CV2?

What is a merchant account, and do I need one?

Merchant accounts allow you to accept credit card payments from your customers. A merchant account serves as an agreement between a retailer, a merchant bank and payment processor for the settlement of credit card and/or debit card transactions.

In today’s business environment, where more and more people are getting credit cards and debit cards, having a merchant account allows you access to clients that prefer not to use cash to pay for items. Having a merchant account can only help your business to grow.

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How do I accept credit cards online?

To accept credit cards online, you will need to apply for a merchant account that is specifically designed for online credit card acceptance. By applying for and getting an online merchant account, you will be able to connect your online shop to the processors gateway to accept payments from your clients online.

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Do I need a Shopping Cart for Online Sales?

No, you do not specifically need a shopping cart to do online sales. If you only have a single product or service that you sell, then there is no need for a shopping cart.

Shopping carts are designed to handle a large number of products or services in a way that is convenient for the client as well as the owner of the online store.

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Why are there different rates for different accounts?

Although all online processing is considered to be higher risk, there are certain industries within the online processing community that are considered a higher risk than others. For instance a standard online retailer that sells shoes online is considered to be a lower risk than someone who deals in adult websites. This is because the risk of chargeback is much higher for adult merchants than it is for general retailers.

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What is a monthly minimum fee?

A monthly minimum fee is what processors will charge merchants on a monthly basis. Although the actual monthly minimum fee is generally relatively low, it ensures that any merchant that signs up with a processor is worth the processors time.

Monthly minimum fees were introduced in order for online processors to accept smaller clients without having to charge them a monthly maintenance fees, and the monthly minimum fee is generally how much a processor must make off of a merchant to make a profit from them.

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What is a discount rate?

The discount rate is the rate that you will be charged per transaction for every credit card transaction that you process. Discount rates vary from processor to processor, and also from industry to industry. For example, if you have a discount rate of 3.5%, and you process a transaction worth $100, you will end up paying $3.50 to the processor for processing the transaction.

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What are the fees involved in Online Merchant Processing?

The fees involved in online merchant processing vary from processor to processor. IN most cases you will be expected to pay the following fees:
Discount Rate – Percentage of the value of the transactions Transaction Fee – This is an amount, generally under a dollar, that you will pay per transaction that will be processed. This is also known as a Gateway Transaction Fee.
Refund Fee – This is the fee that is charged per refund that you issue.
Chargeback fee – This is the fee that you will pay every time a client charges back on a transaction you have processed.

Those fees are generally high, and can range from $25 per chargeback to over $150 per chargeback, depending on the state of your processing account when a client charges back. There are also additional fees that you may be expected to pay when you have a merchant account, these include things like AVS (Address verification) and additional anti fraud fees.

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Why are the fees higher for Online Merchant Processing?

With any CNP (Card Not Present) transactions the risk of fraud is much higher. As online processing falls into this category, by normal processing standards, online processing is automatically classed as high risk processing. With CNP processing, there is no physical signature on the credit card receipt issued, and therefore when a client disputes a charge (charges back) their bank is far more willing to issue their money back to them.

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What is the difference between a third party and a direct account?

A direct merchant account is an account that is held with your own bank, where the funds are deposited straight into your bank account with the bank. A third party account is an account that you hold with a 3rd party, where they are connected directly to the bank, and they are responsible for paying you. When you have a direct account, the funds are generally settled into your account within 1 week of processing the transaction, however with a 3rd party account; you generally receive payment for them 2 weeks in arrears. 3rd party accounts are also generally more expensive, and have additional fees, like wire fees.

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What is Rolling Reserve?

Rolling reserve is a percentage of processing that is held by processors of online transactions. The percentage held by the processor, as well as the length that it is held for is determined by the risk class of the online merchant. Generally rolling reserves are equal to 10% of the total value of transactions processed and held for 180 days. The amount held is not as significant as the time frame, as 180 is the statute of limitations for clients to dispute a charge with their bank.

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What is a Chargeback?

A Chargeback or disputed charge is when a client goes to their bank to request their money back for a transaction that a merchant has processed. Chargebacks were originally designed to protect clients from fraudulent transactions that were put onto their credit cards when it was stolen. However in recent times, it has effectively become the card holder’s ultimate defense against fraud, and allows them to dispute any charges on their credit card that they are not satisfied with.

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How can I avoid chargebacks?

It is almost impossible to avoid chargebacks completely, as there will always be people who will commit fraud. However, to ensure the lowest possible number of chargebacks, make sure that you follow specific guidelines relating to your industry. For instance always send deliveries to home addresses, and where possible make these deliveries signed for. This ensures that you have a signature on paper that ensures that you have delivered the goods to the person in question.

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What are CVV, CVC, and CV2?

CVV is also known as CVC, CV2 and card identification number. This is a special 3 (Visa and MasterCard) or 4 (American Express) digit code on the back of a credit card, that is used in card not present transactions. All card not present transactions will require this code, as it is thought to prove that the person paying has the actual card in hand. This applies to both online processing, and manual card processing through a POS terminal.

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If you need any additional information on how to start the process of opening an online merchant processing account, please contact us.

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