5-2 The Different Types of Merchant Accounts

Different Types of Merchant Accounts

The two basic types of merchant accounts are "card present " and "card not present ". Each basic type of account has subcategories that are defined by business type and/or how a credit card transaction is processed.

Card Present Merchant Account - A card present merchant account is any merchant account where the credit card and the customer are present during the transaction, and the merchant is able to swipe the customer's credit card through a magnetic card reader to perform an electronic data capture .

Retail Merchant Account - A retail merchant account is an account where the majority of credit card transactions are processed by swiping the card through a credit card machine or magnetic strip reader that is connected to a physical phone line. Retail merchant accounts are considered low risk accounts by acquiring banks, and are granted the lowest rates and fees. Whenever are credit card transaction is keyed-in on a terminal key pad when using a retail merchant account, the transaction will automatically downgrade to the non-qualified discount rate.

Any retail business that expects to process a significant amount of keyed-in transactions should strongly consider opening both a retail merchant account and a mail order merchant account so that they are able to obtain the lowest discount fee possible for both transaction types. This is especially true for retail stores that also have a website or mail order catalog.

Wireless Merchant Account - A wireless merchant account is an account where credit card transactions are swiped through a portable credit card machine or magnetic swipe reader to obtain a real-time authorization and an electronic data capture is performed. Wireless merchant accounts are usually given the same low rates and fees that as a retail merchant account, but typically have higher monthly fees and initial equipment costs.

If your business requires that you are able to accept credit cards while on the run, you should make sure that the cost of accepting cards is justified by the increase in sales that card-acceptance generates. There are also other portable processing options that may be a more economical fit for your business.

Store-and-Forward Merchant Account - Astore and forward merchant account is usually charged the same low rates and fees as a retail merchant account while, providing the same portability as a wireless merchant account. The main difference between a store and forward account and a wireless account is that store and forward does not provide a real time authorization . A store and forward merchant account functions much like the name implies. In order to use a store and forward merchant account, your credit card processing equipment must be capable of performing the task.

A store and forward terminal is like a wireless terminal in the way that it is battery powered and does not require any physical phone lines in order to process a transaction. This makes them ideal for businesses that would like to process credit cards on the go. When a merchant swipes a customer's credit card through a store and forward terminal the transaction information is saved in the terminal's memory.

Once the merchant has access to a phone line, they plug the terminal in and it will then forward the transaction information to the processor. A store and forward merchant account is ideal for business types that require portability, but may not have the budget for a wireless merchant account. Store and forward is also an ideal match for businesses that have small average tickets and don't expect a lot of declined credit cards.

Grocery Merchant Account - A grocery merchant account is an account that is utilized by retail businesses selling primarily grocery and food products. In order to qualify for a grocery merchant account, the majority of the product that you sell must be considered perishable, and you can't sell gasoline. Your business does not have to be a large grocery store to qualify for a grocery merchant account. Grocery merchant accounts are considered very low risk accounts, and they are usually given even lower processing rates and fees than those given to a regular retail merchant account.

Lodging Merchant Account - Lodging merchant accounts are for use by businesses that operate in the lodging industry such as hotels, motels, and bed and breakfasts. Lodging merchant accounts are afforded lower rates than card not present merchant accounts , but they are not given rates as low as retail or other card present accounts .

Restaurant Merchant Account - Restaurant merchant accounts are utilized by food service businesses that authorize a credit card, and then go back at a later time and adjust the final total to include gratuity. If you will be applying for, or already have a restaurant merchant account, be careful of the fine print and ask your merchant service provider to go over the details of the account with you carefully; pay special attention to how tips are charged. Restaurant merchant accounts can get a little tricky when it comes to adding the tips into the final bill.

VISA and MasterCard mandate that an entire transaction must downgrade if the tip amount is more than 20% of the total bill. This means that the waiter or waitress will be getting cash from the drawer for the total amount of their tip, but the restaurant will be paying a mid or non-qualified fee that may be upwards of 5% of the transaction. Depending on the profit margin of the restaurant, this may cause the business to lose money frequently on non-qualified transactions due to high tip amounts.

Card Not Present Merchant Account - A card not present merchant account refers to any merchant account where the credit card and the customer are not present when a transaction takes place. The only way to prove to a processor that the card and the customer were present when a transaction takes place is to swipe a credit card, and perform an electronic data capture .

Any account where this is not possible the majority of the time is considered to be a card not present merchant account . Card not present merchant accounts are considered to be higher risk by acquiring banks and are therefore charged higher processing rates and fees. When shopping for a merchant account you should not expect a card not present merchant account to have the same rates and fees as a card present merchant account . The rates and fees will always be higher for a card not present merchant account than they are for a card present merchant account .

Internet Merchant Account - An Internet merchant account is used by online businesses that process credit cards through an electronic payment processing gateway . The accounts are set up under the assumption that the Internet is the business's store front, and that the majority of sales will be generated from their online presence or website. Most payment processing gateways are multi-functional in the way that they are able to perform real-time transactions without human intervention, as well as manual transactions. This means that the gateway is able to collect a customer's order and payment information from a shopping cart, and then communicate with the processor to authorize the transaction without any human intervention. However, the gateway also allows a human to log in to a secure control panel to manually enter credit card numbers that may have been the result of phone or product catalog orders. When processing online it is just as important to get a good payment processing gateway as it is to get a good merchant account.

Mail Order Merchant Account (moto) - A mail order merchant account is the most widely used form of card not present accounts . A mail order merchant account is set up by the processor under the assumption that the business will not have the customer or the card present when processing a transaction and that most transaction will be manually entered into a credit card machine or other form of processing equipment. The term " mail order " does not mean that every business that uses this type of account is selling products from a catalog. It simply implies that the business operates on the basic card not present scenario. Mail order merchant accounts are given the lowest processing rates and fees of all card not present account types.

Touchtone Telephone Merchant Account - A touchtone telephone merchant account is just as it sounds. No credit card terminals or equipment is needed to process credit cards transactions using this method. The only thing that is needed to process credit cards is a touchtone telephone. This also includes cellular phones. Touchtone telephone processing is a good alternative to wireless processing for businesses that require real-time authorizations while on the go, but cannot afford the initial up-front investment that is required for wireless processing terminals.

Touchtone telephone processing operates using a verbal prompt system that a merchant calls to complete credit card transactions. The merchant simply enters a customer's credit card and transaction information when prompted using the keypad on their touchtone phone.The system will process the information and verbally read back a decline or authorization number that should be copied onto a hard copy receipt that the customer will sign. Manual credit card imprinters are a must-have for any merchant that will be processing credit cards using a telephone authorization system like touchtone.

Touchtone processing usually has significantly higher rates and fees than other card not present account types. Reason being, there is usually another company aside from the merchant service provider that supplies the touchtone system necessary to process transactions. This company also charges fees for their services making the total cost to the merchant that much higher. Even with the higher rates and fees the start-up costs for a touchtone merchant account is usually very reasonable. Most touchtone telephone merchant accounts can be set up for under $100.

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