Merchant Account Definitions

Merchant Accounts
A Merchant Account is an integrated method for authorizing, processing and settling transactions that are paid by credit card.

When your customer chooses to pay by credit card, at a retail location the credit card reader scans their card or online the customer enters the credit card information. At the end of the day, information is transmitted to the bank through the Merchant Account Service. The bank then secures the funds and makes the appropriate transfers to your bank.

While the actual transmission of the batch takes just a few minutes, the bank processing can take several business days.

At a retail location credit card information is captured and verified through the use of a magnetic strip and then a signature, this helps to prevent fraud by proving that the cardholder was actually present and signed for the transaction.

Internet stores do not have the capability of seeing the cardholder in person or receiving a signature so credit card processing is slightly different. On the internet there are 2 main ways of verifying the credit card, one is via Address Verification, this and another is card code verification. Both of these methods help to minimize credit card fraud by ensuring the shopper is not using a stolen card.

Payment Gateways
A Payment Gateway is a software interface to the credit card processing hardware. This allows you to create a internet form which captures credit card information and securely submits it for processing. This is essentially like the magnetic card reader at a retail location. Many payment gateways provide fraud detection software or alerts to help you eliminate chargebacks. Nearly all providers provide AVS and Card Code Verification.

3rd Party Merchant Account

Some payment gateways providers do not require you to have a merchant account because you will use theirs. There are both advantages and disadvantages to this scheme. Usually these providers can accept merchants who might not be accepted otherwise but for their services they usually charge a much higher transaction rate. In addition many of these 3rd party merchant account providers require the shopper to leave your store before completing the purchase.

Discount Rate
A discount rate is the percentage of each transaction which will be assessed as a fee by the merchant account provider. The lower your discount rate the less you would have to pay. High risk and international accounts usually require a higher discount rate.

Transaction Fee
The transaction fee is the flat fee the merchant account provider and possibly payment gateway charge per credit card transaction.

Application Fee
This fee is charged for the setup and application process to start your account. Usually this fee is refundable if you are denied for any reason.

AVS Verification
AVS Verification ensures that the address goods will be shipped to matches the billing address of the credit card. A code is generated to determine the level of the match.

Card Code Verification
Card Code verification which captures the 3 digit code on the back of the card and compares it with bank records.

Chargebacks result from unauthorized charges to a credit card or customers who are unhappy with your product or service and you do not give them successful resolution. If a credit card customer complains about your service you will be given time to respond if you do not respond a chargeback will be performed which reverses the initial charge and refunds the money to the customer. Chargebacks are very costly to merchants and if you receive to many of them your merchant may revoke your account.

A electronic debit from a checking or savings account. The fees associated with electronic check processing and guarantees associated vary widely. In addition not all merchant account providers accept eChecks and many charge extra monthly fees and application fees for this service.

Virtual Terminal
A secure form used by the merchant for entering credit card transactions which are not processed by your customer. ie Credits, Debits, and voids.

Shopping Cart
A mechanism for providing the customer a way to gather all of their items into a single location and compute the total price. EasyStoreCreator provides a shopping cart with the store builder solution.

High Risk
High risk merchants usually include the following (each banks policies are different):
  • Adult Oriented Products or Service
  • Water Filtration
  • Multi Level Marketing
  • Phone Cards
  • Airline Travel
  • High Pressure Sales
  • Internet Gambling
  • Audio Text Telephone Sales
  • Roving Merchants

Choosing a solution for credit card processing
With all of the providers and accounts available its easy to get confused and frustrated. Each processor and account has its own gotchas, special fees and advantages. If you need help choosing a solution or understanding the differences please contact us. We would be happy to help. Or visit our sister site for a brief overview of each account and the fees associated.


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