A merchant account is a company’s bank account, which is used to accept and process electronic transactions. Usually, a merchant account is established under an agreement between the business (also known as acceptor) and an acquiring bank that processes debit or credit card payments on behalf of a merchant.
Merchant accounts are important for ecommerce businesses because once a business opens a merchant account, it’s able to access electronic payments from their clients in a secure environment. The difference between ecommerce and brick and mortar stores is that brick and mortar establishments may choose not to accept payment cards to not pay additional fees and accept only cash.
When customers buy something from an online store using a debit or credit card as a payment method, they automatically launch a transaction process. Once the business receives the data of a credit card (card’s type, CVV code, and payment card number), it sends the transaction request to the merchant acquiring bank. Merchant acquiring bank proceeds the transaction request to the card issuer that approves the operation using security checks and verification methods (notifications or messages that are sent to the cardholder). After the approval of the transaction from the card issuer, the merchant acquiring bank authorizes the transaction and transfers money from the customer to the merchant.
Although the process seems complicated, it takes minutes or even seconds to perform such a transaction. For each transaction merchant acquiring banks charge a per-transaction fee. Such fees may scale depending on the transaction amount (from 0.5 % to 5-7%) plus an additional fixed fee.
Apart from improving the process of payment processing, merchant accounts are important due to 3 main factors that they bring to the business:
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