What Is A Merchant Account & When Do I Need One?

Where do people get stuck when they start a business? It’s the most basic part of owning a business: how do you get money from one person to the next. In the days of old-fashioned stores, until maybe even 10-20 years ago, it was a relatively simple proposition. You gave people money, or you wrote them a check in the bank, cashed the check, and got the money. It was really easy. Now, people have customers all over the world, even in the beginning of their businesses. If that main question of “How does the money get from the customer to me?” becomes even more of a sticking point, people try all kinds of different solutions. Some people start up maybe with a payment system, like Stripe or PayPal. Then they might decide they want to accept credit cards. But I think there’s a lot of confusion out there, which is why we’re having in this mini-class today on eCommerce payment methods. “What should I do? What’s going to be the safest? What’s going to cost me the least amount of money?” I have no idea how this works, so we found an expert for you – Emily Piecuch of PowerPay. She’s with us today to debug some of the myths and explain this in very simple terms so that you can get the right solution for your business.

Meredith:  To start out, Emily, I’m going to ask a very basic question. If I buy something online, how does my money get into the seller’s bank account?

Emily:  There are actually multiple parts to this process that a lot of people don’t realize, and there are so many things that happen in that few seconds between you sliding your card and the sale actually going through. It’s kind of amazing.

PowerPay is a merchant account provider. Basically, what that means is we establish the agreement between the business and the card brands, like Visa, MasterCard, Discover. We establish that agreement that allows the business to accept credit cards.

To accept an online payment, you also need a payment gateway. Probably the most well-known out there is Authorize.net, so we essentially partner with them. Every eCommerce account is going to need both a merchant account and a gateway, and Authorize.net is responsible for transferring the information securely to make sure that nobody gets your information while it’s in route.

Basically, the purchaser slides their card and the information goes first to the card issuer (the financial institution that issued the purchaser’s card), and the card issuer says either yes or no that this person has the money in their account. That gets the purchaser back to the gateway. Then the gateway lets the business bank account know that the money is in there. The transaction gets approved, and the money essentially gets transferred. I’ve really simplified that here.

Meredith:  It’s amazing how much communication happens in a split second and how many people and entities have evolved in making that happen.

Emily:  Really, when you look at that cycle in detail, it makes it apparent how important it is to make sure you’re choosing a secure platform to work with for your payments, because that information does get transferred all over the place in a few seconds.

Jasper:  How do people recognize what is secure and what isn’t secure?

Emily:  The payment card industry has Payment Card Industry data security standards (PCI). Most every payment provider is required to go through some sort of compliance to make sure that they’re secure. PowerPay is a level one PCI-compliant provider. You want to make sure you ask those questions and ask for proof. Ask to see those documents. Most payment providers’ websites will discuss what level they are as far as compliance is concerned. You want to make yourself aware.

Meredith:  So if I’m just starting out with lovely baskets to sell or something like that and I want to accept credit cards, what are my options?

Emily:  There are a few different options, and I would say that the most common question that we get is, “Why wouldn’t I just use PayPal? There’s no underwriting process with PayPal. I can be set up and accepting payments today.” PayPal is a completely different product than what we offer, and a lot of people don’t realize that. PayPal and Square, etc., are payment aggregators. Essentially, they have established eMerchant accounts, and they are kind of, in a simplified version, loaning it out to different businesses to be able to accept credit cards via that account. That’s perfect if you are doing low-risk processing, if you have a low risk product like baskets, or you’ve got a low volume. We generally say if you’re processing less than a couple of thousand dollars a month, you’re probably better off using an aggregator. You’re going to save on some of the monthly fees, and it’s unlikely that you’re going to need a lot of technical/customer support with that volume.

Meredith:  So is there something somebody could do, though, at the very beginning stages with the lower volume to make it easier to underwrite them for you later?

Emily:  Well, it’s not a matter of being easier, and we’re going to ask for the same things when it gets to the underwriting process.

Meredith:  I guess this means, as far as establishing a good record or something like that, they’re getting their ducks in a row from the very beginning so that it’s an easier process when they’re ready to move up to a merchant account.

Emily:  Absolutely. The biggest thing is you want to keep your customers happy. How processors judge that is if your customers aren’t happy, we’re going to see a lot of chargebacks and returns. Both of those are signals that there’s a miscommunication somewhere in there, and the customers
aren’t getting what they thought they were getting. That’s not going to bode well for you when you’re wanting to accept credit cards.

There are a few steps you can take to make sure that doesn’t happen:

When you’re marketing, be clear about what you are offering, and make sure that you’re providing exactly what you say you’re going to, for the amount you say you’re going to, in the amount of time that you say it’s going to take you. Be upfront about all of that.

The other thing is that anyone who has ever made a credit card purchase knows when they get your statement, it lists their purchase there with a descriptor showing either the store they bought it from or what they purchased. Any provider that you work with can make that descriptor the way you want it to be, within reason. Make that as clear as possible. Include a phone number, if possible. That is probably the single biggest thing that we tell people to do to reduce chargebacks.

Meredith:  Oh, I’m sure. I know I’ve bought something from an online marketer, but his descriptor shows up on my statement as something like “sports”. And every time I see that, I’m like, “What the hell is that?”

Emily:  We see that often. Some will have their legal entity listed as their descriptor, rather than what they’re actually offering. That’s probably the biggest reason for chargebacks: a purchaser simply not knowing what the purchase was for when they see it on their statement. We hear about fraud all the time. They think that somebody has fraudulently used their card, and they charge it back immediately. If there’s a phone number there, that will help every time because they’ll call and find out. They get clarification, “Okay, no need to chargeback,” and you’re good to go.

And one big thing that I highlight all the time is that every time a merchant gets a chargeback, you get charged a chargeback fee by Visa, MasterCard, etc., even if you win that chargeback. You’re given a chance to dispute it and win it, and you can win the money back from the actual purchase. However, you’re held liable for that fee every time, regardless of whether or not you win that chargeback, so reducing the number of chargebacks is always in the merchant’s best interest.

Meredith:  Right. So you’re at the point where you’re bringing in $2,000-$3,000 a month. Your business is starting to bloom at a very beginning level. At that point, how do you decide what kind of payment options would be best for your business?

Emily:  We usually recommend, if you’re able, to offer your customers as many ways to pay as you can. PayPal is popular, but we frequently run into people who see PayPal on a site and think they have to have a PayPal account in order to pay via PayPal. In fact, you don’t. You can use your credit card with PayPal, but a lot of customers don’t know this. So you just lost that customer if the only thing that you’re offering is PayPal. If you’re able to offer PayPal, Square, and the merchant account, you give your customers more options to pay and make it easier for them to give you money.

Meredith:  Roughly, how much does it cost to set up a merchant account? I know it varies, but just to give people an idea.

Emily:  There are various processors, so I’m going to speak to how it is at PowerPay. There is no setup fee, nothing up front to get started. We do have minimal monthly fees, usually from $5-$10 a month. That’s basically a service and statement fee. Then there is often a monthly minimum. We offer pricing specialists when you’re ready to get started and complete an application. You can usually explain to the specialists, “I’m just getting started. Is there any way we can get that monthly minimum waved for the first couple of months while we get things off the ground?”

That’s one of the benefits of going to a merchant account provider: there is a lot more customization than you’re going to get with a payment aggregator like PayPal or Square. You have people you can talk to. With an aggregator, it’s one account that’s being used by multiple businesses, so there’s no
customization there. When you get a merchant account of your own, you can customize it. You can work with the company. If you ask to have the monthly minimum waved for a couple of months, they’ll usually do that.

If you process with us for, say, six months, and then you’re like, “When I got started, I didn’t have a lot of money in the bank and didn’t get the best rates that I wanted,” ask for a rate review. Our goal is to keep you on and processing with us, so we’re more than willing to work with you. If your business starts to grow and you need to be approved for more volume,
more technical support, or more customer support from us, ask for it. You have representatives, humans on the other end of the line, available to work with you on all aspects of that customization.

Meredith:  And how do you work with someone’s bank?

Emily: We deposit everything by ACH. Basically, your banking information would be included on the application. We would debit your monthly fees on the second business day of each month. Your deposits are two-day funding, so if you were processing on a Tuesday and you batched out that night, you could expect to see all of that money hit your bank account on Thursday. Usually with an eCommerce account, it’s an automatic thing.

Meredith:  You talked a bit about rates and rate reviews, which gives me a sense of the very variable. How do you go about getting the best rates?

Emily:  It’s really a lot about asking for it and asking what can be done. Some of it has to do with the amount of volume, meaning some of it has to do with the type of product you’re selling, as some things are considered higher risk than others. Basically, what that all comes down to is there are certain industries that trend towards a higher number of chargebacks or a higher incidence of fraud. Those are considered higher risk products, so those will sometimes come automatically with slightly higher rates.

But there are questions and things you can do to try to get the best rates. Make sure that you’re being as upfront as possible, and ask as many questions as possible. First and foremost, ask if you’re getting yourself into a contract. Is there a long-term contract? In a perfect world, your processor would never charge you for canceling a contract. But a cancellation fee is often tacked on, and it’s often unexpected — they’re not always upfront about it.

With PowerPay, we don’t want long-term contracts. We want you to stay with us because we give you great service and you want to stay with us. We do ask for, as a courtesy, a 60-day written notice. Even if you don’t do that, if you’re upfront and don’t just say, “Oh, I’m done” and close down and disappear, you’re not going see any sort of early termination fee or anything like that from us. You can cancel your account at anytime. So you want to make sure you’re asking about that. I’ve seen cancellation fees as high as $500 to $600. Make sure that you know what you’re getting into. Read your contract.

Also, ask if you do want to close your account early, how do you do that? Does it need to be submitted in writing, or can you just call? Find out those things and keep that info somewhere so you’ll know that if you are ready to close your account, whether you are moving to another processor or you’ve closed your business. A lot of people are just thinking about getting started, and you’ll want to make sure that you’re aware of that, as well.

Another thing to ask is about service and support. Make sure that’s included in your account and not something that you’re going to have to pay for. If you need to call in and speak with somebody for questions, there are some processors who will charge you for that time. We don’t do that at PowerPay. Confirm that service and support are included, which should be included by just getting your account.


Guest – Emily Piecuch – Relationship Developer for PowerPay (Merchant Account Provider)


www.powerpay.biz (affiliate link)

I am an account service professional with over 7 years of experience working with small and medium sized businesses. My focus is helping partners market the many benefits of PowerPay to the diverse needs of their customers.

(Info PDFs: Merchant Acct v Payment Aggregators  | 6 Reasons You Should Care About Customer Service | 5 Must Haves From Your Payment Processor)

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