If you are considering setting up an Internet-based business, and you have been researching on the things you need before you can get started, there is a possibility that you would have come across an ‘Internet merchant account’ as one of the things you may need. Being new to these matters, you could have found yourself wondering what such account is and how it will be of service to you. It is these matters that we will proceed to explore, for your edification.
Now in order to understand what the Internet merchant account is, it is important to understand firstly of the fact that most payments on the Internet are usually done through credit (and debit) cards. The way the arrangement usually works is such that the people looking to purchase various things (both tangible goods as well as services) select what they want to purchase, may be put it onto a virtual ‘shopping cart’ and then go to the ‘checkout section’ of the website from which they are looking to purchase the stuff. At the checkout section, they enter their credit card details (basically their credit card numbers, expiry dates and ‘signature numbers’) and upon deduction of the value of their purchases from their online account, get their products shipped to them. The shipping, of course, can be instant in the case of things like E-books that are immediately available upon payment.
In the meantime, it is upon the website owners where the purchase was made to liaise with the company issuing the credit/debit card in question, so that they can eventually get the actual cash that was deducted from the card-holder’s accounts to finance the purchase.
The way it works is that once a website/business owner (a merchant) signs up with a merchant account provider (processor), it collects the credit card details through an online payment form which is typically hosted on the processor’s secure servers but can also be hosted on a merchant’s website (API integration). This form sends data over to the processor’s payment gateway which is special software for processing card data through the banks and credit card companies delivering either success or decline message back. Money is taken from a cardholder’s bank account usually at the end of the day and deposited to the merchant account and later wired to a merchant’s business bank account depending on the agreed payout schedule, this is normally done weekly but depending on the merchant agreement payouts can be daily or even monthly in some cases.
So ultimately, the Internet merchant account is the ‘place’ where the online payments processing service provider keeps the money they collect from credit card companies before deducting their credit card processing fees and sending the payouts to a merchant. Depending on the structure of the above we can separate between direct merchant accounts where the principal is a merchant and 3rd party merchant accounts where the merchant actually uses a merchant account owned by the merchant account provider company (processor). First is good for companies with processing history and mainstream e-commerce categories where generally tangible goods are sold and 3rd party accounts are perfect for small businesses and startups who cannot get approved for a direct account at the bank.
We have briefly gone through the basics of ecommerce specific merchant accounts, you should now have a better understanding of these terms and how everything works.