Merchant Account or Online Payment Processor?

2007-04-17 10:41:55

( Business )



For online businesses, it is essential to be able to offer various payment methods for customers, such as credit cards and other modes of payment. There are generally two ways to do this, either by using a merchant account or an online payment processor.

Owning a merchant account allows you to receive credit card payments from your customers. A merchant account can guarantee the legitimacy of your online business, since establishing one requires you to provide proof that you are a legitimate business, such as articles of incorporation or a business checking account. The disadvantages to merchant processing are the fees you need to pay. These include transaction fees, monthly processing fees and discount rates, among a number of others.

The alternative option to a merchant account is an online payment processor. An online payment processor similarly allows you to receive credit cards and other payment methods from your clients. As opposed to a merchant account, an online payment processor does not require proof of legitimacy before it can be used. Also, they are not associated with multiple fees; however, online payment processors typically charge considerably higher transaction fees than merchant accounts.

Both methods allow real-time processing of Internet transactions. Your customer inputs a credit card number, which is then sent securely over the Internet. Processing can then be divided into two major steps, authorization and settlement. Authorization allows you to verify that the credit card your customer used is active and has enough credit for the transaction. Settlement then allows you to receive the online payment from the customer’s account to yours.

When looking for a merchant account or an online payment processor, make sure that you select one that is able to accept various types of payments, including major credit cards, debit cards and electronic checks. Also, look into the other features, such as auto-responders, intact security and fraud protection tools, to effective verify and monitor the transactions. Lastly, find one that can be easily integrated on your website; the sooner you start your business, the more income you get.


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