After reading my previous post and realizing all the benefits of accepting credit cards (learn more here), you are now ready to start swiping! The next step is to set up a merchant account for your business.
What is a Merchant Account?
A merchant account is a special bank account that allows your business to accept debit, prepaid, and credit cards for payment (read more here). Every business gets approved for a certain monthly sales limit too. In other words, it’s an open line of credit for your business to accept electronic payments.
Financial institutions identify and manage your transactions by assigning you a unique Merchant Identification Number. Or, your “MID.”
Whether you sell goods or services in a retail store or online, you need a merchant account to process card transactions. There are a few places where you can get one.
Where to get a Merchant Account
Now that you have a better understanding of what a merchant account is, you are probably wondering where you can get one. There are three different types of financial institutions that offer merchant accounts:
- Acquiring Banks
- Independent Sales Organizations (ISO)
- Merchant Aggregators
Acquiring Banks
Acquiring banks (aka “acquirers”) ultimately hold your merchant account. If you already established your businesses bank account, your bank likely asked if you need to set up a merchant account too. Large acquirers like Bank of America, Chase, and Wells Fargo are usually many merchants first choice since it is convenient.
Operating a payment processing facility is neither cheap nor easy. Therefore, many acquirers will outsource their credit card processing to Independent Sales Organizations. Outsourcing this operation allows them to attract more customers than they could on their own.
Independent Sales Organizations
An Independent Sales Organization (ISO) is a financial institution that issues merchant accounts on behalf of an acquiring bank. You may hear people refer to ISO’s as processors. ISO’s can work with multiple acquiring banks too. Hence, there are more ISO’s than there are acquirers today. ISO’s mostly just concentrate on credit card processing and tend to be more aggressive regarding marketing. By focusing on just selling merchant accounts, ISO’s can easily compete with the big banks.
Merchant Aggregators
Lastly, there are merchant aggregators. This processing structure is much different than the traditional merchant account you would get from an acquirer or ISO. Aggregators still connect to an acquiring bank but rather than issue individual merchant accounts, they have their own “master” merchant account that every customer shares. Aggregated merchants are managed differently than traditional merchant accounts too (more on this later). Square and Stripe are both examples of aggregators.
Conclusion
As you can see, merchant account providers come in many different forms. Just because it is convenient to get your merchant account at the bank while you are setting up your businesses checking account, does not mean that it is your best option. Payment processing is crucial to your businesses success so take some time and do your research. Be careful of offers that seem too good to be true because they usually are. As always, send me a note in the Contact Me page if you need any professional advice.
Now that you have a basic understanding of the three primary merchant account providers let’s dig a little deeper. There is still a lot you need to know!
In my next post, I will explain the major differences between acquirers and ISO’s. Thank you for reading!