Table of Contents
- 1 The Basics of Merchant Accounts
- 2 Processing Transactions
- 3 Payment Card Industry Data Security Standards (PCI DSS.)
- 4 How You Can Set Up A Merchant Account
- 5 Set-Up Fees and Costs
- 6 Fees
- 7 United Kingdom Merchant Fees
All businesses need some way to accept credit and debit cards as payment. Whether your company makes payments on the internet or in-person, this is essential. To do so, you’ll need to establish a merchant account. With this article, we will explain how merchant accounts work and how you can get one.
The Basics of Merchant Accounts
Essentially, a merchant account lets your company accept payments via debit or credit card. It holds your money before it is transferred into the business bank account. These are generally held by an “Acquiring Bank,” though payment providers may offer them as well.
Merchant accounts are secure ways to receive payment from customers. Not only are they safe, but they also ensure the customer account has enough money before verifying a payment. Transactions generally take two to seven days to show up in your account.
There are two types of merchant accounts one can set up: Aggregate and Dedicated.
Aggregate merchant accounts hold your money in a space shared with other businesses. Getting an aggregate account is much quicker and easier than setting up a dedicated one. That said, though you’re providing the same information, an aggregate account doesn’t give you as much control as a dedicated one.
These are specific accounts set up for your business alone. You can set up custom rates based around your business needs. However, these are difficult to get as your business needs to go through extensive credit checking and record transfers. You get more control in the end, though.
Like with any payment transfer, transactions have to go through a processing stage before they will be available in your established merchant account. An electronic merchant account needs three parts handled to accept any card payments:
- Payment Gateway – This is an online platform that safely transfers card information. During the process, it checks for fraud and verifies the amount before taking them from a customer account.
- Merchant Account – The established merchant account is required.
- Physical Terminal or Online Cart – Online payments require a shopping cart for customer details, but in-person transactions will use a physical card reading terminal.
Usually, a bank will provide a gateway to you when you set up an account, with most gateway providers setting you up a bank account conversely.
Some popular payment gateways are:
- Amazon Checkout
- Sage Pay
All payment providers require that the company abides by the PCI DSS if they want to associate. Generally it is up to the provider to get this set up, and they will do so for a small annual fee. This can be done automatically online when setting up an account with them.
There are four PCI DSS types that a business will fall under, with the required actions scaling as the level changes.
- Level 1: Any business with more than 6 million transactions a year. Level 1 businesses must subject to a yearly on-site evaluation of security via a qualified inspector.
- Level 2: Any business that processes 1-6 million transactions a year. Level 2 businesses must subject to quarterly scans of their online business.
- Level 3: Any business that processes 20,000-1 million online transactions in a year. Level 3 businesses must fill out and send in a self-assessment questionnaire every year.
- Level 4: Any business that processes less than 20,000 online sales per year, or any merchants that process up to 1 million a year. Level 4 businesses must fill out a profile online, assess themselves yearly, and validate their compliance as well.
How You Can Set Up A Merchant Account
It is important to look around online and see which account deals and offers are available to set yourself up the best. There are a few things to consider during your search:
Upon picking a provider, you have to full out an application form to submit. If you fill it out properly, you’ll be able to get into your account within 10 days of submission. Also, you get a specific merchant account ID number that you must keep safe.
Some providers verify in a couple of days, while others take a couple of weeks. Of course, this could take even longer if your verification isn’t filled out correctly. Be sure to double-check your app before sending it in. Credit rating is an important factor here.
Providers contract their services. Some do so for a year, others don’t have any limit but require notice of cancellation. Each one varies, and you’ll want to consider these differences before picking one. Do you want a fixed or varied contract? How long are you thinking of being in one? Be sure to find out this information before choosing a provider.
Set-Up Fees and Costs
There are multiple fees and costs that come with setting up a merchant account. There is the initial start-up fee, a transaction percentage, monthly charges, transaction charges, and sometimes even a contract exit fee. All are important to consider.
The payment provider chooses some of these, while others are set by Discover, MasterCard, and other card providing companies. These fees also vary based on if a card is swiped or used via chip and pin. There are two merchant account rates:
A three tier pricing rate breaks transactions into three separate parties. Each party has a rate that differs from the others.
Qualified Rate: This is the rate that merchants are charged based on a standard transaction. These are generally the lowest rate when the consumer pays via card, and it is determined by the way the merchant accepts cards the most.
Mid-Qualified Rate: This is the rate a merchant must pay if the card doesn’t meet any of the tier one qualifications. This may mean the card information is typed in over swiped, or ever may be a rewards card. These can be up to 40% when it comes to reward cards.
Non-Qualified Rate: This is the highest rate a merchant can be charged. Any card that doesn’t qualify for tiers two and one fall under tier three. Of course, tier three rates result in the highest merchant charge.
Six tier qualifications are exactly the same as three tier, only they classify the two based on PIN cards and non-PIN cards. Because each of the two has three categories, this results in six tiers.
Merchant Accounts also have fees to pay. Here is a breakdown of the most common fees:
Statement fees are a general overhead that sums up the entire months processing. Basically, the merchant is paying for an entire months worth of card usage and rates.
This is a monthly payment that merchants have to pay every single month. It covers the costs of holding a merchant account. Should a merchant not meet the monthly requirements, they will have to pay the difference out of pocket.
Batch fees are when a merchant sends their months worth of transactions over to a bank. If this isn’t done in a timely manner, the provider will charge the merchant extra fees.
Not all providers charge this, but those that do usually provide excellent customer service. Sometimes it can be called customer support or support fee.
This is a yearly fee that covers the costs of holding the merchants account. This type of charge can also fall under quarterly payments.
Any merchant that tries to terminate a contract early will face these fees. This could also include the rest of the months payment alongside a fee for the rest of the contracts duration.
This fee varies based on how risky of an investment the merchant account is. If a merchant participates in illegal activity or does work that puts the provider at risk, they will face a chargeback fee. This can be anywhere from £15-£30 alongside a transaction fee.
United Kingdom Merchant Fees
There is a wide variety of payment providers all over the U.K. It can be difficult to recommend one, as both their rates and their benefits can be seen as good or bad based on your business’ needs.
Newer merchants may want to plan out the type of transactions they will receive. Credit cards may cost more than debit cards, etc. However, established businesses will have a better idea of what they need when setting up a merchant account.
Fill out our form and we can help you find the best merchant account provider for your business needs. Your requirements are important, and we can work with you to find the absolute best one possible based on your information.