If you are setting up a business and you deal with your clients and customers online, then you might be wondering whether it is time for you to open a merchant account. If you are using a payment gateway, a third party company to receive payments from your customers, you need a merchant account. Although, it depends on your business model and different parameters on how you deal with your clients. If you are finding yourself in a quandary, we have some tips you can follow.
Before we begin, let’s discuss what a merchant account is. You can get paid online through payment processing gateways. There are third party gateway systems such as Paypal, Stripe, and Authorize.net. The customers might get payments in their account but it is not transferred to the bank at that time. There’s one advantage and disadvantage you have with Paypal is that the transferring of the funds happen manually. But the other payment systems transfer funds on a fixed time within two or three business days.
The funds are stored in a merchant account before they reach the client’s bank account. Issuing banks agree to upfront payments on behalf of the customers. The lag time before the transfer of money increases the security of the transactions. This is one of the secure ways industry uses to minimize the risk of hackers and snoopers.
You always have a merchant account no matter the gateway system. All the payment gateways have some kind of merchant account latched on it but they are hidden behind the scenes. Most of these are aggregated merchant accounts, which you don’t necessarily need to set up separately. The examples of this method are: Stripe and Paypal. When you an aggregated merchant account, it means that you have a huge volumes of payments belonging to several merchants.
The payment gateway transfers the money out of the aggregated merchant account. You cannot control this is controlled by the service provider. So make sure that you read the terms of the contract and any changes that might happen in the future.
If you have a business that needs credit cards without using a payment gateway, you have to open a merchant account. There are many payment gateways that offer you the shortest lag times and their fee structure is friendly considering the number of transactions. These kinds of payment gateways require you to open your merchant account. Now it is up to you to open a merchant account with them or with someone else.
Even if you don’t need a merchant account, you can still open it because you can negotiate commission rates and transfer schedules. If you have a humongous volume of sales, you can easily negotiate with that service provider. It is crucial to have timely increments appear in your billings if the cash flow is a big issue.
To apply for a merchant account, you will have to go through an in-depth underwriting process. You will need to fax your banking records and do a lot of paperwork.