Why do I need a Merchant Account Before I can Accept Card Payments?

When a business is looking to accept debit & credit card payments they will require a merchant account. A merchant account is a specialised bank account that exists for the sole purpose of allowing a business to accept electronic payments through the use of credit and debit cards from their customers. In the UK, this is set-up by a card payment solution provider, such as Card Pay Accept who can you provide you with credit card terminals and various point of sale devices to accept card payments in-store and face-to-face. For businesses looking to take card payments via the telephone or online your solution provider should be able to set you up with a payment gateway and or/a virtual terminal, depending on the particular business requirements. Your card payment solution provider should be able to discuss your particular requirements with you and then tailor the most appropriate solution(s) based around your particular business.

Merchant Accounts, Payment Terminals & Payment Gateways and How It All Works:

We find that when you’re first exploring the possibility of taking card payments it might help to understand what merchants accounts, the various payment terminals and payment gateways are. Here we explain what all of these mean so that you have an understanding of how it all works which in turn will help you to start thinking about what type of card payment solution your business should be considering.

What are Merchant Accounts?

Merchant accounts are the basis for a business to be able to take card payments. So in this section we explain the fundamentals of what you should be aware when considering taking card payments as a payment method.

What is a Merchant?

A merchant, for the purpose of taking card payments, is any person or business involved is selling a product or a service and accepting payments by credit or debit card.

Merchant Account
What is a Merchant Account?

What is a Merchant Account?

A merchant account is a specialised bank account that exists for the sole purpose of allowing a business to accept electronic payments by credit and debit cards from their customers. A merchant account lets businesses accept debit and credit card payments from customers. It functions as a holding pen for money owed to you based on your card transactions. Funds taken from your customer’s credit card will be deposited in your merchant account pending clearance. From here, authorised funds will be transferred to your business account. Having a merchant account will let you take card payments in-store, online or over the phone.

The account is part of a package provided by your card payment solution provider when they set you up at the outset. If you change providers then, normally, the new provider will then set-up a new merchant account for your business. A bit like when you move banks and they provide you with new bank account numbers.

How Does a Merchant Account Work?

Most people don’t look at it this way, but a merchant account is actually a short term loan. And here’s why, due to the nature of how the money is collected and processed, in other words, the transaction flow or the cycle of the transaction, the banks and processing companies are essentially paying you in advance for the money that is due to be collected

So in simple terms, when a customer pays for something on their credit card at the point of sale or online, the money is not collected until their billing cycle ends. So the bank and the processing company, pays your money out to you, which with a card payment provider like, Card Pay Accept, is received into your business bank account immediately or the next day.

In the case of a debit card, your customer is using funds from the bank account to pay for the goods and these can take 2-3 days to clear from their account but again their bank you in advance with the assumption that there’s no charge backs or disputes on that particular transaction. It may take a few days before the money leaves your customers bank account, but the amount will no longer show in their available balance at the bank. This is because the bank has authorised the payment and put a hold on the amount of the purchase.

Why Do I Need a Merchant Account?

A merchant account is therefore required in the name of your business to receive the funds from your credit and debit card transactions.

So in essence, the payments your business receives by credit and debit cards are being paid to you in advance, with the assumption that there’s no chargebacks or disputes on that particular transaction. So the banks are not reimbursed for that payment until the cardholder pays their bill 30 days or sometimes longer! Hence, you will find that there is a credit agreement with KYC checks involved when applying to accept card payments.

In the UK, most merchant providers will nevertheless be able to credit your account of all funds received on your merchant account the next day and in some cases the same day.

How Do I Get a Merchant Number?

This where a card payment solution provider like, Card Pay Accept, will be able to discuss with you the particular requirements and then set it up with the appropriate solution(s) for your business to take card payments. Once the solutions to be provided are agreed for your business, you can then apply, with your preferred provider, for a merchant number which is allocated to your merchant account.

What is a Merchant Payment?

This where a card payment solution provider like, Card Pay Accept, will be able to discuss with you the particular requirements and then set it up with the appropriate solution(s) for your business to take card payments.

What is a Chargeback?

A chargeback protects purchases made by card transactions whereby, if the credit card holder (and in some cases also debit card holders) doesn’t receive the goods they bought, then they may be able to get their money back and this is commonly known as a chargeback.

Your customers card providing bank asks for money back from the supplier’s bank, not the supplier itself, the money should come back even if the retailer has gone bust – though this isn’t guaranteed. If a transaction hasn’t been completed properly (say for example, if the goods are not fit for purpose), and if the retailer refuses to make a refund or has gone out of business then it is down to the card providers bank to get the money back for your customers. It should be noted that chargeback is not a legal requirement nor is it guaranteed.

What is a Payment Terminal?

Your merchant account provider should be able to provide you with the most appropriate payment terminal based on your business requirements. The card payment terminal reads the card using EMV technology (a credit or debit card with a smart chip) and contacts the customer’s bank securely ensuring fraud protection. EMV stands for Europay, MasterCard, and Visa as they developed the global standard for chip-based security.

To accept online card payments, you will need to set up an account with a payment gateway provider. These are the different payment terminals types, depending on your requirements that allow a business to accept card payments. In the following headings we explain the different payment terminal types depeding on your business requirements.

Card Payment Payment Terminals for Face to Face Payments:

Card Payment Machine
Card Payment Terminal for Face to Face to Face Card Payments

There are a large number of makes of counter-top card such as Ingenico, PAX & Spire. These are the card payment terminals (also known as PDQ machines or card payment machines) that you generally use when you go to the supermarket or restaurant. This type of card payment terminal is widely used and is the appropriate one for businesses taking face to face payments at their business premise. They usually come with ethernet or Wi-Fi connectivity but don’t always have GPRS (mobile) connectivity.

It is worth ensuring you speak to your card payment solution provider and make sure you have all the connectivity you require. Our recommendation is to ask them to supply you with a card payment machine that has wired (ethernet), wireless (Wi-Fi) as well as mobile (GPRS with a sim card) connectivity. That way you can ensure that however your business changes and grows that you are able to accept card payments in-store as well as on the road with the same card terminal. The costs of having a multi-connectivity card machine doesn’t vary much, if at all, in comparison to a fixed card payment machine.

Mobile Card Payment Terminals:

UK Mobile Card Machine - SumUp CardPayAccept Discounted
SumUp Mobile Card Machines for UK Businesses

Mobile card payment terminals are becoming much more popular. As explained above you can find a terminal has multi-connectivity capability. However, if your business takes card payments on the go, such as trades, taxi drivers etc, then you may only require a mobile card machine. Then you would need to decide whether you want to pay a one off fee for the mobile card terminal and higher card transaction fees or that your turnover is quite high and it would make more sense to find a balance of monthly mobile card payment machine fees with much lower card transaction fees.

For example SumUp offer a mobile card machine for as little as £19 one off fee (depending on which SumUp card machine you choose), with £0 monthly fees and a fixed 1.69% fee per card transaction. In comparison, you can sign-up for a Miura Go Mobile card machine for £10 per month and pay a 1% per card transaction fee. A multi-connectivity card payment machine could cost around £20 per month but with much lower card transaction fees (sub 1%). In this scenario, card processing fees are calculated by card type and card turnover. The higher the card turnover the lower the fees that you’ll be able to negotiate. Speak to your card payment provider who will be able to explain the differences and the various pricing scenarios in more detail.

Payment Terminal for Telephone Card Payments (Virtual Terminal):

Phone payments are known as moto or mail order telephone order payments. These type of card payments can be accepted using a payment terminal that supports the manual entry of debit or credit card numbers through a virtual terminal. A virtual terminal works as an interface that lets you enter card details without the card holder being present. This card payment solution is popular for businesses (e.g. call centres, travel agents etc) needing to accept card payments by telephone.

Virtual Terminal to take card payments by telephome
Virtual Terminal to Take Card Payment by Telephone

Most merchant account providers offer virtual terminal services so it is worth contacting them to find out which solution can best help your business.

Payment Gateways for Online Card Payments:

A payment gateway is a secure connection through which the customer’s credit card details can be transmitted. It is the online equivalent of a payment terminal and ensures PCI compliant encryption of card data. The payment gateway can be set-up as an eCommerce platform on your website or smart phone app to allow your business to accept online card payments securely.

Payment gateway card transaction rates can vary greatly and can be quite high. It may also possible to use a provider such as PayPal as your payment gateway but to set-up an eCommerce channel with a solution provider such as Card Pay Accept to process your card payments. This way you would potentially pay lower card transaction fees but still have their payment gateway on your website. Card Pay Accept can also provide the complete end to end solution of a payment gateway and card payment processing. We would welcome the opportunity to discuss your particular business requirements with you.

Payment Gateway to Take Online Card Payments
Take Card Payments Online

Contact us at Card Pay Accept and either myself or my team can compare merchant accounts and payment gateway solutions for you.

Knowing what Solution Your Business Requires:

Hopefully the above information has given you some food for thought when thinking about taking card payments and what you need to consider.