Genome’s team is back with yet another article that dives into different types of fraudulent financial situations that people and businesses can face. And this time, card-not-present fraud is on the agenda. Want to know how to avoid scams associated with card-not-present transactions? We gathered some tips below. What is a card-not-present transaction? Before we get to the fraud part, let us first explain what card-not-present transactions are in general. Card-not-present transactions (also known as CNP transactions) are the type of payments a person makes with their debit or credit card. Such payments happen remotely, meaning that the card and
In the modern world, opening your own business is a growing tendency, no matter in what country you’re living. First of all, it brings some stability (along with constant challenges) to your life. That is, some people prefer working on their own rather than doing corporate jobs where they have almost no influence on the company and all the processes. Secondly, globalization, coupled with digitalization, presents new ways of starting and managing a business without even leaving your house. Beginning from DIY little things and ending up with courses/lectures/workshops – all these products can be sold and monetized online. Consequently, you can build a successful and profitable company if things are handled correctly.
Today we will talk about the practical side of running a business – accepting payments for goods and services you’re selling. And, as some of you might have already guessed, you will need both business and merchant accounts for this. Are there some types of current bank accounts? No, that’s not the truth, but both of them are needed so that your customers can purchase your products with cards either online or in physical stores. In Genome, we help our clients to open and manage both business and merchant accounts, so we know everything about setup, pricing, required features, and many more cool things. Read on to find out all about merchant services, what’s their purpose, and how to use them.
At first, let’s talk about card transactions. In modern cashless society, a card transaction is the most common way to exchange money or pay for something.
Different ways to take card payments
Card transactions take place online (on the websites) or in physical stores. In general, there are 3 methods of how a merchant (seller/business owner/etc.) can accept these transactions. Here’s a small table with more detailed information on this.
|Card machine||Online||Via the phone|
|These are also known as card readers or POS (point of sale) terminals. Card machines are used for payments in physical stores or any other location where your customers will purchase your goods and services. Card machines can be wireless and are usually rented from merchant services providers.||To accept a card transaction online, a payment gateway (PG) is required. To put it simply, it’s software that saves and securely passes customer data (bank card details) to the seller’s bank. You’ve definitely come across PG – it’s a small window that pops up in the browser asking to fill in the necessary card details when you’re buying something online.||Here you will need the so-called virtual terminal to collect a card payment. It’s also a browser-based software application that comes with a merchant account package. With a virtual terminal, the seller fills in the amount of sale, type of transaction, client’s card details, and other required information on their own.|
As you can see, card payments processing is not an easy or one-step action. This is where the merchant payment services step in to simplify sales for both sellers and their customers.
How does a merchant account work
These were designed specifically for collecting and holding transactions from your clients. In fact, you cannot do anything else with a merchant service – it only works as a safe place for the money you’re receiving through sales. In the next step, the funds are moved to a business account, where you can spend them as you wish (use debit/credit bank cards, make and receive transfers, etc.). No merchant service provider offers such features and functionality.
You can choose how often the funds will be sent from your merchant account to a business one. You can do this manually or create a monthly automatic transaction, for instance. Let’s have a closer look at how money ends up in a merchant account step by step. All in all, 5 parties that take part in this process:
|Customer||Purchases an item using a bank card (online, via Google/Apple Pay, in a physical store, etc.)|
|Merchant||The customer’s card details are processed by the card reader and sent to the merchant payment service.|
|Acquiring bank||It’s a merchant’s (seller’s) bank that receives information from a merchant account and sends it further.|
|Card association||Examples are Visa and Mastercard. After notification from the acquiring bank, the card association passes the same message to the final party.|
|Issuing bank||This is a customer’s bank that has issued the card used during a transaction. It checks whether there’s enough money on the account linked to the aforementioned card to make the withdrawal.|
After all these steps, the process is reversed:
|Issuing bank||Transmits a message whether a customer has enough funds in their account to cover the amount of the transaction.|
|Card association||Passes the same message further.|
|Acquiring bank||Notifies the merchant of the successful payment.|
|Merchant||The money will arrive in the merchant’s account within a settlement period (usually 3 business days, but can even take a week). The thing is that the communication between all the parties is pretty fast, but moving funds between accounts takes longer.|
|Customer||Receives notification that they were charged.|
It is evident that a merchant service is an essential component for handling each card payment transaction. It does not only store and pass the information but also provides the necessary tools for accepting card transactions. For example, such hardware as card readers can be rented only from merchant services providers. Additionally, you can receive fraud protection and chargeback features with your provider.
Types of a merchant account
As there are different types of companies, there are various merchant payment services to fit the needs of all business owners.
Here merchants are grouped into so-called pools based on the industry they’re working in. After registering a business with the help of such a service, you receive a special code. Then, you will be grouped with similar companies based on the type of goods you’re selling.
Aggregated merchant accounts work wonders for small businesses that don’t have a large income. As all transactions are processed in a batch at the same time, the costs of processing are cheaper. As a result, the fees for using aggregated merchant services also decrease. The downside of such an account is a lack of control on when the funds will settle in – you need to wait to be paid along with all the other merchants in the same pool.
This merchant account fully belongs to one business only. You can negotiate all the conditions and fees with an acquiring bank to make the most of their services. Of course, the range of features and pricing depends on the provider. For instance, for some small businesses, it might be better to go for a dedicated merchant payment service rather than joining some aggregated account.
If you are involved in e-commerce, you can create an internet merchant account. It works just the same as a regular merchant service but is tailored specifically for online transactions. For example, some banks offer such tools as shopping carts. However, the fees for such accounts can be a little bit higher because online payments are considered to be riskier.
Companies that operate in such industries as gambling, travel, subscription services, etc. can get a high-risk merchant account. The risk of chargebacks with such businesses is significantly higher, which, in its turn, can cost more money for providers. Thus, they do not always approve high-risk organizations for opening merchant accounts with them. So, what do you do?
No worries, plenty of companies are willing to help you with creating a merchant account. Of course, it’ll be a bit more expensive, but totally worth it. These are the three factors that have a tremendous impact on whether you will be able to set up a merchant payment service even if your business is considered to be a high-risk one:
As we’ve already mentioned before, industries associated with a higher level of cancellations and chargebacks are called high-risk ones. If your business is connected with gambling, it does not necessarily mean that you won’t be able to open a merchant account. However, be prepared that you might need to present additional documents and information to be approved.
Directors and ownership
Directors’ credit history and financial records can be checked here. For example, if one of the owners went bankrupt in the past, it can become an obstacle for using a merchant service.
It also matters how long your company has been on the market. If your business is more or less stable, with no extreme financial losses, there are more chances to be approved for the merchant account. For this, you might need to show a record of the company’s financial history.
All in all, there are plenty of things to consider while choosing and applying for a merchant payment service. Let’s now move to another important issue – the costs.
Merchant account fees
The charges of opening and managing a merchant account can be subdivided into a few categories:
- Monthly fees
Most merchant services providers charge you every month. These are the costs for the maintenance of your merchant service. If the volume of your card transactions doesn’t reach a certain threshold (according to the contract), you may need to pay a minimum monthly service fee.
It’s a one-off charge for creating a merchant account. Keep in mind that most merchant payment services only offer long-time contracts (from half a year and more). Thus, you can be charged additionally in case of early termination of the agreement.
- Card processing
The rule of thumb here is the following one: the more transactions go through your merchant account, the smaller are the fees for each transaction. Let’s break up all the charges for each card payment:
|Interchange fees||The amount charged by the issuing bank of a customer’s card for each transaction made with this card|
|Payment processing fees||This fee is charged by a payment processing company (PPC). Among these are monthly fees, per-transaction fees, and even charges for using hardware and equipment needed to process transactions (such as POS).|
|Assessment fees||These are charged by the card association. For instance, Visa takes a small amount for each transaction made with a Visa card.|
Fees for processing credit and debit cards payments are different, so don’t be surprised by the different costs of these transactions. What’s more, if you need a payment gateway and you will use this tool offered by your merchant account services company, there will also be an amount to cover each month.
How to apply for a merchant account
Before using a merchant service, you must understand the nature and particularities of your business/company. For a start, try to look into the future and predict the possible volume of transactions, the features you need, the types of payments you will accept, and so on. Merchant account contracts are mostly long-term ones, so it’s best to choose one provider for an extended period rather than hopping from company to company.
Additionally, think about any hardware you might need, such as mobile card readers or POS terminals. If you don’t need them at the moment, they may be handy for your business in a year or two. That’s why you should seek a provider that can rent you these gadgets anytime.
PCI compliance is another requirement for any company collecting card payments. It’s a legal obligation to gather, process, and properly handle sensitive data (bank card details, customers’ personal information, etc.). Merchant payment services providers usually have PCI compliance services in their packages.
You can apply for a merchant account online. To submit the form, you will need:
- Business bank account and its details;
- Business ID and license (if required);
- Financial statements – to prove that you have enough funds to run a company and cover all the costs;
- Additional supporting documents (business plan, marketing materials, etc.)- these are typically expected from newly created companies;
Do I need to set up a merchant account for small businesses
The answer is simple: if you want to collect card transactions from your clients – yes, you will need a merchant service even for a small company. The only exception is if you take payments by cash only. Truth be told, during the past few years, more and more people go for cashless transactions. Unsurprisingly, all the businesses want to keep as many clients as possible and are forced to accept card payments both online and in physical stores.
No matter whether you’re only starting to sell your services as a freelancer or own a little shop, setting up a merchant account is a wise decision that will benefit you in the long-term perspective.
How Genome can help
With Genome, you can open both business and merchant accounts in no time. Moreover, our merchant payment services are free of charge if you’re our business user. We offer quick integrations with such giants as Shopify, OpenCart, WooCommerce, Magento, Drupal, and others. If you want to dive more into analytics – we’ve got you! Create reports from your merchant’s account transactions to track chargebacks and approve ratios from one dashboard.
Apart from card payments, you can accept transactions with almost 40 local payment methods with Genome. They are Trustly, Przelewy24, MyBank, Ideal, Giropay, and many more. We are not making you subscribe to some unknown and unfamiliar service. Explore Genome’s merchant service possibilities: test our fully functional space and apply whenever it’s convenient for you.
What is meant by a merchant account?
It’s a special account that helps you to receive payments from your customers. Here we’re talking about card transactions (online ones, in stores, via Apple/Google Pay). With a merchant account, you can gather information from payees’ cards, process the payments, and receive money. Further, you will need to move these funds to the business account of your company.
Why do I need a merchant account?
The main purpose of this tool is to accept card transactions from your clients. Without a merchant payment service, you won’t be able to receive this money and move it to the business account. Additionally, merchant account services providers offer such hardware as mobile card readers and POS terminals for rent.
How do you get a merchant account?
The application process is easy – you only need to fill in the information online. However, the list of requirements for setting up a merchant service can be quite long, especially when it comes to businesses involved in high-risk industries. The advice here is to look for a suitable provider with low fees and the full package of features you need. If your company is new, you can go for an aggregated merchant account, for instance. This will save you some money till your business grows and you’re ready to shift to the dedicated merchant payment service.