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Merchant Account: A Business Necessity
A merchant account is
issued by independent financial
institutions on behalf of issuing banks
to businesses for the purpose of
allowing credit and debit card payments.
Most consumers
currently use debit and credit cards to
make the majority of their purchases.
As a result, there is a concurrent
expectation among consumers that the
businesses they frequent will be in the
position to accept their preferred
method of payment. A merchant account
addresses this issue. A merchant
account is the means in which a business
can facilitate credit and debit card
transactions to the satisfaction of
their customers.
A merchant account is a
line of credit that is issued to a
business by an acquiring bank or other
financial institution that allows the
business in question to accept payment
for the purchase of goods and/or
services by credit or debit cards. A
merchant account, as such, is not a
typical banking account. In fact, the
acquiring bank generally acts as an
intermediary between the business and
the issuing bank. An issuing bank is
the financial institution that has the
primary obligation for any debt incurred
from the line of credit (i.e. credit and
debit cards) that it extends.
The way it works is
that the acquiring bank transacts with
the issuing bank on behalf of a
business. The acquiring bank pays the
merchant the remaining balance of a
transaction from a consumer purchase
using a credit or debit card, minus the
acquiring banks fees for the merchant
account service. Essentially, the
acquiring bank is the middle man in the
process. However, it is the acquiring
bank that generally is most accessible
to the business that is seeking a
merchant account, as this may be the
financial institution that an
establishment usually banks with.
In fact, in terms of
marketing, this is one of the means in
which a merchant account is provided to
a business. Usually, the bank that is a
business’s primary financial services
provider will initiate and subsequently
setup a merchant account.
Alternatively, a representative of a
bank or other financial institution that
provide merchant account services will
canvas and solicit their services to
targeted businesses.
It should be noted that
a merchant account is not always issued
or otherwise provided by an actual
bank. There are other financial
institutions that can provide a business
with a merchant account. An Independent
Selling Organization and/or Member
Service Provider can also be registered
with Visa or Mastercard. However, these
other financial agencies are required to
be sponsored by a member bank; who will
in turn, verify that the agency in
question is financially stable. A
member bank is one in that has an
established relationship with an issuing
institution.
While the process may
seem somewhat complex, the necessity of
the product in question is undeniable.
A merchant account allows businesses the
flexibility to provide a wider and
preferred means of payment for its
products and/or services. As consumers
rely more on credit and debit cards to
enact financial transactions, it is
incumbent upon businesses to accommodate
this trend. As a result, many banks and
other financial institutions provide
businesses with a merchant account to
accomplish this. A merchant account is
a definite business necessity in the 21st
century. |
