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Just as in the physical world, a merchant on the Internet
needs to establish a merchant bank account with an acquiring financial
institution in order to accept credit cards. Even if a merchant already has a
merchant account, they may not have the type of account required for accepting
transactions over the Internet. A merchant should plan for this merchant
account setup process to take up to14 business days to complete.
The following are guidelines and instructions to help merchants get started
quickly:
There are two types of merchant accounts for accepting
credit cards:
1. "Card Present" Account
This type of account requires the consumer and merchant to
be physically at the same location during the time of the transaction. For a
card present transaction, the credit card is typically swiped through a card
reader (or physical point-of-sale terminal), and the consumer signs an
authorization slip, or sales receipt.
2. Mail Order/Telephone Order (MOTO) or "Card Not Present" Account
In a MOTO transaction, the merchant and shopper are not in
the same physical location, and there is no card swiped or signature
received. This method of payment was
originally adopted for mail order and catalog businesses. All
Internet transactions are treated as MOTO transactions and require a MOTO
merchant account.
If the merchant currently accepts credit cards but is not
sure if they have a MOTO account, they should contact their acquiring financial
institution. If they already have a MOTO account, see the section below on "Setting up an Account to Accept
Online Payments."
As a merchant initiates the process of setting up a
relationship with an acquiring bank, it is important to check more than one
source to compare costs. Fees and rates will vary widely, based on:
- The financial institution
- The risks associated with the merchant, including:
- Type of products and services being sold
- Market that the merchant is in
- How the products and services are being sold and delivered
- Prices of these products and services
- Expected volume of transactions
- Forms of payment the merchant will accept
- Merchant's credit history
Regardless of these factors, a merchant should expect to pay the acquiring
financial institution:
- an application fee, setup fee or both
- a discount rate (i.e. percent of each transaction),
typically not more than 4% per-transaction and/or monthly fees
- fees for research, fraud and dispute resolution
Understanding Credit Card Processing Models
Not only are there many rules and regulations surrounding
credit cards payments, there are many procedures and processing methods to a
transaction. For example, there are two parts to a credit card transaction:
the authorization and the capture of the transaction. And within this, there
are many actions, including processing, billing, reporting, authorization,
and settlement.
For more detailed information on establishing an Internet
merchant account, and becoming familiar with the credit card payment process,
contact a financial institution for an overview of credit card processing
models.
Ask for a merchant handbook that explains how to accept
credit card payments, how to handle and resolve disputes, and how to process
voids, returns and partial credits. Also understand the rights of consumers and
the rights of merchants, and become familiar with address verification services
(AVS) and other fraud detection mechanisms.
New Account
If a merchant does not currently have a MOTO account which
is needed to accept payment over the Internet, the merchant must set up a new account
with an acquiring bank. There are a number of financial institutions that have
designed an account process specifically for Internet merchants by partnering
with Internet payment services. In fact, some financial institutions are
becoming more aggressive and allowing merchants to apply online for a merchant
account to accept the credit cards of their choice.
Existing Account
If a merchant already has a MOTO account, they should
contact their bank or one of its agents to let them know they would like to use
an online payment system to accept Internet transactions.
Regardless of whether a merchant
needs a new MOTO account or would like to keep an existing one, a merchant
should do the following to accept credit card payments over the Internet:
Ask the bank or one of its agents if they are authorized to underwrite credit
card services to merchants accepting MasterCard or VISA.
** If the merchant plans to
accept American Express or Discover, they may need to contact those companies
directly to set up a (separate) merchant account.
Inform the financial institution or agent to set up the merchant account to
accept credit cards over the Internet using the merchant's choice of Internet
payment services.
Ask the bank to explain the details of establishing a merchant account,
including the application and approval process, the fees and charges, and
requirements for opening a deposit account for doing business.
Plan for the bank setup process to take up to 14 business days to complete.
Once the financial institution certifies the merchant for
online commerce, the financial institution will typically perform the following
tasks:
- Issue the merchant a merchant ID (MID)
- Issue the merchant a Terminal ID (TID)
To process a merchant's transactions, an Internet
payment service typically requires specific information on the merchant's account,
including their MID and TID.
The credit card processor in
this case would communicate the MID and TID to the online payment service once
the merchant's account has been approved. The online payment service
will then send the merchant an e-mail with instructions on how to complete the
configuration of their storefront and begin testing.
As the financial institution is
processing the merchant's account and working on these
tasks, the merchant can work on integrating their storefront with the payment
component(s) and register with their Internet payment service.
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