What is merchant account

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What is merchant account

Merchant accounts are similar to ordinary bank accounts, which allow a business to accept credit cards as payment for goods and services. Hence, merchant accounts act as a contract between the business owner and the bank confining to them rules on how products will be bought, sold and paid for are set, the violation of which is considered fraud.

Securing a merchant account

When your application for a merchant account is being considered, two entities participate in the process namely –

an ISO (Independent Service Organization)- The ISO evaluates the future success and risk of the merchant applicant and approves or denies an account
an underwriter –. If the merchant violates the terms of the merchant account agreement, the underwriter will shut down the account. Usually, the ISO may also serve as the underwriter

Different forms of merchant accounts

There are two different kinds of merchant accounts available, namely

The "Over-the-counter" (OTC)

Over-the-counter merchant accounts are used primarily for retail merchants.
Since the customers' credit cards are physically present at the point of transaction, these types of merchant accounts typically have lower discount rates and transaction fees

The "money-order/telephone-order" (MOTO). Money order/ telephone order merchant accounts are used primarily for Internet-based businesses. The transaction involves two steps

Once all of the credit card information is entered, the data is verified and then the money is subtracted from the cardholder's limit and placed in a 30-day holding account, without actually charging the card.
After the product is shipped the card is charged for the purchase price.

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