Aside from Brick and mortar type of business that only accepts cash for business transactions, all business at a point need to provide different payment options for customers. On that note, a merchant account is a perquisite for every business that want to accept debit and credit card payment processing.
This acceptance of card payment can be in the storefront via Point Of Sale (POS) machines or by paying through online. As a result, having a merchant account offers a flexibility and ease of payments for their services irrespective of location.
That being said, if you are to run an online business or eCommerce business that will accept payments online, you must create a merchant account with a merchant processing bank. Not only that, it is also important as most customers goes cashless and may want to pay with POS.
What is a Merchant Account?
A merchant account in that essence, is a type of bank account that allows a business to accept payments with debit or credit cards. Therefore, a merchant bank processes all bank debit card and/or credit card transactions and make sure the business owner receives the money in his/her local bank account.
As a result, Merchant accounts acts as an intermediary between the issuing bank and the retailer. The Merchant banks or vendors charge a service fee to accept payments on behalf of the retailer.
Most time, most people confuse a merchant bank account with a traditional bank account. However, the merchant account is strictly for processing and accepting payments while your traditional bank account is for receiving, saving, sending of funds and payment of bills. In other words, your merchant account can only accept or hold your money for a short time before the money is transferred to your local bank account.
Therefore, any business that will accept card payments online or with a POS must have the 2 accounts.
Read more on How To Start A POS Business In Nigeria
How a Merchant account works
The payments for goods or services is deducted from cardholder’s account, through the merchant account and subsequently transferred to the retailer’s account. This is how it works;
Let us assume a customer saw a fine pairs of shoe in your shop and want to pay with a card.
- The customer enters his card payment details on your website or a card reader device.
- A card reader will gather and send the customer’s card details to the merchant’s Acquiring bank (Your Merchant account bank).
- The Acquiring bank routes this payment details to the relevant Card association such as Visa or Mastercard.
- Then, the card association will forward the details to the customer’s bank (Issuing bank) to know if the customer have a sufficient balance in his/her account.
- If yes, the issuing bank fires back a response to the acquiring bank via the card association. The card association transmits the information to the card reader, “Transaction Approved” or “Transaction declined”.
- Then, money will be transferred to the your merchant account.
- From your merchant account to your traditional Bank account within 24 to 48hrs.
How To Choose A Good Merchant Bank
There are myriad of merchant banks that can serve or mediate your business transactions. However, there are some criteria that you need to consider when choosing the right merchant bank for your business. Below are the few points to bear in mind when looking for a merchant bank for accepting online transactions.
- The size of your business: All merchant accounts are not created equal. Therefore, there are variations in terms of their technology, billing, and size of money management. Hence, the first thing to look out for is a Merchant Bank that can give you an optimum service at a little cost based on your business needs.
- Fees and billing: You will have to find out the billing method of the company. Some companies bill monthly while some collect charges per transaction. It is also important to find out if the company have secret billing system that may affect your business on the long run.
- Quality support: Sometimes, during card processing and payment, things may go south such as declined transactions. Your business at that point will need a Merchant Service provider that will swiftly intervene via a phone call, email or online chat. A delayed support from your merchant bank may have a negative influence on your customer relationship.
- Security level of the bank: The merchant bank has the responsibility to provide your business with all the necessary tools that will protect your customer’s details from fraudulent activities such as “Phising”. So, look out for those banks that have such security facilities.
- Reputation of the merchant bank: This is also a very important point when looking out for a good Merchant account for your business. There are tons of Merchant Banking services springing up everyday. The ability to spot a good one will be based on reviews from customers and a holding reputation. Therefore, make sure that you create account with a Merchant Bank that will not wake up one day and seize to exist.
Steps To Open A Merchant Account
This is a step by step guide on how you can open a merchant account that will serve your eCommerce business and also for your Point Of Sale transactions.
1. Register a business name
First, to open a business or merchant account, you will need proof of business registration. Not only that, registering a business will give it all the legal back-up to exist and be treated as an entity.
So, when applying to open a merchant account, the bank will ask for most of your business details including the registration certificate.
There are other important reasons to register your business.
Read more on Reasons To Register A Business Name And How To
2. Choose a merchant bank of choice
The choice of merchant bank is a very important process as we stated above. Also, note that a merchant account is a legal agreement of contract that last for a specified period of time. This means that you will be stuck with a particular merchant bank for the stipulated time whether good or bad.
Most times, the average contract agreement duration is 18 months. So, it is important that you consider every factor and do enough digging before signing any contract with a merchant bank.
That being said, you can lookout for reviews about a particular company, surf the internet, ask friends or go for a professional advice before choosing a merchant bank.
In addition, it is important to have a merchant account with your local business bank (if possible) because it helps reduce some fees, better support and the processing time of payment.
3. Choose card association(s) to work with
The major factor to consider when choosing a card association or card network company to work with depends on the countries that patronize your business. E.g., Visa card dominates 120 different countries and is popular in most African and European countries. Mastercard on the other hand is popular in America and some part of Africa such as Nigeria.
However, is important to spread your tentacles especially when you are running an online business. Therefore, before choosing the card association company, it is important to analyze the demographic of your website audience using tools like Google Analytics.
Also, your Bank may assist you with the options of Card associations they use.
4. Create an ecommerce website
If your aim is to sell online or to add eCommerce to your already existing offline business. Then, you must create an eCommerce website. You can hire a professional website programmer to design your website. Alternatively, you can create a website of your own and install eCommerce plugins such as Woocommerce.
Most importantly, you have to choose a domain name that suits what you do and is easy to remember. This on the long run will help influence your Methods Of Marketing Your Business Online.
Again, you will have to make sure your website complies with all the Visa and MasterCard requirements.
5. Submit an application
After your enquiries about the best Merchant bank to use, the Card associations, the rates, fees and so on. The final step is to walk up to the Merchant bank of choice and file an application for opening a merchant account.
The requirements to open a merchant account differs from bank to bank. But, most banks will require you provide your means of identity, detailed list of all the business activities you are going to conduct, a voided check for the checking account, and tax returns.
In that case, it is important you ask the bank to provide you with the details of documents to file.
However, make sure you read the “Terms of agreement” very well before appending your signature especially the part that regards fees.
Once the bank finds you worthy and credible, they will approve you to accept card payments at your business place with POS or website.