Merchant Accounts Explained
Accept Credit Cards Online – How It All Works
There are several different ways of applying a credit card payment solution to an online store. There are, however, some basic concepts that apply whichever way a credit card payment solution is implemented. Please read on to learn about the key concepts of the card industry and general technical requirements for processing credit card payments online.
Merchant Accounts Explained / The Card Industry Explained – Key Facts
- Card Schemes These are the major international organisations like Visa, MasterCard, American Express to name but a few.
- Card Issuers These are the organisations who issue the actual cards for a particular Card Scheme. Examples of Card Issuers are Barclaycard, Tesco Personal Finance, MBNA etc.
- Card Holders The shoppers who use cards to pay for goods and services.
- Merchants The retailers, or service providers, who accept cards as payment for goods and services. In order to accept card payments of any type (for sales over counter, by fax, phone, post or online) a merchant needs an arrangement with an acquirer called a Merchant Account or Trading Account.
- Acquirers These are usually, but not always, banks or financial institutions. They issue Merchant Accounts to Merchants. They would also rent out credit card scanning terminals (used in shops), and provide card authorisation and settlement to the Merchant/Retailer. One example of a UK Acquirer is Streamline.
- Merchant Account This is the arrangement between an Acquirer and a Merchant that allows the Merchant to accept payment by credit card. A Merchant Account can be issued for 3 different types of sale:
- Cardholder Present – this simply means the shopper is there in person and hands over their credit card in payment for goods or services, and has to sign a credit card authorisation which is then compared to the signature on the back of the credit card used. In some countries the shopper also has to provide an authorisation code which further authenticates the transaction. This type of sale is considered to carry the lowest risk of fraud, and this is usually also reflected in the transaction fee charged to the Merchant by the Acquirer.
- Cardholder Not Present – used for sales where the credit card payment details are communicated via phone, post or fax, eg. for mail order sales. This is considered to be of medium risk of fraud.
- Internet or Online Sales – read about this in the next section, ‘In The Online World – Internet Merchant Account’.
In The Online World
- Internet Merchant Account This is the type of Merchant Account needed for sales where the credit card and cardholder details are collected online. This type of sale is considered to carry the highest risk of fraud, which is why transaction fees are also usually the highest. It should be noted, however, that setup and transaction fees can vary enormously depending on the Acquirer used, the type of Merchant Account, what the Merchant sells, and the number and size of sales transactions.If you are a large established company you can go to your bank for an Internet Merchant Account. Banks typically require 2 year’s trading history, audited accounts, etc. It can be a long and daunting process, sometimes taking months and even after this long wait many applications are turned down. Bad news if you are a small and/or new business. But don’t despair – WorldPay offers an alternative.Another thing to note about the different levels of Merchant Account is that once you have a Merchant Account at a particular level, you automatically qualify for the Merchant Account status which is considered to carry a lower risk. This means that once you have an Internet Merchant Account, you also have the authorisation to accept credit card payment for Cardholder Present, or Cardholder Not Present type of sales. WorldPay makes it possible for Merchants to accept credit card payments for over-counter, telephone, post, fax sales via their virtual terminal, WorldAccess.
- PSP – Payment Service Provider These are companies who provide Payment Gateways to Merchants who have Internet Merchnat Accounts. Some PSP’s also provide Secure Payment Pages.
- Payment Gateway A Payment Gateway is a piece of technology, a computer program if you like, which processes the authorisation and issues instructions for transfer of funds for online credit card sales. If you have ever bought anything online, you may have noticed a delay between pressing the ‘go pay’ button and receiving a message back saying the transaction was successful (or not!). That delay is the Payment Gateway chugging away in the background, processing the credit card payment.
- Payment Page A Payment Page is the actual page, or form, where a Shopper enters their credit card number and other details. This type of page should be held on a secure server so that all data is encrypted and remain private. In your browser, you can tell when you are using a secure server in a couple of different ways. You will notice that the “http” in the address line is replaced with “https” and you should see a small padlock in the status bar at the bottom of the browser window.The secure payment page can reside on your own server, or you can use a third-party Payment Page as provided by some PSP’s. The advantage of using a third-party Payment Page is that it removes the need for your own secure server and digital certificate. Setting up a secure server with SSL and a digital certificate requires a high level of technical expertise.
Summary of What You Need
To accept credit card payments online you need a minimum of the following, assuming you already have a bank account and a web site.
- Internet Merchant Account This is issued by an Acquirer and gives you the financial status and authority to accept credit card payments generated on the internet. Any other type of Merchant Account is not suitable.
- Payment Service Provider – PSP The PSP will provide the necessary technology, via a Payment Gateway, to process credit card payments online.
- Secure Payment Page The web-page, or form, where your shoppers enter their credit card details. This needs to be encrypted to ensure privacy.
WorldPay offers all of this + many other features.