A Merchant Account is the means by which a Merchant Services Provider (MSP) identifies the Merchant. It is made up of a variety of different “numbers” (Merchant ID, Terminal ID, SIC, etc.) and enables the Merchant to accept credit card payments. The Merchant Account contains information that identifies the Merchant to Issuing Banks and provides information regarding their Merchant Bank and business checking account that will receive funds from credit card transactions.

Why do I need one?
Because you can not accept credit card transactions without one. Using another Merchant’s Merchant Account to accept credit cards is called “factoring”, or money laundering, which is a serious violation of Visa and MasterCard rules.

Application Fee
Most MSPs will request an application fee from a Merchant to setup a new Merchant Account. This is usually between $25 to $50, but could go higher. This fee is commonly waived if the Merchant requests it.

Policy Changes
Financial institutions commonly change policies on their accounts, which include Merchant Accounts. There are a lot of reasons for these changes, but most often a merger or acquisition preempts the change in policy. These mergers will often redirect the focus of the financial institution. If your Merchant type is no longer of value to that financial institution, your account may be terminated. Luckily these policies are usually planned ahead of time and affected Merchants are made aware of their need to find a new MSP.

Merchant Identification
When a Merchant’s transactions are settled and received at the Issuing Bank, certain identification regarding that purchase and the Merchant is passed along as well. Some of this information is used to provide information to the cardholder regarding the details of the transaction on the bill. If the cardholder is unable to easily identify the Merchant and transaction, then the cardholder may file a dispute, or chargeback, with the Issuing Bank.

The more complete and accurate Merchant information you provide in your Merchant Account setup, the less likely a cardholder will be to file a dispute against you regarding this information.

Types of Merchant Accounts
Part of the Merchant Account process is correctly identifying the specific type of business the Merchant will be conducting with the account. Make sure that your MID (Merchant Identification) is classified in the appropriate category for your business type. Not having the appropriate classification can mean serious downgrades on all of your transactions.

Check your Merchant descriptor and verify the contact phone number is correct and the description of the business for the MID is accurate. The better defined this information is, the less chance you will have of receiving disputes from customers that may have forgotten about their transaction with you.

Based on that information the Merchant will be given one of the following types of Merchant Accounts, each has its own specific requirements and own rate.

Retail
This is the most common form of Merchant Account. Retail Merchant Accounts are used for businesses providing goods and services in a face-to-face environment. If a Merchant will be primarily swiping the magnetic stripe on the card, and doesn’t fall in to any of the other “card present” categories, this is the type of account normally used.

Restaurant
Restaurant Merchants follow all of the same rules and requirements as Retail Merchants. There are a couple of additional fields that are required by the Card Associations in order for a transaction to qualify for the quoted Discount Rate. These fields are Tip and Clerk.

Lodging
Lodging Merchants have more information to pass than any other Merchant type. Things like check-in date, number of nights stayed, incremental authorizations, etc., cause the lodging Merchant to be one of the most difficult to qualify for the quoted Discount Rate. Lodging Merchants are those that offer rooms to their customers.

In the case of resorts and large full-service hotels, it is not uncommon for there to be multiple Merchant Accounts of multiple types. The front desk will have a lodging Merchant Account, while the restaurants will have restaurant Merchant Accounts and the gift shops will have retail Merchant Accounts.

Mail Order/Telephone Order (MOTO)
A MOTO account is used when the Merchant’s primary mode of sales is not done face-to-face with the cardholder; this increases the chance that the true owner of the card is not making the purchase. Because of this, there is a higher risk of fraudulent activities and MOTO accounts carry higher Discount Rates than the previously mentioned account types. Additional security checks must be handled as well, such as Address Verification (AVS) and Cardholder Verification (CVV2).

MOTO accounts are considered different than eCommerce accounts as there is a physical link between the purchaser and the Merchant, either by phone or mail.

eCommerce
Due to the nature of the Internet and prior instances of fraudulent activity with web-based Merchants, eCommerce Merchant accounts carry the highest quoted Discount Rates. If the Merchant’s primary mode of interaction with their customer is via the Internet then their Merchant Account should be configured as eCommerce. eCommerce Merchants have to follow the same rules and guidelines as MOTO Merchants and have to flag their transactions as being eCommerce generated transactions.

There are two different types of eCommerce accounts, physical and digital. A physical account would represent a web-Merchant that is shipping or providing some form of tangible product to the cardholder, while a digital Merchant is providing a service.

Auto Rental
Auto Rental Merchant Accounts are used solely by organizations that rent vehicles. There are a variety of different pieces of information specific to the auto rental agreement that have to be included in the transaction data. The majority of these transactions will be carried out face-to-face and a card swipe will occur.