David talks about the most important things for small businesses to keep in mind when setting up credit card processing. This includes staying away from long term contracts, avoiding cancellation fees, putting your best foot forward for approval, getting lower rates, having automatic rate reductions built into your agreement, and addressing technical concerns so everything works smoothly upon launch.
In the latest episode of our merchant education series we tackle the seemingly simple topic of costs. In addition to exploring the discount rate and interchange costs, we outline and provide some metrics for the actual rate you should be willing to pay for your business.
Why do some businesses get lower credit card processing costs than others? In this video David explores the criteria that cause some businesses to get lower rates than others and techniques that you can use to reduce your processing costs.
If you've ever been confused by the difference between a merchant account, a payment gateway and processor you are not alone. In this discussion we break down the role each of those elements play, and how they affect your overall processing costs.
There is a lot of confusion when it comes to pricing in the payments industry. The most important cost of all is the discount rate. Learn what the discount rate is and why it's the most important and significant cost when processing credit card transactions.
Making the wrong choice can be costly when choosing a payment processor. David explores 3 of the most common mistakes so you can avoid them when choosing your credit card processor.
The debit system in Canada is called Interac. It's totally different from Visa or MasterCard so it works in its own unique way when it comes to making purchases online.
If you've not accepted credit cards previously you may wonder how long it takes to get your money. In this video David explores the most popular funding schedules for e-commerce and brick-and-mortar merchants.
How to pick a good credit card processor for your business. David gives advice so you can ask the right questions, avoid mistakes, and figure out which payment processors have the potential to be a good solution for your business.
When you work with a payment processor it becomes a long-term partnership. It requires a deep integration if you're doing e-commerce payments, and will have a long-term cost impact on your business. Outages are problems along the way can cause a major issue. In this video David explains when and how to look for references when searching for a payment processor for your business.
An original credit transaction is where a merchant sends money (gives money) to a cardholder. It's a unique service, but merchants should be very careful when using it.
MCC stands for Merchant Classification Category. Every type of business that accepts Visa or Mastercard has a MCC code associated with their business. David explains why the MCC code used for your business can impact the approval rate for your transactions (the wrong MCC code can result in more declined transactions), as well as the costs that you pay when opening your merchant account.
Certain types of businesses are more difficult to administrate from a payment processing perspective than others. In this video David explains what Visa HBR and Mastercard BRAM fees are, how much they cost, and why they apply to some businesses but not others.
Most credit card processors will ask for a copy of the most recent balance sheet and profit and loss statement when you apply to get a merchant account. David explains why payment processors care about company financials, how it can impact your application, and what you can do if the financials for your company are not as good as you'd like.
What is a merchant account?
(Slightly edited from video transcript for greater readability)
Key Takeaways
1
Merchant Account Definition
A merchant account is a special type of bank account used to receive the funds when processing credit card payments.
2
Setting up a merchant account
Small businesses can set up a merchant account with a bank or a credit card processing company.
3
Benefits of a merchant account
Merchant accounts provide benefits such as increased revenue, improved cash flow, and customer convenience.
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Hello, David here at Merchant-Accounts.ca. Today, I'm going to address a simple question - one that I ought to be able to answer: What is a merchant account? Stay tuned, and I will provide the answer in just a second.
Merchant Account
Merchant-Accounts.ca has been operating as a merchant account provider for 20 years. However, there is often a lot of confusion surrounding what a merchant account actually is. This is largely due to the various components involved in e-commerce. Let's explore this a bit further.
To put it simply, when I use my personal credit card to pay for a $50 dinner, the money needs to be transferred from my credit account at my bank (i.e., the bank that issued my credit card) to the business that I am purchasing from. And that's where a merchant account comes in.
A merchant account is similar to a bank account in that it is designed to receive the money that is deducted from the customer's credit card. Essentially, when a customer makes a purchase using their credit card, the money is deducted from their account and deposited into the merchant's account.
To complete the explanation, the money that was deposited into the merchant account is then transferred to the business owner's bank account. This transfer serves as the middle step between the cardholder and the business owner's bank account.
Payment Aggregators
Obtaining a merchant account is not a complicated process. In fact, it's necessary unless you opt to use a service such as PayPal or another aggregator. Some service providers do not require an application process because you are not obtaining your own merchant account; instead, you are utilizing their existing merchant account.
Let's use PayPal as an example. When a customer's payment is processed through PayPal, the money is deposited into their merchant account. PayPal then sends the money to you from their merchant account. This approach has both advantages and disadvantages.
The most obvious advantage is that there is no need to issue a merchant ID or open a merchant account, making the process instantaneous. Additionally, the onboarding process is straightforward as there is typically no application process.
However, one of the downsides is that there is a higher likelihood of encountering issues with held funds after processing transactions. This is one of the most common complaints against aggregators. Merchants may process a few transactions with no issues, but once a large transaction occurs, the funds may be held, causing an interruption in the business cycle. This can be particularly challenging if the income is needed to fulfill an order, but the money is unavailable due to the hold.
Payment Aggregators vs Merchant Accounts
One of the downsides of using an aggregator has been discussed. At Merchant-Accounts.ca, we approach things differently. When a client applies for a merchant account, we ask a series of questions upfront that may be a bit of a hassle, such as "How much money do you anticipate processing each month?" and "What is the largest transaction you expect to conduct?" However, the benefit of this approach is that it reduces the likelihood of encountering issues later on.
Another benefit of having your own merchant account is that the rates are typically lower. When using an aggregator, flat rates around 3% or 2.9% are common, although we will not mention specific providers to avoid singling any out.
Conclusion
Having your own merchant account results in significantly lower costs. At Merchant-Accounts.ca, we provide both the merchant account and payment gateway services. Additionally, we can assist with setting up a compatible shopping cart. I could go into more detail, but I don't want to drag this video out. I hope this short explanation clarified what a merchant account is and removed any confusion surrounding it. Thank you for watching and have a great day!
David talks about the most important things for small businesses to keep in mind when setting up credit card processing. This includes staying away from long term contracts, avoiding cancellation fees, putting your best foot forward for approval, getting lower rates, having automatic rate reductions built into your agreement, and addressing technical concerns so everything works smoothly upon launch.
In the latest episode of our merchant education series we tackle the seemingly simple topic of costs. In addition to exploring the discount rate and interchange costs, we outline and provide some metrics for the actual rate you should be willing to pay for your business.
Why do some businesses get lower credit card processing costs than others? In this video David explores the criteria that cause some businesses to get lower rates than others and techniques that you can use to reduce your processing costs.
If you've ever been confused by the difference between a merchant account, a payment gateway and processor you are not alone. In this discussion we break down the role each of those elements play, and how they affect your overall processing costs.
There is a lot of confusion when it comes to pricing in the payments industry. The most important cost of all is the discount rate. Learn what the discount rate is and why it's the most important and significant cost when processing credit card transactions.
Making the wrong choice can be costly when choosing a payment processor. David explores 3 of the most common mistakes so you can avoid them when choosing your credit card processor.
The debit system in Canada is called Interac. It's totally different from Visa or MasterCard so it works in its own unique way when it comes to making purchases online.
If you've not accepted credit cards previously you may wonder how long it takes to get your money. In this video David explores the most popular funding schedules for e-commerce and brick-and-mortar merchants.
How to pick a good credit card processor for your business. David gives advice so you can ask the right questions, avoid mistakes, and figure out which payment processors have the potential to be a good solution for your business.
When you work with a payment processor it becomes a long-term partnership. It requires a deep integration if you're doing e-commerce payments, and will have a long-term cost impact on your business. Outages are problems along the way can cause a major issue. In this video David explains when and how to look for references when searching for a payment processor for your business.
An original credit transaction is where a merchant sends money (gives money) to a cardholder. It's a unique service, but merchants should be very careful when using it.
MCC stands for Merchant Classification Category. Every type of business that accepts Visa or Mastercard has a MCC code associated with their business. David explains why the MCC code used for your business can impact the approval rate for your transactions (the wrong MCC code can result in more declined transactions), as well as the costs that you pay when opening your merchant account.
Certain types of businesses are more difficult to administrate from a payment processing perspective than others. In this video David explains what Visa HBR and Mastercard BRAM fees are, how much they cost, and why they apply to some businesses but not others.
Most credit card processors will ask for a copy of the most recent balance sheet and profit and loss statement when you apply to get a merchant account. David explains why payment processors care about company financials, how it can impact your application, and what you can do if the financials for your company are not as good as you'd like.
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My name is David Goodale, CEO at Merchant Accounts.ca. I launched our business in 2001 and have over 20 years of expertise in the field of online payments. If you have a payments related question or project, and especially if it relates to multi-currency or international e-commerce don't hesitate to contact me. I'm always happy to help with an honest opinion, and enjoy chatting with folks from interesting businesses.
