Getting a Merchant Account for Your Retail or E-commerce Startup
Almost all businesses accept debit and credit cards these days – even service businesses and B2B ventures. Having a way to accept a card is critical when you get ready to operationalize and start your new business. You’ll need a merchant account –an account provided by financial institutions that allows you to accept cards for payment.
In order to set up a merchant account, your business signs an agreement with your bank or another entity like Intuit or PayPal or Square which allow you to receive funds for services or products sold.
If your business is a brick-and-mortar shop, or has an in-person component, you may need a credit card terminal – one of those machines you see in so many businesses where the card’s magnetic strip is swiped and the information is sent by phone line or Internet to confirm the card is legitimate and has a balance to pay the bill. The online equivalent is a payment “gateway” that processes payments from your online store through to your merchant bank and back. The card terminal and payment gateway may or may not be from the same bank or company as your merchant account – it pays to ask your merchant account provider for recommendations. Authorize.Net has a very nice graphic example of how online store credit card processing works. The New York Times published a useful article on the topic earlier this year. And Wicked Start has some great examples and resources related to merchant accounts in Step 7 of our Roadmap for starting a new business.
Based on the kinds of cards people present (plain old Visa vs. “points back” or “bonus cash” cards) you may end up paying different percentages to your processor. Processor fees can vary and different contracts can lock you in for specific rates after introductory periods. It pays to shop around and get the best rate you can for your business.