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What is a merchant account? A merchant account is
an account held at a bank that will underwrite or
be ultimately financially responsible for charges
accepted by a merchant. Many merchants do not understand
that it can be difficult to obtain because not all
banks want to accept the risk of accepting credit
cards via the Internet. If a merchant were to accept
credit cards from customers and did not deliver the
product or service, the bank could be held liable
for refunds. If the merchant took the money and disappeared,
the Acquiring bank (Merchant account provider) would
be responsible to pay all the charges back.
When a customer comes to your website and chooses
to pay by credit card they enter their credit card
into a secure order form. This information is
encrypted and sent into the Credit Card Banking System
or Visa/ MasterCard processing network.
Once the connection is made a call is made into the
customers credit card issuer such as Citibank or Bank
of America. Once the bank has been contacted, it will
issue an approval code that is either approved declined.
This information is routed the same way in which it
came back to Processing solution. The approval code
is registered on the website and the Customer is informed
that their card has been charged. At the end of the
day the Merchant has to approve the transactions by
reviewing the Address Verification codes. This is
referred to as "Batching out" or sending
receipts into the bank for processing. This information
is sent to the Federal Reserve Bank, which will transfer
the funds from the credit card issuers to the Acquiring
Bank ( i.e. Humboldt Bank, Provident Bank, Woodforest Bank etc.). This
process takes about 48 hours. Once the Acquiring Bank has received the funds from the Federal
Reserve they transfer the funds, minus their fees, to the Merchants
Bank account. This process only happens on business
days.
Q: What is the discount rate?
A: The discount rate is the rate that is charged
per transaction for the privilege of accepting credit
cards from the various credit card companies. This
rate varies based upon the type of business accepting
credit cards. Some businesses have a higher risk of
their customers either committing fraud or excessive
charge backs.
Q: What is a transaction fee?
A: This fee is to offset many of the charges for
doing business between processor that are handling
transactions. In the Case of Cybercash, they charge
10 cents for providing a free software download and
customer support. In many cases this fee is to help
reduce the discount rate. Some banks charge higher
rates for non-traditional processing of credit card
orders. Instead of paying 4% per transaction you may
pay $2.55 + 30 cents per transaction. Depending on
volume the per transaction fee can actually save the
merchant money.
Q: How long does it take to have funds transferred
to my account?
A: Between 48-72 hours. Monday would be paid on Wednesday,
Tuesday on Thursday and Wednesday on Friday. Friday
and weekend receipts would be processed as soon as
they arrive at the bank. Friday s receipts are typically
paid on Tuesday. These times apply only if the account
is batched out by 4:00 pm pacific time.
Q: What is a batch out
A: A batch out is when all of the days receipts have
been reviewed by the merchant and have been submitted
to the bank for settlement. When an approval is given
the money from the credit card has been reserved,
only until the batch out are the funds actually transferred.
Q: What is a Rolling Reserve?
A: A rolling reserve account is an account that is
implemented by the processor to protect against chargebacks.
Some industries such as adult entertainment online
and travel agents have a history of receiving a large
number of chargebacks from customers. Instead of a
processor asking for a depositing account that could
equal 1 months total receipts this is used instead.
This account is held for six months and is repaid
at the start of the seventh month. The first month
receipts were collected is paid back to the merchant.
If there were any chargebacks or penalties arising
from the chargebacks they would come from the rolling
reserve account.
Q: What is a Processor?
A: A processor is a company that tracks all credit
card transactions and prepares statements for merchants
to track their progress. Many times, the processor
underwrites risk or the amount the merchant agreed
to process per month. If chargebacks occur the processor
takes the funds form the merchants account.
Q: What is an acquiring bank ?
A: An acquiring bank is an institution that may underwrite
risk for merchant accounts but also sends money to
the merchants business checking account. After settlement
the money was held by the credit card companies has
to be transferred from the Federal Reserve system
within the US.
Q: What is a Chargeback?
A: a chargeback is when a customer has called their
credit card company and has requested a full refund.
The credit card companies, in order to promote more
usage, have given consumers the ability to simply
chargeback any product or service where their card
was not present for up to six months.
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