Today, there are approximately 12 million to 24 million online businesses. Sales from eCommerce make up about 10% to 11% of all retail sales in the United States.
For an online business to be successful, it must be able to collect online payments. This sounds simple in theory, but it is quite the opposite, especially for high-risk businesses.
You need a merchant account to accept online payments. That is because credit card payments do not automatically deposit in a small business bank account. There is a process that must occur before the funds can deposit.
Keep reading to discover what it takes to open a merchant account and why the choices you make along the way matter to keep your online business running smoothly.
Collecting Credit Card Payments in Person
First, collecting credit card payments in person has a unique process from transacting online payments. For in-person, you would need a point-of-sale system or a card reader. This way, customers can tap, swipe, or dip their cards.
A POS (point-of-sale) system combines card reader software with the hardware functionality of a cash register. The software allows you to not only ring up customers and take orders but track inventory, too. You can monitor financial trends.
Online Payments
For an eCommerce setup, or to take an order over the phone, you will need a payment gateway.
Your customers can securely enter their credit card details with a payment gateway. Stripe and Square are examples of payment gateways.
While popular payment gateways can include the services of a payment processor, that does not mean this is your only option. There are stand-alone payment processors, like Zen Payments.
Opening Merchant Accounts
You will need a place where you can receive payments.
When you accept credit card payments, you will need to pay a fee for them. Often, the payment processing fee is a fixed amount plus a percentage of the sale price.
Because an online business has a greater risk of fraudulent activities, fees for online payments are usually greater. However, it all depends on your plan, the type of card your customer uses, and many other factors.
How Do Credit Card Payments Work?
You need a payment processor to accept credit card payments. A credit card payment will not directly go from the customer’s bank account directly to your bank account. Rather, there is a chain reaction involving multiple financial institutions.
First, the online payment gateway, or card reader for in-person purchases, will capture the details of the credit card. Then, the payment processor has the job of transmitting data to the network of the associated card, like Visa or MasterCard.
Routing the Payment Request
While this occurs, the payment processor also requests details from the network of the card. This then routes the payment request to the issuer of the card, like Bank of America or Chase.
The issuer evaluates the payment request. They will approve or deny the payment. If you get approval, the transaction is complete.
Upon approval, the payment processor will give the issuing bank instructions to send the funds to your merchant account. After a couple of business days, the merchant can get access to the online payment funds, minus the payment processing fees.
While the process seems complex, waiting for approval should take a matter of seconds for completion.
Choosing a Merchant Account Provider
The merchant account is where funds go after a transaction is complete. Often, in one to two business days, the money can transfer to a business account.
If you use an excellent payment service provider, they will provide you with a merchant account, which will transfer money to your individual company’s bank account.
Payment service providers are easy to work with. For a small business, it is a cost-effective way to set up a merchant account and they can set it up quickly. Businesses should also consider whether working with an ISO for credit card processing is the right choice for their needs.
High-Risk Businesses
Certain industries have a reputation for higher rates of chargebacks or fraud. The federal government, or the state, regulates other industries, which leaves them few options for collecting online payments.
Unfortunately, high-risk businesses cannot work with many payment providers because their terms and conditions will not allow it.
Examples of high-risk businesses include:
In cases like these, high-risk businesses must open their merchant account. If you are a high-risk business, you want to work with a company that specializes in high-risk merchant accounts.
While choosing a company to open your merchant account with, you will want to evaluate their contracts, setup costs, and the customer service they have available. Further, choose a company with transparent prices.
Open Your Merchant Account with Zen Payments
If your small business is new or high-risk, Zen Payments can help. For the past 15 years, they are the go-to partner for opening a merchant account. With experience and knowledge, Zen Payments is simply the best with high-risk payment processing.
High-risk businesses have higher chances of experiencing chargebacks or fraudulent payments. When the payments get tough, you need a payment processor who is tougher.
Zen Payments supports your online business, giving you the business tools you need for success. From start to finish, their merchant service specialists help until your account has approval.
Josh Phelps is an experienced sales professional with eight years of expertise, including four years in payment processing. Throughout his career, Josh has successfully secured approvals for thousands of businesses, demonstrating his skill in navigating and optimizing the payment processing landscape.
