How Creating an Online Business Works

E-commerce Tools: Merchant Accounts

If you want to sell products and collect payment electronically, you'll need:

  1. A merchant account to allow you to collect payment via credit or debit card
  2. Software to collect information, aka shopping cart programs
  3. Software to process transactions and send information to all of the involved parties (your bank, their bank)
  4. A secure server.SSL -- Secure Sockets Layer -- is a standard security technology that encrypts data and sends it to a secure server where it can't be intercepted by a third party.

A merchant account allows you to accept and process credit and debit card payments either manually, by swiping the card or keying in the card number, or through your website. Be aware there are many charges associated with accepting credit cards. Here are some of the more common ones [sources: Brooks, TransFirst]:

  1. A discount rate (typically your highest fee), which is a percentage charged on each transaction you process
  2. A transaction charge, generally 0.5 to 5 percent per processed transaction, plus 20 to 30 cents for each transaction made, whether approved or declined by the card-issuing bank
  3. A monthly minimum fee averaging $25; this fee is assessed if your site doesn't generate a certain dollar amount in processing fees each month
  4. A statement fee, or fixed monthly charge, aka a support or service fee
  5. A one-time application or set-up fee
  6. An automated clearing house (ACH)/batch fee, assessed daily when you settle that day's business transactions

While these fees can add up, you'll be turning away most of your business if you don't accept credit cards. Some electronic payment companies offer discounted rates, so check around to get the best deal.

If you have problems obtaining a merchant account, try going through an independent sales organization (ISO) for electronic funds processing. These firms usually provide many options for transactions, both electronically and in-person. FirstData is one vendor, but many others exist.