Merchant Account Explained
Before you decide to open a merchant account, however, there are a few more things you will need to know about the way this process works. Of course, at all times, you want to make informed decisions as a business owner. One of the first things to know is about the three major credit card companies—VISA, MasterCard, and Discover—and how they handle their customers. Mainly it is this: the big three do provide merchant accounts directly to companies. This is where Independent Sales Organizations (ISOs) and their agents come into play. They work with the big three to set up the merchant accounts, providing a contract, summary of fees, and even the processing machines and service of them. They make a commission on the service they provide, which is logical given their expertise on these matters. Business owners have their own things they need to deal with, and setting up credit card processing can be a hassle that many of them do not need. Let the professional handle the set up and any problems down the road you might encounter, and get back to doing business. Further, if you want to set up a Discover Card merchant account, they can be tacked on with the other three.
A variation on these processes is how American Express handles merchant accounts for companies. Instead of going through the merchant services agents as the other three do, American Express sets up the merchant accounts for their customers. Thus they basically act as their own ISO. Though it might seem like a bother to have separate merchant accounts, one for the other three and one for American Express, but they take some of the guesswork out of it for you by handling the account themselves. Because they are the more staid and older of the other credit card companies, American Express has a bit more of a history in handling these kinds of accounts. Plus, if you plan on moving up the ranks of companies in whatever industry you do business in, installing a merchant account and processing with them will give you the credibility you need. This will also build trust with your customers.
Once you have made the decision to enroll in credit card processing, you want to make sure that whoever it is that is signing you up has all the proper legal clearances. Since American Express, again, handles their own accounts, you need not worry about them in this matter. But with ISOs, they must be registered with the Federal Deposit Insurance Corporation. This is true whether you are dealing with an established ISO, or one that is only affiliated with one, or the so-called sub-ISOs. You have to be careful here because there are a lot of felonious posers out there seeking to get you signed up for contracts that will either not benefit you or could even be designed to rip you off. These kinds of scams are not that common, but you need to be made aware of their existence. The bottom line is that you need to do your homework before you sign on the dotted line.
One last thing you need to understand about merchant accounts is that your bank considers it to be a line of credit. The reason for this is that the business gets the money from the transaction before the money is actually is collected from the customer. Since this is credit card processing, this makes a bit of sense. The idea behind credit cards in the first place is that a private individual agrees to pay for a good at a future date. Because your bank looks at merchant accounts as credit, you will be forced to undergo a credit check, to put up surety, and provide financial data that will ensure your banker that you will be able to cover for any interruptions in your payments. For large companies, you can get by without the need for a personal credit check. The way they do this is by submitting additional financial data that will demonstrate beyond a shadow of a doubt the viability of your company.
Those providing merchant accounts will want a copy of your business license, incorporation papers, and other financial documents that will speed up the underwriting process. Though there will be an initial cap on the amount of dollars you can take in daily on credit card transactions, this can change in the future. If you prove that you are capable of bringing in money reliably, then you will be able to increase this daily amount.