Internet Merchant Accounts: An Introduction

What, exactly, is an Internet merchant account? There are many different classes of merchant accounts, each specializing in its own type of business and that business’s credit card acceptance needs. If you have a physical retail store, then you require a merchant account that accepts point of sale (POS) transactions at the time of the transaction. If you run a mail order or telephone order business, then you need a MOTO (Mail Order/Telephone Order) merchant account. If you wish to accept credit cards over the Internet, however, you need an Internet merchant account.

An Internet merchant account for online businesses is much like a merchant account needed for mail order businesses. The main difference between a traditional retail merchant account and an Internet merchant account is that online and mail-based transactions are riskier for the bank involved. In web-based or mail purchases, the buyer and credit card are not physically present. This is known as a cardholder-not-present (CNP) transaction.

Merchants will have a larger cost for accepting credit cards via the Internet because an authorization for a CNP does not ensure payment, because there is no guarantee that the cardholder is initiating the transaction. In essence, the chance of fraud is increased, which increases the risk. In turn, Internet merchant accounts tend to be more expensive.

There are two options available for applying for your Internet merchant account: through a bank or through an independent sales organization (ISO), which acts as a third party between the merchant and acquiring bank, facilitating easier and more efficient use of your Internet merchant account.

If you have a store, but you wish to sell online, it may be more practical to apply at your current bank for an Internet merchant account because you already have an account with them. In this case, your current bank has access to your existing accounts, making the application process faster and your chances of acquiring an Internet merchant account is increased. If you acquire your Internet merchant account through a bank with which you normally do no business, verify that your Internet merchant account bank can transfer funds to your regular bank.

Banks are known to offer security, reliability and stability, but have the reputation of being more conservative and selective when issuing Internet merchant accounts. ISOs are typically more flexible with businesses, but they often charge more for the risk of involvement.