Difference between Merchant Account and Payment Gateway

In the present day scenario a virtual presence is as necessary as a global one. A merchant account with a payment gateway is very essential to serve your customers to the fullest. Before setting up both, be clear about the differences, utilities and the cost.

Take guidance from a professional and be sure to know about the hidden costs or charges if any. It’s important for you to understand the difference in order to better grasp what high risk credit cardprocessing is. 

1. Payment Gateway

The credit card transactions are processed from here. When a customer punches in his number, the gateway verifies the details on the card, authorizes the transaction and transfers the money to the merchant account.

2. Merchant Account

It is a virtual account assigned to the merchant, which holds the money before it is transferred to the actual bank account. Transfer to the account takes 2 to 7 days.

3. Dedicated

This type of account is totally dedicated to one merchant. Hence, the merchant has the facility to negotiate custom rates for his sales.

4. Aggregate

Rates in this account are not customized and same for all the companies in the pool.

Why Some Businesses Have a Hard Time Getting Merchant Accounts Approved

Getting a merchant account is often a lengthy and complicated process, for banks or merchant processors take time to assume risks associated with your business before providing merchant processing facilities. So, if you know what makes it tough for businesses to get approval, you can do enough homework and be well prepared when it’s your turn!

Reasons why some businesses have hard time getting their merchant account application approved:

     Bad credit history proves to be the biggest hurdle in getting the approval in most cases. So, you should ask the person with a good credit history to co-sign your application if you have multiple eligible people who can sign. 

Both business and personal tax liens do affect the process of approval. You can resolve liens before applying for a merchant account.

        Having a business that falls into the category of bad credit

   

        A business type not able to match promised processing volumes  Presence on the MATCH list

What do You Understand by Third Party Merchant Accounts

If you want to open up a new business then you are required to design a payment model for your customers’ where they can make payment for the goods and services they purchase from you. It is here where you require a merchant account to accept the customers’ payments through a credit card.

Perquisites of Setting up a Third Party Merchant Accounts

To set up a merchant account the bank first needs to have a complete understanding of your business  and working with a third party processor in order to arrange for a mechanism for accepting payments.

Benefits of Third Party Merchant Account

1.    The third party processors are of great benefit for the high risk merchants as they charge much higher discount rates and transaction fees.

2.    As with majority of the merchant accounts you can expect the money paid by your customers to be deposited in your bank within one to two days.

Another great advantage of opening up a merchant account is the guaranteed level of customer service that is not only efficient but is also quite prompt.

Understanding High Risk Reserve Requirements

While normal merchant account applicants fulfill usual (flexible) conditions and pay set transaction fees, high-risk merchant account holders are charged higher setup fees and need to meet reserve requirements too! 

The reserve amount belongs to the high risk merchant and is held in bond by the acquiring bank in order to make up for any sudden chargebacks. Yes, chargebacks are very real in high risk markets. 

How Are Reserve Requirements Established?

The true total reserve amounts and how the reserve is set up will depend upon the level of risk associated with different businesses, and differ from bank to bank. 

Generally, reserves are a definite percentage of a business’s monthly charge volume, decided after withholding some percentage of every transaction. 

These reserve amounts are held on bond by acquiring banks to compensate abrupt chargebacks and belong to merchants. Despite the fact that most merchants regard these reserve requirements as unnecessary and negative formalities, they often prove to be highly helpful for high risk businesses that are prone to higher chargebacks.