Merchant accounts are business bank accounts that make it possible for a business to accept a credit cards or debit cards as payment. While the accounts are offered through ordinary banks, they are not the same as the checking or savings account you have with your local bank. A merchant account is more like a contract between the bank providing the account and the business owner, with rules about how products or services are sold and paid for.
It's also common to believe that having the ability to accept credit card payments is too expensive for the average small business owner. With some banks, it may be too expensive as they may charge you an annual fee in addition to per transaction fees- but there are numerous providers that only charge you a small percentage of the sale amount when you process a credit card- an average of just 2-3% per transaction is paid to the merchant account provider. These merchant account providers are ideal for small business owners and online businesses that may only need to process a handful of cards each week.
There are two types of merchant account a business owner can apply for. One is called an "Over the Counter" (OTC) merchant account, and the other a "Money-Order/ Telephone-Order" (MOTO) merchant account. The over the counter account is what a typical retail merchant has, and the fees for transactions are lower than the MOTO merchant account fees because in a retail establishment, the credit cards are physically swiped through a machine to make the transaction, while the Money-Order/Telephone Order merchant accounts charge higher fees due to the need to take two steps to process a card rather than just one and a higher risk of fraud.
An Internet based business will typically require a Money Order/Telephone Order merchant account. The customer enters all of their credit card information into a form on a website, where the data is then sent out for verification and the money is subtracted out of the cardholder's limit. In some cases the card is not actually charged at this stage, however. The money is placed in a holding account, and when the product ships out the card is charged for the purchase price.
Many people are lead to believe that it is hard to get accepted for a merchant account, particularly for a newly established business. This is not the case however, with many merchant account providers offering as high as 98% acceptance rates of applicants.