Sunday, November 29, 2015

Merchant Account Vocabulary (part 1 of 2)

In this new age of ecommerce, more and more people, even without a formal business background, want to go into an online business. Almost all of online businesses, even the large ones, need a merchant account. Here are some of the jargons that online business owner wannabes must understand first before finally taking their baby steps in setting up their business.

Credit Card

A credit card is a small plastic card which allows a consumer to purchase a product or service through a line credit issued by a bank or a merchant account. It is activated by a Personal Identification Number (PIN) that is accessible only by the owner of the card. The card itself has an electronic system that goes into a system of payment scheme involving the merchant and the issuing bank. The size and shape of the credit card must comply with the regulations set by the ISO 7810.

Merchant Account

A merchant account is an agreement between the merchant and an acquiring bank in which the merchant could accept payments through credit cards through an extended line of credit given by the bank. The merchant account maybe provided by either a bank that is directly processes transactions with Visa and MasterCard or by an Independent Selling Organization/Member Service Provider (ISO/MSP). The costs of setting up a merchant account depend on the type of the product, expected sales and the process of how transactions are made.

3-Tier Pricing

This is the most popular pricing scheme for most merchant account providers. Depending on the situation on how was it done, the transaction will be classified into three groups: non-qualified, mid-qualified and qualified. The less qualified the transaction is, the more it will be charged. A transaction that is done according to what is set and defined by the merchant is considered to be “more” qualified.

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