Merchant account
In some cases a payment processor, payment service provider, independent sales organization (ISO), or member service provider (MSP) is also a party to the merchant agreement and can act as middle man between the merchant and the bank.
"High-Risk" is the term that is used by the acquiring banks to signify industries or merchants that are involved with the higher financial risk.
Since credit cards were developed in the 1960s, the earliest methods, submitting credit card slips to a merchant processing bank by mail, or by accessing an Automated Response Unit (ARU) by telephone, were initially used but have long been overshadowed by electronic devices.
Credit and debit card transactions are sent electronically to merchant processing banks or payment service provider for authorization, capture and deposit.
Both Visa and MasterCard apply higher interchange rates for commercial transactions that are accepted w/o level 3 detail.
Merchant accounts are marketed to merchants by two basic methods: either directly by the processor or sponsoring bank or by an authorized agent for the bank and additionally directly registered with both Visa and MasterCard as an ISO/MSP (independent selling organization/member service provider (MSP).
Marketing details are by card issuers like Visa and MasterCard and are enforced by various rules and fines.
To reduce risk, some banks limit approval to merchants in their geographical area, those with a physical retail storefront, or those that have been in business for two years or more.
This sponsorship requires that the bank verify the financial stability and suitability of the company that will be marketing on its behalf.
One way to verify if an ISO/MSP is in compliance is to check a website or any other marketing material for a disclosure "company is a registered ISO/MSP of bank, town, state.
[1][better source needed] A merchant account has a variety of fees, some periodic, others charged on a per-item or percentage basis.
The newer six-tier pricing, including additional tiers covering debit, business, or international cards is gaining in popularity.
A qualified rate is the percentage rate a merchant will be charged whenever they accept a regular consumer credit card and process it in a manner defined as "standard" by their merchant account provider using an approved credit card processing solution.
The qualified rate is created based on the way a merchant will be accepting a majority of their credit cards.
Settling a terminal, also known as "batching", is when a merchant sends their completed transactions for the day to their acquiring bank for payment.
It is important to close a batch every 24 hours or a higher rate will be assessed by Visa, Discover or MasterCard.
The annual fee can be charged by some providers to pay for the costs of maintaining the merchant's account.
Some providers also assess all statement fees and monthly minimums remaining when the contract is terminated.
This can leave the provider open to millions of dollars of potential losses if the merchant operates in an illegal or risky manner and generates many chargebacks.
The chargeback risk is the largest part taken into consideration during the contract application and underwriting process.
Currently, both Visa and MasterCard require all merchants to maintain no more than 1% of dollar volume processed to be chargebacks.
On October 1, 2011, new rules, resulting from the Durbin Amendment, went into effect that lower the debit card interchange fees the Visa and MasterCard networks charge merchants.
Prior to the implementation of the Durbin Amendment, the swipe fee for a debit card transaction averaged 44 cents.
