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Merchant Account Blog

We Wrote The Book On Merchant Accounts

(Sort of).

A few weeks ago I came upon an opportunity to explain what merchant accounts were and how they worked. I figured WikiPedia would be a great place to direct them for more information. WikiPedia is an excellent resource, despite the bad press it gets sometimes, and usually provides a well thoughtout and insightful explanation about any given topic.

However, upon visiting WikiPedia to get the link to their entry I was appalled at what I saw. The definition for Merchant Account was, well, poor. Before I go further I should say whomever wrote the entry did try to make it a good entry so this is not a knock on them. Basically, this is the entry posted:

A merchant account is an account that is created so that a business or individual can accept credit cards, debit cards, gift cards and other forms of electronic payment. This is also widely known as payment processing. Online they use an internet payment gateway. A merchant account provider may be a separate company from the payment gateway.

To process transactions, a merchant is charged a fee called a discount rate. The discount rate is a percentage of the dollar amount of the transaction. The discount rate varies, but is based on the business type, the method the transaction is taken (Swiped, Keyed, Internet), and other qualifying factors. An additional fee called a transaction fee, normally a flat fee, is also applied for each transaction that the merchant processes. There are item rate fees (generally 10 cents)–a hidden fee that adds to transaction fee (generally 30 cents). There’s batch deposit fees, (generally 25 cents) that go every day that a merchant account using an internet gateway has activity–but even with these there also is the internet gateway fee (varies from $15-$25 a month). Refunding a credit card payment through a merchant account does not refund any fees or the discount (percentage) rate and charges an extra fee (about 65 cents) for the refund.

When someone files a chargeback it is a $25 fee for merchant accounts. In contrast, paypal charges $10. However with a merchant account you can actually dispute a chargeback whereas with paypal you can only provide a tracking number and if the quality of the merchandise is disputed, no matter what the seller always loses and the seller has no way to provide any statement to the claim. With a merchant account you can dispute shipping charges refund, require a 20% restocking fee, require merchandise to be returned in tact, whereas with paypal the buyer gets refunded including shipping, handling, and insurance charges if they return an empty box with tracking numbers.

When the merchant processes transactions, they are entered into the processing networks. These networks are a series of electronic systems that facilitate the transferring of funds into the merchant’s bank account.

This information is unfortunately incomplete and inaccurate. It shows the limited experience of the article’s author as they have a limited view of merchant accounts and how they work. In light of this I abandoned my forum post and began to reconstruct this entry. It took over an hour but I eventually came up with their current entry. You can see it here:

In my opinion it still lacks some content but overall the basics are there and solid. I do plan to go back and revise the content once I have more time. Maybe once I do I can also turn it into an article here for our visitors to read.

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