Below is a simple Q & A about merchant accounts. If you have an online business, it's possible you require a merchant account to get it started. Information taken largely from Better Merchant Accounts.
Q: Do you need a merchant account for a small online business?
A: Generally, yes. A merchant account allows businesses to accept credit card, debit card, and gift card payments.
In an age of plastic, this is critical.
Having a merchant account with a payment processing company has a few benefits. First, merchants do not need special training or software to set up the account, as it will be provided by the processor. Second, the software will provide authentication procedures. Third, the money will be available in the merchant account once processing is complete.
Q: Is PayPal not enough?
A: PayPal is a valuable tool for merchants and allows for easy credit card processing with the correct account arrangements. However, there are drawbacks.
PayPal may also freeze the merchant's account pursuant to its Terms of Service. PayPal specifically bars individuals in certain industries from using its services, so violating the Terms of Service is possible if the merchant sells a wide array of goods. Excessive chargebacks and other suspicious activity can also trigger an account review. If the merchant's accounts are frozen and he or she cannot either accept credit card payments or withdraw money, that merchant will lose money.
Other payment processors may be less stringent. However, most credit card processors and merchant account providers require authentication and will have similar measures in place. In contrast, a merchant account alleviates those concerns. Once the payment has been processed, it is not placed into a processor's account, but rather the business owner's account. It is ready for use immediately.
Q: Is a merchant account easy to manage?
A: Yes. Merchant account providers provide software and authorization technologies to help protect the business owner. Once a transaction has been completed, the money is deposited into the merchant's account. The Merchant Services Provider will charge fees for these services, but management is easy.
Q: What are some things to watch out for when operating an online business?
A: Credit card charge backs can deprive smaller businesses of desperately-needed funds. Similarly, credit card fraud can deprive business owners of thousands of dollars worth of products every year.
Businesses that don't carefully monitor their inventory can receive fraudulent returns, as customers attempt to return older or broken equipment and claim that it was new. Computer data security is also important, as hackers and identity thieves often attack poorly secured sites.
Q: Do I need to report credit card payments to the IRS as a small business?
A: Yes. Credit card payments must be reported to the IRS on form 1099-K.
Accepting credit card payments is crucial. In 2011, customers used credit cards for 66 percent of point-of-sale transactions. Over 78 percent of consumers own a credit card. Online businesses must be prepared to accept customers' credit cards, lest the customer find someone who will.