What is a Merchant Account and Do You Really Need One

This is one of the scariest things about the Internet.  How can people give you money in a way that is safe and secure.  If you look for advice from anyone making big money online they will recommend services and products that I don't.  That's because those companies offer huge kickbacks for their inferior products.

It's really complicated to explain the process of selling something online.  You need a shopping cart which is the software that takes the order.  Then you need a merchant account that takes the credit card number and “calls” the credit card company to authorize the transaction.

Each company along this chain of events will take a little “taste” of our money.  For example a lot of the gurus out there will recommend Powerpay. But they don't do anything except take a taste.  They take that credit card information and pass it one to a company called Authorize.net.  That company takes a taste and if you ask them they will tell you that they are the final step in the process, but I recently found out that is a lie.  I actually have one of these accounts, or maybe I have two, and when I discovered that all my transactions were failing Authorize.net told me that it's ANOTHER company that also takes a little percentage of each transaction that was causing the problem.

I haven't used Authorize.net in years and the only reason I even tried was that Paypal made a mistake and froze my account for two weeks.  They asked me for business tax ID information and when I sent it they said, “Whoops, we meant personal tax ID information.” And then froze my account for two weeks.

If you process money online getting accounts frozen is par for the course.  Mine was only for a few weeks and that's only because my social security card is sitting in a safety deposit box back in America.  Otherwise, I wouldn't have had any problems.

But it gave me an opportunity to see what's out there.  Most “merchants” like powerpay make you fill out MASSIVE applications.  It's honestly a nightmare.  They run your credit multiple times and do a lot of things that can cross the gap between personal and business finances.  There is a risk that if your company gets into trouble their credit checks could “pierce the veil.” That means that a business problem could cost you your house.

No thanks!

Instead there are a crop of superior merchants who charge less per transaction and don't attack your credit score.  I'm a big fan of Square.  If you are doing face to face sales then you MUST have an account with these guys.  It takes about 15 minutes to setup.  When I was living stateside I had this little thing that plugged into the top of my Iphone and could scan credit cards.  Someone was giving them away at a conference.

If you run a brick and mortar business, someone is always showing up with overpriced credit card terminals.  That technology is twenty years old.  All you need is a smart phone or a tablet and you can take money using Square.  The best thing is the money goes from that credit card into your bank within forty-eight hours.

If you ignore my advice and go with a merchant that runs your credit, expect them to freeze 10-50% of your income for at least the first six months.  They don't trust you and will treat you accordingly.  When I was first starting online there weren't options like Square around, so I had to beg my way to an account with PowerPay.

It was a nightmare and recently I tried to run some transactions through my traditional merchant account.  They kept telling me that the cards were declined.  I had to get on the phone with the merchant, who blamed the gateway.  It turned into a game of hot potato as each of these companies blamed each other.

Long story short, the cards were fine.  Something was wrong with the merchant account and nobody would admit fault.  They finally all blamed another company that I'd never even heard of.  Each time you process with one of these companies they take a little bite out of your money and it's unbelievably annoying.  They weren't even honest about why the transactions were failing.

Right now I use Stripe for most of my online transactions.  For a shopping cart I use Zaxaa.  I have used tons of other providers but this is the easiest setup.  No games with credit checks and no bloated bureaucracy that you have to fund out of your own pockets.

1 thought on “What is a Merchant Account and Do You Really Need One”

  1. Thank you, Jonathan! I didn’t know the rabbit hole goes that deep, but that’s the way it goes when starting something new like this. My take-aways from this article are:

    1. Use Stripe to take payments online — they handle all the fraud detection, processing, etc. Pretty cool.
    2. Use Square to take payments in-person — you get a dongle that plugs into your phone’s headphone jack, swipe the card, put in the amount, have the person accept and sign, and voila! I like that.

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