If you're going to run any type of online business then the ability to accept payments via credit card, or through a merchant account, is critical. Why? Because people just don't use money anymore. We live in a plastic society, as evidenced by the mounting credit card debt in the United States alone. We are a people of the philosophy, "give it to me now, I'll pay for it later." It is doubtful that is going to change anytime soon.

So just how do you go about getting a merchant account and what are the things you should know and look out for when doing so?

For starters, there are 3 ways to get a merchant account.

1. Get one from the bank you already deal with.

2. Use a broker or intermediary to gain your own merchant account.

3. Use a third party service.

The easiest way of course is to get one through the bank you already deal with. The problem, however, is that most large banks are reluctant to give merchant accounts to new small businesses. Many banks require up to 12 months of audited accounts of your business. If you're just starting up, this of course, is not possible. Because of the greater risk of fraud, since the card does not have to be swiped and signed for, banks are very reluctant to give merchant accounts to new businesses. Banks are starting to come around slowly but given the economic climate of today it would probably be a better choice to get a merchant account through the second method mentioned above, and that is through a broker or intermediary.

These brokers or companies form what they call a defense between you and the bank. They will pitch your business for you and put you in the best possible light. In other words, they will try their absolute hardest to get that account for you. The best way to get approved through this method is to minimize the risk of your business as much as possible. If a broker can convince a bank that this is a good investment for them there is a much better chance of you getting the account. The best way to minimize this risk is to start off by selling low priced items, say around the $10 range. This is much less risky than trying to sell an item that goes for several thousand or even hundred dollars. Another way to show minimal risk is to show that you’re financially solvent, that you don't have a lot of debt, that your mortgage is paid, etc. This will make you very attractive to a bank. Also, including guarantees with your products is another way to make you look more attractive to a bank. With all of the above, if you do get accepted, you will also find that you get a much better rate.

The third way to get a merchant account is to use a third party service. In this case you don't actually get your own merchant ID but use the merchant account of another company. This is actually the easiest of the 3 methods as it usually takes only minutes and is many times free or can be gotten for a small fee, but there is a negative side to going this route.

Where with getting your own merchant account you are paid in 24 to 48 hours, with third party accounts it can take up to 28 days to get paid depending on what company you are dealing with. Clickbank for example pays every 15 days or twice a month.

Another negative, and this is a big one, is that the fees charged by third party companies are much higher than fees charged by banks. For example, Clickbank charges around 12.5% for each transaction on average. Most banks charge around 5%. This can really eat into your profits.

Also there is the problem that when dealing with a third party company you are sending visitors to THEIR web site and therefore are not as much in control of things as with your own bank. This makes you look less professional in the eyes of your customer.

Because of all of the above it is recommended that you use a third party company as a last resort.

Yes, getting a merchant account is great for doing business online. But as you can see getting one is not as easy as it looks. So spend considerable time on this part of setting up your business. It could mean the difference between making a profit and not.

Michael Russell
Your Independent guide to Merchant Accounts