I am familiar with regular (actual bank) merchant accounts, however I am not exactly clear as to what these online merchant account websites are selling. Judging by the shear number of these companies and their subpar websites, I can assume they are not real banks.

When you purchase an online merchant account, what are they selling you? Are they baiscally leasing out part of their own merchant account with a real bank? Is this reliable? Somehow I feel this cant be as safe as forming your own personal realtionship with a real bank. What guarantees that the company will actually transfer the money into your regular checking account? And also, what security do you have when giving these companies your checking account information? What happens if their servers go down?

Isnt it better to just pay slightly higher rates and open a merchant account with your regular bank?

Which companies are you looking at, specifically? Some of them are 3rd-party processors that do not provide a true merchant account, and others are actually MSP/ISO and provide real merchant accounts through a bank.

Which companies are you looking at, specifically? Some of them are 3rd-party processors that do not provide a true merchant account, and others are actually MSP/ISO and provide real merchant accounts through a bank.


I am not looking at 3rd party processors like paypal, 2co ,etc.

So these MSP/ISOs, do they take each client and set him/her up with a personal bank account? If this is the case, why not just go to my bank and set one up myself? isnt it just more messy to have to go through a middle man?

They don't provide bank accounts, they provide merchant accounts (except they generally have better rates than your local bank.) They may also support gateways and services that your bank doesn't offer.

They don't provide bank accounts, they provide merchant accounts (except they generally have better rates than your local bank.) They may also support gateways and services that your bank doesn't offer.


so if its not a real bank account, what security do you have that money will actually be transfered to you?

Merchant accounts are not the same as bank accounts. It is a merchant account, just like any other. Merchant account providers are also members of real banks.

Merchant accounts are not the same as bank accounts. It is a merchant account, just like any other. Merchant account providers are also members of real banks.


isnt it better to avoid giving out your bank information to a online Merchant account provider? Dont they also have access to all the transactions posted to your account?

Seems safer to me to avoid the middle man and deal directly with a bank.

I think you are confusing a Merchant Account with a regular Bank account (such as a checking or savings account).

A Merchant account essentially allows a business to accept (charge) a consumer's credit card. However, you do not have the same capability with say a checking account.

For more information, you may wish to refer to: http://en.wikipedia.org/wiki/Merchant_account

Furthermore, a middleman or agent (ISO or MSP) usually has very good relationships with the bank and can help you with filling out the application forms and such. Because of his good relationship he will be able to negotiate a better rate for you as well. If you go directly to a bank, they will probably set you up against a higher rate.

What is the difference between a merchant account and a bank account you might ask. As far as I know, you can't make any bank transfers to other people with a merchant account. It is just an account where the money is being held on before it is transfered to your bank account and has the ability to accept credit card payments from other customers.

Most of the places online that have crummy web sites are ISOs. I think of them more or less as a Broker who collects your information, and submits it to the companies that will actually issue the merchant accounts. (V/MC, Disc, Amex).

I beleive the ISO gets perpetual commisions for V/MC, and one time commisions for Disc and Amex. It also seems that an ISO, which usually has a large collection of clients, can offer better rates to a small business compared to going direct. I.e. I had better rates from my ISO vs directly with Nova. I also found the ISO was able to bundle my Authorize.net gateway fees into my statement for much less than what I was quoted directly.

The only down side I found was when you need to make changes (for instance adding JCB to my gateway) there was a lot of finger pointing as to whom I actually needed to contact to get the BIN ranges loaded.

I found my ISO by recommendation of my bank (which doesn't do merchant accounts in house). The bank isn't likely to direct you to a scammer or a fly by night operation.

ISO and MSP are the same thing, they are just called different names by Visa and MasterCard.

Most of the places online that have crummy web sites are ISOs. I think of them more or less as a Broker who collects your information, and submits it to the companies that will actually issue the merchant accounts. (V/MC, Disc, Amex).

I beleive the ISO gets perpetual commisions for V/MC, and one time commisions for Disc and Amex. It also seems that an ISO, which usually has a large collection of clients, can offer better rates to a small business compared to going direct. I.e. I had better rates from my ISO vs directly with Nova. I also found the ISO was able to bundle my Authorize.net gateway fees into my statement for much less than what I was quoted directly.

The only down side I found was when you need to make changes (for instance adding JCB to my gateway) there was a lot of finger pointing as to whom I actually needed to contact to get the BIN ranges loaded.

I found my ISO by recommendation of my bank (which doesn't do merchant accounts in house). The bank isn't likely to direct you to a scammer or a fly by night operation.


So does the ISO have access to all the payments made to your merchant account? It sounds like they do since they earn a commission off each of your sales.

I guess I am a little confused to how a merchant accoutn actually works. Does it keep a running total of your received payments and then credit them to your checking account at the end of the day? Is there a way for you to actually view what payments were made and which ones sucessfully went through with the merchant account?

Right, all of your transactions would go through the merchant account provider. They generally provide some kind of control panel or management to keep track of your transactions.

Right, all of your transactions would go through the merchant account provider. They generally provide some kind of control panel or management to keep track of your transactions.

In my situation my ISO has nothing to do with transaction. They don't answer questions about them, they don't set anything up. All they do is negotiate the discount rates/transaction fees. I assume on the back end they get a report of my V/MC volume and collect a commision.

Everything related to a VC/MC transaction is delt with via the Aquiring bank. If I want to add something to my account and I want to know how much it costs they defer to the ISO.

This is all very confusing, and I can see why people pay more to get a single point of contact (Wells Fargo, BoA, etc.)

In my situation my ISO has nothing to do with transaction. They don't answer questions about them, they don't set anything up. All they do is negotiate the discount rates/transaction fees. I assume on the back end they get a report of my V/MC volume and collect a commision.

Everything related to a VC/MC transaction is delt with via the Aquiring bank. If I want to add something to my account and I want to know how much it costs they defer to the ISO.

This is all very confusing, and I can see why people pay more to get a single point of contact (Wells Fargo, BoA, etc.)



so majority of people are actually comfortable having some broker/agent have knowledge of all your sales, checking account numbers, and company/personal info? :confused:

so majority of people are actually comfortable having some broker/agent have knowledge of all your sales, checking account numbers, and company/personal info? :confused:

What are you going to do, live in a box?

You really have no choice in the matter... if you are taking payments online "someone" is going to have that information available to them.

You'll also find that most banks don't do their own merchant accounts. So unless you're using a large national bank, such as BoA, Wells Fargo, etc, you'll end up with an ISO anyway. There is really no advantage in going with a bank directly, as most others have said, they generally have high rates, fewer options, and stricter approval guidelines.

Brian

There is no privacy once you start a business. In most states you're already providing names, address, and phone numbers to the sec. of state office. I even had to publish a legal notice declaring my business and address.

You shouldn't just hand that information to anyone. But if you get the ISO from your bank I don't see where the problem is.

You could call up one of the few aquiring banks that will deal directly with small merchants. But all that's going to get you is higher rates, and more fees.

Brian,

Could you be more specific about stricter approval guidelines if person goes directly to the bank to open Merchant Account? As far as I am concerned the guidelines are the same for the merchant regardless of how he applies for it - via ISO/MSP or directly at the bank office.


There is really no advantage in going with a bank directly, as most others have said, they generally have high rates, fewer options, and stricter approval guidelines.
Brian

Different processors have different underwriting guidelines as to what they allow. Banks typically require a higher credit score than many ISOs. Banks may also not be as forgiving of prior bankruptcys.

Brian

Different processors have different underwriting guidelines as to what they allow. Banks typically require a higher credit score than many ISOs. Banks may also not be as forgiving of prior bankruptcys.

Brian


If a bank works with a ISO, why would they be more strict dealing directly with a customer? I would think that dealing directly they can at least obtain more information about the customer than they could if they dealt with them through the ISO.

It all has to do with risk, and it depends on the ISOs contract with the bank and back end processor. Most large ISOs hold the risk for their merchant accounts, and therefore make their own underwriting decisions according to how much risk they are comfortable with. The bank doesn't care as much because they don't have as much liability for fraudulent activity. This is why an ISO that is sponsored by a bank that also sells direct, like Wells Fargo for example, would be able to accept accounts that Wells Fargo wouldn't allow directly. The banks don't like as much risk.

If the ISO doesn't hold the risk, then they would typically be bound by the same guidelines as their sponsoring bank and back-end processor.

Brian

I found most of the smaller/mid sized banks typically washed their hands of the risk. They had a list of companies they referred people to, but had disclaimers indicating the ISO wasn't affiliated or sponcered. So all the bank was really doing was giving me a list of companies that weren't fly by night.

I'm more of less leary of accounts with banks like Wells Fargo and BoA. Their stated goal, as a public company, is to increase profits through fees. I don't like the idea of getting nickled and dimed to death.

Im still not clear exactly what goes on behind the scenes during the processing of the card and then depositing of the funds into my checking account. I understand how the cart and gateway work. But once everything is setup and working, what roles do these parties play:

ISO
Bank
Processor


Is the bank and processor the same thing? What does the ISO do after the account has already been setup?

The relationship between all of the parties involved in a credit card transaction is definitely confusing. I'll try and briefly describe each's role:

ISO - ISO's can be broken down into two main groups. Those that are just sales offices, and those that provide some amount of services in-house. ISO's that only do sales defer to their contracted processor or another ISO for the actual servicing of the account such as tech support, customer service, ongoing monitoring, risk management, etc. After initial account setup, they will only handle sales related tasks such as adding/removing services or terminals, pricing changes, etc. Smaller ISO's usually fall into this category.

ISO's that provide in-house services to some degree do their own tech support, customer service, transaction monitoring, risk management, etc. They negotiate with their chosen processor what services each will provide. In this case, your main point of contact will be with the ISO for almost all issues related to your account. They may still rely on the processor for after hours tech support or other back end services.

Processors - Every ISO contracts with a processing network that actually handles getting the transaction from the terminal or gateway to the bank. When a credit card terminal dials out, or an internet gateway receives a transaction, it's passing it to a processing network, not directly to the ISO. There are many ISO's but only a handful of processing networks. A few of the largest are Paymentech, First Data, Global, and Vital (now TSYS). There are more, but most likely your merchant account will use one of those. The processor will provide a system for the ISOs to use to monitor transactions, add/remove/change merchant accounts, etc. They also handle the sending of the transaction through the sponsoring bank for the settlement and movement of funds.

Banks - Any organization in the business of providing merchant accounts must be sponsored by a Visa and Mastercard association member, and only banks are allowed to be members. So, ISOs and processors must be affiliated with a member bank. The bank also handles the actual movement of funds between the different accounts.

The lines somtimes get blured because you'll find some entities take on multiple roles. Bank of America for example provides all three services. They're a bank, they do in-house merchant account sales, and they own their own processing network. Many of the major processors also have in-house sales departments that could be competing with their contracted ISOs.

Well that turned out kind of long, but I hope it makes the role of the different groups clearer to you.

Brian

The relationship between all of the parties involved in a credit card transaction is definitely confusing. I'll try and briefly describe each's role:

ISO - ISO's can be broken down into two main groups. Those that are just sales offices, and those that provide some amount of services in-house. ISO's that only do sales defer to their contracted processor or another ISO for the actual servicing of the account such as tech support, customer service, ongoing monitoring, risk management, etc. After initial account setup, they will only handle sales related tasks such as adding/removing services or terminals, pricing changes, etc. Smaller ISO's usually fall into this category.

ISO's that provide in-house services to some degree do their own tech support, customer service, transaction monitoring, risk management, etc. They negotiate with their chosen processor what services each will provide. In this case, your main point of contact will be with the ISO for almost all issues related to your account. They may still rely on the processor for after hours tech support or other back end services.

Processors - Every ISO contracts with a processing network that actually handles getting the transaction from the terminal or gateway to the bank. When a credit card terminal dials out, or an internet gateway receives a transaction, it's passing it to a processing network, not directly to the ISO. There are many ISO's but only a handful of processing networks. A few of the largest are Paymentech, First Data, Global, and Vital (now TSYS). There are more, but most likely your merchant account will use one of those. The processor will provide a system for the ISOs to use to monitor transactions, add/remove/change merchant accounts, etc. They also handle the sending of the transaction through the sponsoring bank for the settlement and movement of funds.

Banks - Any organization in the business of providing merchant accounts must be sponsored by a Visa and Mastercard association member, and only banks are allowed to be members. So, ISOs and processors must be affiliated with a member bank. The bank also handles the actual movement of funds between the different accounts.

The lines somtimes get blured because you'll find some entities take on multiple roles. Bank of America for example provides all three services. They're a bank, they do in-house merchant account sales, and they own their own processing network. Many of the major processors also have in-house sales departments that could be competing with their contracted ISOs.

Well that turned out kind of long, but I hope it makes the role of the different groups clearer to you.

Brian


Thank you, very helpful. Are there occaisionally problems with funds being deposited correctly into your bank account? Is it something that should be checked daily?

Are there occaisionally problems with funds being deposited correctly into your bank account?

In the beginning, there may (possibly) be some delays due to problems communicating between A and B, however this is very rare. For example:

When I set my account up with EOD, they hesitated to deposit funds. After 3 days (usually all it takes), I called them, and they said there was a minor security risk they were looking into, and it would be there within 48 hours. True to their word, it was. In the 3 years I've been doing business with them since, nothing has ever been delayed at all, providing they had the current routing and banking information (which they were always provided with).


Is it something that should be checked daily?

Bank accounts should always be checked daily, online if you can. Why? This keeps individuals from doing stupid stuff like charging your account fraudulently. With a business account, this is incredibly important, as the funds in here can fluctuate daily, and the debit card (if provided) is most likely used in various web areas.

Case in point:
7 days before I was about to head out on vacation, earlier this year, I logged in to my bank to make sure funds were available to do something. Thankfully, I did, because some clown had decided to charge $500 to my card. Of course, I didn't recognize the organization, and (still) have no clue where they got the information, but I stopped that immediately, and the funds were deposited back into my account. Of course, the bank had to rush a new card to me, due to vacations and whatnot, but it got handled. Had I NOT been diligent about checking that, well, I would have noticed it at a very inconvenient time (when I was on vacation).

The point is that you should always check your bank, weekly, at minimum, daily if at all possible for problems like this :)

isnt it better to avoid giving out your bank information to a online Merchant account provider? Dont they also have access to all the transactions posted to your account?

Seems safer to me to avoid the middle man and deal directly with a bank.

Signing up for a merchant account isn't some risky endeavor. As long as you know the company is legitimate and has proper information/credentials to prove it then you have nothing to worry about.

They can't access all of the transactions on your bank account, but just like 2Checkout and PayPal they can deposit money into your account, so they do have access in that sense. Nothing to be paranoid of though ;)